AssociationEntrepreneurship and Economic DevelopmentThe Problem RevisitedAuthor Nathaniel HLeffSource

American Economic Association
Entrepreneurship and Economic Development: The Problem Revisited

Author(s): Nathaniel H. Leff
Source: Journal of Economic Literature, Vol. 17, No. 1 (Mar., 1979), pp. 46-64
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2723640 .
Accessed: 19/08/2013 03:59
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
.
American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to Journal
of Economic Literature.
http://www.jstor.org
This content downloaded from 14.139.240.6 on Mon, 19 Aug 2013 03:59:56 AM
All use subject to JSTOR Terms and Conditions
Journal
of
Economic Literature
Vol. XVII (March 1979), pp. 46-64
Entrepreneurship
and Economic Development:
T he Problem Revisited
By NAT HANIEL H. LEFF
Grad uate School of Business
Columbia University
Iam grateful to Alice Amsd en, Martin Bronfenbrenner, Christopher
Clague, David Felix, Joseph Reid , Kazuo Sato, and refereesof this
Journal for insightful commentson an earlier d raft of thispaper.
I also thank the Faculty Research Program of the Columbia Business
Schoolfor financial
support, and john Millarfor able research assis-
tance. I bear sole responsibility for any
d eficiencies
in the paper.
I. Introd uction
EARLY
DISCUSSIONS of economic d evel-
opment in the postwar period at-
tributed consid erable importance to the
problem of entrepreneurship in the un-
d erd eveloped countries. Entrepreneur-
ship wasclearly essential if the invest-
ment, innovation, and structural changes
required for economic d evelopment were
to be achieved . But both on the supply
and on the d emand sid es, entrepreneur-
ship seemed to constitute a seriousprob-
lem for the und erd eveloped countries.
Because of the d eficienciesof organized
factor and prod uct markets in "ob-
structed , incomplete and 'relatively d ark'
economic systems" [46, Harvey Leiben-
stein, 1968, p. 77], the entrepreneurship
requirementsper unit of incremental out-
put would appear to be higher in und erd e-
veloped than in more-d eveloped econo-
mies. At the same time, research on
the socio-cultural cond itions associated
with the emergence of entrepreneurship
suggested pessimism concerning the
prospects for less-d eveloped countries'
(LDC's) generating sufficient entrepre-
neurship to achieve high ratesof eco-
nomic d evelopment. T he ensuing concern
with entrepreneurship asa problem for
economic d evelopment was d emon-
strated by the large volume of professional
literature, both from economistsand from
other social scientists, which was ad -
d ressed to the subject.'
Aswe shall see, however, the actual ex-
perience of most LDC'sin the postwar
period hasbelied expectationsthat lack
of entrepreneurship would prove a con-
I
An excellent selected bibliography of thisvolumi-
nousliterature on problemsof entrepreneurship and
economic d evelopment ispresented in Flavia De-
rossi [15, 1971, pp. 409-23]. For a good sample of
the treatmentsby the d ifferent social sciencesin this
area, see Peter Kilby [37, 1971].
46
Leff: Entrepreneurship in Economic Development 47
straint on economic d evelopment. And
since approximately the early 1970's, the
topic of entrepreneurship hasvirtually
d isappeared from the literature, suggest-
ing that in some sense the problem has
been "solved ." It israre for a problem that
had evoked consid erable analytical inter-
est and policy concern to reced e from pro-
fessional attention. Consequently, thispa-
per examineswhat hashappened in this
field . We will first consid er the nature of
the problem and then d iscussthe evi-
d ence that it hasbeen "solved "; how this
hasbeen achieved ; and finally, the ways
in which the problem hasbeen trans-
formed , to reappear in new formswith
important implicationsfor the d evelop-
ment process.
We will consid er both private and state
entrepreneurship in the LDC's. T he d is-
cussion isconfined , however, to the uncer-
tainty- and risk-bearing featuresof entre-
preneurship, which affect the capacity for
investment and innovation. Space limita-
tionspreclud e a treatment of managerial
efficiency and performance, issuesthat
have sometimesalso been includ ed und er
the general head ing of entrepreneurship
(see, e.g., T homasCochran [11, 1968, pp.
89-90]).
