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ECONOMIC DECLINE AND THE FAILURE OF CHINESE ENTREPRENEURS

By Greg Clydesdale

Abstract

pointed out that entrepreneurs are prime movers of economic change. The entrepreneurs described by Schumpeter were innovators. They opened new markets, created new types of industrial organization, and introduced new goods, production methods, and new sources of materials. This innovative entrepreneur stands out like an economic hero whose creativity invigorates the economy with new ideas that lead to economic growth. But less imaginative entrepreneurs can also play an important role. They can copy the business ideas of others and, in so doing, play an important role in spreading new business techniques and raising productivity throughout an economy (Baumol 1988). The economic importance of the entrepreneur was again stressed by Birch (1979) who found that new and growing smaller firms account for 81.5 percent of new jobs. Given this role, it raises concern when entrepreneurs fail to seize opportunities and the economy stagnates. It leads to two questions. The first is “why might entrepreneurs fail to seize opportunities” and second “what is the relationship between entrepreneurial failure and economic decline?” Orthodox economics says little about entrepreneurial failure. In the orthodox neoclassical world, entrepreneurs were agents who exploited environmental changes in a rational way. For example, if a change in the price of one industry reduced its profitability, the entrepreneur would reduce investment in that industry, and the economy would see a shift of resources to other more profitable industries. Entrepreneurs built businesses on the basis of profit that was calculated on the basis of price of the goods they sold and the price of the inputs used. As entrepreneurs responded to price signals, the resources in an economy were efficiently transferred from sunset industries to sunrise industries

Year: 2010
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