ENTREPRENEURSHIP:
ECONOMICS POWERED BY IMAGINATION
Helping You Create A World In Which You Want To Work And Live
GARY A. STEWART
Smashword Edition Copyright © 2011 Gary A. Stewart
All rights reserved.
No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems without permission in writing from the author. The only exception is by a reviewer who may quote short excerpts in a review.
DEDICATION
To my Dad
for teaching me
the meaning
of work ethic
and the value
of perseverance.
CONTENTS
Chapter 3 Navigating A Stream of Successes and Failures
Chapter 4 The Entrepreneur? The Firm?
Chapter 5 Human Imagination Meets Aspirations
Chapter 6 Two Tales of A Company
ACKNOWLEDGMENTS
To Saras D. Sarasvathy for her thought-leadership and innovative ideas. You ignited my passion to work toward creating a different kind of world through teaching, service and entrepreneurship—and gave me the inspiration to help share your concepts. Your collaboration and support are invaluable.
WELCOME
Many people cringe at the idea of reading scholarly papers. It is definitely not for the faint-of-heart. Unusual words, lots of references, long sentences and abstract theories are the first obstacles that may come to mind. However, some of the most intriguing concepts regarding leadership, entrepreneurship, strategic thinking, innovation, creativity, education and philanthropy can be found in the works of prominent, and in many cases, world renowned scholars. In such a rapidly changing world, these concepts can be extremely useful in our personal and business lives.
Scholarly research and related papers contain “hidden gems” shared among academics, but not widely read by the lay public due to their style, length and format. Instead of letting these “hidden gems” remain unshared, I have chosen to bring them into the spotlight in easier-to-read formats.
This first book, in our series of adaptations, highlights entrepreneurship as an instrument of change, through the power of imagination, within our notion of economics. While some of you may immediately think that there is no room for imagination in economics, I urge you to read with an open mind. Dr. Sarasvathy beautifully describes a host of concepts which can profoundly impact the way in which we live and work.
I hope you enjoy this first book—and that you will gain some useful perspectives and actively make use of these ideas. The original manuscript has gone through significant revisions and updates to appeal to a broader audience, but it will still require a commitment of reflective time and energy on the part of the reader to truly gain new insights. Although the words on each page are presented in 2-dimensional space, this book provides a 3rd dimension to offer more scholarly readers the opportunity to dive-in more deeply.
Succeeding today and tomorrow requires us to always think and move forward. Challenge yourself.
Read on and enjoy!
Gary A. Stewart
May 2011
INTRODUCTION
Alfred Marshall, one of the most influential economists of his time, significantly helped shape current, mainstream economic thought. In 1890, on the first page of his “Principles of Economics”, Marshall gave the classic definition of economics:
“… a study of mankind in the ordinary business of life” (1).
Northrup Frye, considered one of the most influential literary critics and theorists of the 20th century, considered criticism as a field of study which trains the imagination and provides us the following notion:
“The fundamental job of the imagination in ordinary life… is to produce, out of the society we have to live in, a vision of the society we want to live in” (2).
As the field of economics has evolved and matured into a scientific discipline over the past century, the field has repeatedly been criticized for its unwavering presumptions to “hardness” as opposed to other social sciences. Its own rhetoricians have criticized its metaphors (3), philosophers have criticized its utilitarianism (4), psychologists have criticized its rationality (5, 6), sociologists have criticized its individualism (7, 8), and historians have criticized its static methods (9)
But at the heart of economics is a “softer” story. From Adam Smith’s invisible hand1 (10) to Vilfredo Pareto’s concept regarding the notion of optimality2 (11) and Amartya Sen’s basic capability equality3 (12), economists do indeed promote the softer aspects of economics.
Nevertheless, some thought-leaders still characterize human beings, economically, as rational decision-makers focused upon finding value and utility—with limited imagination—a notion we believe is fundamentally misleading.
In fact, it is our premise that human imagination, characterized and channeled in economic terms, is the foundation for a practical theory of entrepreneurship4.
As so it is our belief that the fundamental role of entrepreneurship in our ordinary, economic life—is to produce, out of the society in which we have to live, a vision of, and path to, the society in which we want to live.
With these thoughts in mind, let us proceed with a discussion of several basic principles in the fields of economics and entrepreneurship.
FOOTNOTES
(1) Adam Smith (5 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of political economics. In economics, the invisible hand, also known as the invisible hand of the market, is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by Smith in The Theory of Moral Sentiments. For Smith, the invisible hand was created by the combination with the forces of self-interest, competition, and supply and demand, which he noted as being capable of allocating resources in society.
(2) Vilfredo Federico Damaso Pareto (15 July 1848 – 19 August 1923), born Wilfried Fritz Pareto, was an Italian engineer, sociologist, economist, and philosopher. “Pareto optimality” is a concept in economics with applications in engineering and social sciences. Informally, Pareto-efficient situations are those in which it is impossible to make one person better off without necessarily making someone else worse off. Pareto efficiency is a minimal notion of efficiency and does not necessarily result in a socially desirable distribution of resources, as it makes no statement about equality or the overall well-being of a society.
(3) Amartya Kumar Sen (3 November 1933 – ) is currently the Thomas W. Lamont University Professor and Professor of Economics and Philosophy at Harvard University. Sen’s capabilities approach focuses on positive freedom, a person's actual ability to be or do something, rather than on negative freedom approaches, which are common in economics.
(4) It is important to note that the charge of limited imagination is levied against economics and not against economists. See Richard T. Ely lectures in the American Economic Review.
CHAPTER 1
THE BASICS
“Entrepreneurship allows human beings the opportunity
to shape and create a changing world.”
If the task of entrepreneurship is to move us from the world in which we have to live to the world in which we want to live, this immediately prompts the question of how we are to determine what kind of world we want.
While ethicists work to establish what we ought to want (4, 13), economists largely assume we already know what we want. More precisely, economists suggest we behave as though we know what we want, namely:
• utility maximization by the individual (i.e. how should I spend my money in order to maximize my value and utility?)
• profit maximization by the firm (the process by which a firm determines the price and output level that returns the greatest profit), and
• welfare maximization (referring to the overall welfare of society) within the economy (14).
From these perspectives, imagination is trivialized and even eliminated from theories of economics—and our story seems to end happily with efficient markets continually correcting imbalances to create a world in equilibrium (the “equilibrium framework” (5). In essence, our wants are prescribed as solely driven economically—given to us in an inflexible, predetermined package.
Softening this view of predetermined wants, in a major historical synthesis of several bodies of economic literature, three fundamental purposes of the modern corporation were identified (12):
• initially, a monopolistic focus upon market control,
• later balanced by an effort to increase operational efficiency,
• and finally, a focus upon continual innovation.
From this discussion, since corporations are human organizations, we can now begin to consider innovation as a human want. This consideration now allows us to move past the inflexible idea of given, predetermined, purely economical wants as defined above.