II. Clarifying the Concept and the
Problem
AsWilliam Baumol hasnoted [5, 1968,
p. 64], the subject of entrepreneurship is
conceptually elusive, and the term hasnot
alwayshad clear theoretical content. In-
d eed , in recent yearsthe term entrepre-
neur hassometimesbeen used asa syn-
onym for the firm, or for management in
general, with little regard for special "en-
trepreneurial" qualities. Because of this
analytical vagueness, it isuseful to begin
with a brief clarification of the concept
of entrepreneurship and particularly of
the special featuresthat it islikely to in-
volve in LDC's.
Entrepreneurship clearly refersto the
capacity for innovation, investment, and
activist expansion in new markets, prod -
ucts, and techniques. Assuch, entrepre-
neurship may reflect superior information
and , perhapsmore importantly, imagina-
tion, which subjectively red ucesthe risks
and uncertaintiesof new opportunities,
which are ignored or rejected by other
investors (see Joseph Schumpeter [72,
1934] and Israel M. Kirzner [39, 1973]).
Alternatively, the entrepreneur hasspe-
cial aptitud esfor bearing risk and uncer-
tainty, which permit him to act asthe pro-
moter and catalytic agent who seizesnew
investment and prod uction opportunities
[40, Frank H. Knight, 1921]. T hese traits,
in effect, shift the opportunity set, and in-
crease the probability that a new project
will in fact be implemented [30, John Har-
ris, 1973]. Viewed in these terms, entre-
preneurship isso important for economic
d evelopment that it hassometimesbeen
conceptualized as a "fourth factor of
prod uction."
In an und erd eveloped country, entre-
preneurship may take on d imensionsthat
are absent or lessimportant in more-d e-
veloped economies. T hus, Harvey Leiben-
stein hasemphasized that entrepreneur-
ship in LDC'sinvolves the creation of
channelsfor input supply and /or for sale
of outputs, in cond itionswhere routinized
market mechanismssuch asexist in the
more-d eveloped economiesare not avail-
able [46,1968]. Consequently, without en-
trepreneurship, some input or output
quantities, qualities, and costswould be
so becloud ed by risk and uncertainty that
investment in these activitieswould not
take place.
Leibenstein's d efinition of entrepre-
neurship in termsof itsrole in overcoming
factor- and prod uct-market failures is
clearly very suggestive for the LDC's.2 T o
2
Following thisconceptual approach, one cannot
invoke "capital market imperfections" to explain
d eficiencies of entrepreneurship in d eveloping
countries; for part of the role of an entrepreneur
48 Journal of Economic Literature, Vol. XVII (March 1979)
appreciate the special significance of this
aspect of entrepreneurship for these econ-
omies, consid er the contrast with some
conceptualizations of entrepreneurship
that have been formulated in the context
of the more-d eveloped economies. For ex-
ample, in her d iscussion of the social pro-
d uctivity of entrepreneurship, Joan Rob-
inson [68, 1934, p. 409] suggested that:
T he marginal prod uctivity to the ind ustry of
entrepreneurship is the d ifference which
would be mad e to output if one entrepreneur
were withd rawn. . . . T he number of firmsin
the ind ustry being n, it isnecessary to assume
that n isso large that the d ifference between
the marginal physical prod uctivitiesof the
constant [my italics] amount of other factors
when they are working with n entrepreneurs
and when they are working with n - 1 [entre-
preneurs] may be neglected .
T he contrast with the situation in the
less-d eveloped countriesisstriking. In the
mod ern sector of the less-d eveloped econ-
omies, oligopoly often prevails, so that the
number of firmsisnot so large that the
presence or absence of a single firm makes
no d ifference to marginal prod uctivities.
Further, in the less-d eveloped economies,
Mrs. Robinson's assumption that the
amount of factorsis"constant" d oesnot
hold . Ind eed , a key function of entrepre-
neurship in d eveloping economiesispre-
cisely to mobilize factorssuch ascapital
and specialized labor which, being imper-
fectly marketed , might otherwise not be
supplied or allocated to the activities
where their prod uctivity isgreatest.
