Unraveling the Shift to the Entrepreneurial Economy

Abstract

A major shift in the organization of developed economies has been taking place: away from what has been characterized as the managed economy towards the entrepreneurial economy, or what Kirchhoff (1994) has called dynamic capitalism. In particular, the empirical evidence provides consistent support that (1) the role of entrepreneurship has significantly increased, and (2) a positive relationship exists between entrepreneurial activity and economic performance. However, the factors underlying this observed shift have not been identified in a systematic manner. The purpose of this paper is to suggest some of the factors leading to this shift and implications for public policy. In particular, we find that technological change is a fundamental catalyst underlying the shift from the managed to the entrepreneurial economy. However, it was not just technological change but rather involved a multitude of factors, ranging from the demise of the communist system, increased globalization, new competition for multinational firms and higher levels of prosperity. Recognition of the causes of the shift from the managed to the entrepreneurial economy implies a shift in public policy directions. Rather than to focus of directly and exclusively on promoting new firms and small firms, it may be that the current approach to entrepreneurship policy is misguided. The priority should not be on entrepreneurship policy but rather a more pervasive and encompassing approach, policy consistent with an entrepreneurial economy.