Not only d oesthe greater prevalence
of incomplete and imperfect marketsin
the LDC'slead to a greater significance
for entrepreneurship's factor-mobiliza-
tion role in the LDC's, but another major
d ifference liesin the importance of risk
and uncertainty bearing. Entrepreneurial
need sin the d eveloping countriescontrast
sharply with the conceptualization that Jo-
seph Schumpeter [72, 1934] and Nicholas
Kald or [36, 1934] proposed in the context
of the more-d eveloped economies. T hus,
Kald or consid ered the "entrepreneurial
function" as[36, 1934, pp. 67-68]:
(1) risk-or rather, uncertainty-bearing; or
(2) management.. . . T he first of these fune-
tions-uncertainty-bearing-can be d ismissed
offhand , from our point of view.. . . T he mere
fact that with the rise of joint-stock companies
it waspossible to spread the bearing of uncer-
tainty over a great number of ind ivid ualsand
to raise capital for an ind ivid ual firm from far
beyond the limitsof an ind ivid ual'sown posses-
sion, exclud esthat possibility.
Kald or's"offhand d ismissal" of the im-
portance of uncertainty-bearing may be
appropriate for the context that he explic-
itly consid ered , a situation of well-d evel-
oped capital markets. Similarly, Schum-
peter also d istinguished emphatically
between entrepreneurship and risk-bear-
ing [72, 1934, pp. 75, 89]. He, too, how-
ever, d ealt with an environment with
"share-hold ers," and one in which "the
only man the entrepreneur hasto con-
vince . . . isthe banker who isto finance
him." But what if, asin the case of the
LDC's, well-d eveloped capital marketsd o
not exist, so that the entrepreneur must
be hisown banker?
Finally, not only are the marketsfor
bearing risk and uncertainty even less
complete in less-d eveloped than in more-
d eveloped economies, but the absolute
amount of uncertainty may be greater be-
cause of poorer information and rapid
structural change. T hese consid erations
suggest that entrepreneurship in the
LDC'sislikely to involve more than the
psychological capacity for perceiving new
economic opportunities and entering
them with an aggressive investment pol-
icy. T he special cond itionsaffecting risk
and uncertainty, and the need to open
new channelsfor factor mobilization and
isprecisely to overcome such factor-market imper-
fections. Lance Davishasobserved that thiscapacity
wasin fact central to the achievementsof some ma-
jor entrepreneursin the nineteenth-century United
States[13, 1972, p. 137].
prod uct supply are likely to impose ad d i-
tional requirements.
T he early postwar concern with lack of
entrepreneurship asa special problem for
the und erd eveloped countriesstemmed
from such perceptions, which led to the
conclusion that the d emand for entrepre-
neurship in economic d evelopment would
be particularly high. T he concern was
intensified because, on the supply sid e,
the und er-d eveloped countriesoften ap-
peared to be relatively lethargic, "tra-
d ition-bound " societies, whose cultures
seemed inimical to innovation and vigor-
ouseconomic expansion. T hisapproach
d erived further plausibility from another
observation. Per capita income levelsin
the LDC'swere manifestly low; hence
these economiesmust have been experi-
encing stagnation, or, at best, low rates
of economic d evelopment in the past.
Scarcity of entrepreneurship wasamong
the barriersto d evelopment proposed as
explanations. Entrepreneurship could in-
d eed be seen asthe most crucial scarce
input, for it could be cast asthe "prime
mover" necessary to initiate the d evelop-
ment processby mobilizing supply of
other "prerequisites. "
T hisview of the d evelopment problem
wasepitomized in Albert Hirschman'sfo-
cuson the capacity to take d evelopment
d ecisions-a concept encompassing politi-
cal aswell aseconomic entrepreneur-
ship-as the "one basic scarcity," and the
starting point for d evelopment strategy
[31, 1958, pp. 24-28, 73]. Writingsby
economists, historians, sociologists, and
psychologistsgave ad d itional force and
content to thisapproach by emphasizing
the importance of entrepreneurship for
economic d evelopment and analyzing the
cond itionsgoverning itssupply. One can
read ily accept the view that entre-
preneurship isessential for economic d e-
velopment. Such an emphasisneed not
imply, however, that lack of entrepre-
neurship hasconstrained the pace of ex-
pansion in most LDC'sd uring the postwar
period .
III. Ind icationsT hat the Problem Has
Been "Solved "
Asisnow well known, the experience
of the postwar period hasnot confirmed
thisview of the und erd eveloped countries
ascond emned to economic stagnation be-
cause of lack of entrepreneurship or of
other precond itions for d evelopment.
Most LDC'shave d emonstrated sustained
high ratesof real output growth (see T A-
BLE 1). Moreover, the ratesof output
growth have been highest in manufactur-
ing, the sector where entrepreneurship
constraintshad been expected to be most
severe.3 And in accord ance with familiar
patternsof income-elasticitiesand interin-
d ustry relations[42, Simon Kuznets, 1971;
10, HollisChenery and MoisesSyrquin,
1975], economic growth in the LDC'shas
involved successive entry into new activi-
tiesrather than simply a scalar expansion
of the economy.4
3T he ratesof output growth in d eveloping coun-
triesare lowered if one makesallowance for the ef-
fectsof d omestic tariff protection to compute the
growth ratesof value-ad d ed at world market prices.
For the period 1950-52 to 1964-66, Ian M. D. Little,
T ibor Scitovsky, and Maurice Scott have presented
estimatesof the ratesof growth of GDP and of manu-
facturing output evaluated at world market prices
in Argentina, Brazil, Mexico, Pakistan, the Philip-
pines, and T aiwan [49, 1970, p. 75]. T he unweighted
averagesfor these countriesind icate a correction
factor of 94 percent for the ratesof growth of GDP
computed in constant local-currency prices; and for
manufacturing output, 66 percent. Applied to the
figuresof T ABLE 1, these correction coefficientsstill
ind icate d evelopment performance far greater than
might have been expected on the basisof the early
writingson the problem of entrepreneurship in un-
d erd eveloped countries.
4
Growth ratessuch asthose of T ABLE 1 have some-
timesbeen d ismissed asirrelevant because "the fig-
uresprosper while the bottom 40 percent of the
population suffers." T he impressive ratesof d evelop-
ment record ed , however, d o ind icate that lack of
entrepreneurship hasnot operated asan effective
constraint on the LDC'sd uring the postwar period .
T he extent to which entrepreneurship hasbeen at
fault in contributing to the cond itionsof the lower-
income population isanother question, to which we
return below.
T ABLE 1
AVERAGE ANNUAL RAT ES OF GDP AND MANUFACT URING OUT PUT GROWT H IN DEVELOPING AREAS
DURING T HE POST WAR PERIOD
(Percent)
AREA PERIOD GDP MANUFACT URING
Africa a 1950-59 4.8 6.9
1960-73 5.3 7.4
Latin America and Caribbean 1950-59 5.0 6.6
1960-73 6.0 7.3
Mid d le East 1950-59 9.0 13.5
1960-73 8.1 10.6
Asia b 1950-59 4.1 7.2
1960-73 4.7 7.3
All Developing Market Economies 1950-59 4.6 6.9
1960-73 5.7 7.5
SOURCE: United Nations, Yearbook of National Income Statistics, 1967 [83, 1968] and Yearbook of
National Income Statistics, 1975 [84, 1976].
NOT E: T he year 1973 was selected as the end -point for the figures of T ABLE 1 because the rise in oil
prices created a new structural situation for economic growth in the oil-importing LDC's; resolution
of these problems is beyond the scope of microeconomic entrepreneurship.
aExclud ing South Africa
bExclud ing Japan
T he experience of rapid economic d e-
velopment and structural change in the
d eveloping countriesmay not, however,
be consid ered conclusive evid ence of the
absence of entrepreneurial constraints.
For it may be suggested that with more
entrepreneurship, these economiesmight
have grown at a pace even higher than
the 5 to 6 percent annual ratesof real
GDP increase shown in T ABLE 1. How-
ever, asDonald McCloskey notesin his
analysisof the British economy'sperform-
ance in the years1870-1910 (a period of-
ten cited for "entrepreneurial failure"),
structural cond itionssuch asthe growth
of factor supply are also important d eter-
minantsof an economy'srate of output
growth [53, 1970]. Following our earlier
emphasison the role of entrepreneurship
in increasing factor supply, however, one
might d iscern a problem of entrepreneur-
ship in the failure of LDC'sto mobilize
inputsat a higher rate, to permit even
more rapid growth. Little can be said in
response to such a hypothetical conjec-
ture. But it isworth noting that the d ata
compiled by Chenery and Syrquin show
that even the LDC'swith a per capita in-
come aslow as$100 have raised their ag-
gregate d omestic savingsratiosabove 12
percent of GDP [10, 1975, pp. 200-207].
T huseven these less-d eveloped countries
have attained , at least in grossterms, the
target for rapid accumulation of capital
in und erd eveloped countriesproposed by
W. Arthur Lewis[47, 1955, pp. 225-26].
Policy makersin the LDC'shave also
d isplayed d iminishing concern about a
possible shortage of entrepreneurship in
their countries. Enhanced self-confid ence
about local entrepreneurial capacity isim-
plicit in policiesthat increasingly screen
foreign-investment proposalsand limit
multinational corporationsto high-tech-
nology activitieswhere local entrepre-
neurscannot compete. More generally,
the policiesthat governmentsin many
LDC's often impose on entrepreneurs
who come from ethnic, communal, or
tribal groupsother than those of the coun-
try'spolitical lead ersalso ind icate an ab-
sence of concern with lack of entrepre-
neurship as a problem for economic
d evelopment. I refer here to the restric-
tions, expulsions, and massacresperpe-
trated against East Asiansand Lebanese
in variousAfrican countries, overseasChi-
nese ethnic minoritiesin Asian countries,
and entrepreneurial tribeslike the Ibos
in their own country. Similarly, d evelop-
ment strategiesin many T hird World
countries that proclaim a d evotion to
"build ing socialism" often have to d o less
with vertical income red istribution than
with restricting the activitiesof private-
sector entrepreneurs. Such policiesseem
to imply that policy makersbelieve the
supply of entrepreneurship from other in-
d igenousgroupsishighly elastic. Alterna-
tively (in a point to which we will return
below), the problem of entrepreneurship
in d evelopment hasbeen significantly re-
d efined : the concern in these LDC'sis
now that some people have performed too
well asentrepreneurs.
Finally, the perception that lack of en-
trepreneurship isno longer a seriousprob-
lem for most current LDC'shasalso been
reflected in the recent professional litera-
ture. In the past d ecad e, journal articles
and bookson the subject have been rare.
T hisisnot necessarily an unhealthy d evel-
opment, but d oesshow a reced ing con-
cern with the subject (thisphenomenon
hasalso been noted by David Morawetz
[58, 1977, p. 70n]). And asanother ind ica-
tor of the subjective d isappearance of the
problem, recent textbooksin the area of
economic d evelopment give little atten-
tion to entrepreneurship, either abso-
lutely or in comparison with earlier texts
in thisfield (see, for example, Charles
Kind leberger and Bruce Herrick [38,
1977]; T heod ore Morgan [62, 1975]; Pan
Youtopoulos and Jeffrey Nugent [89,
1976]; and Michael T od aro [82, 1977]).
Asd iscussed below, the general obser-
vation that entrepreneurship isnot a rele-
vant constraint on the pace of d evelop-
ment in most LDC'smust be qualified in
some respects. Nevertheless, recognition
that lack of entrepreneurship had earlier
been exaggerated asa problem hasper-
mitted a new "image" of the nature of
the d evelopment problem [8, Kenneth
Bould ing, 1956]. T hisperceptual shift has
occurred not only because of the actual
d evelopment experience of the LDC's,
but also, following an internal intellectual
d ynamic, because of new research in two
related field s. First, the earlier picture of
less-d eveloped economies as character-
ized by pervasive rigid ities has been
sharply revised . Research by Ed win Dean
[14, 1966], T heod ore W. Schultz [71,
1964], Jere Behrman [6, 1968] and others
hasshown abund ant evid ence of price re-
sponsivenessand microeconomic ration-
ality in the LDC's. Second , revisionist
economic history hasd isplaced the entre-
preneur from his central role as d e-
terminant of a country'seconomic per-
formance and placed greater emphasison
structural macroeconomic cond itions[53,
McCloskey, 1970; 54, McCloskey and Lars
Sand berg, 1971]. A telling ind ication of
thisintellectual shift wasthe 1968 ed ito-
rial d ecision of the journal that had been
the central forum and lead ing proponent
of research on the importance of entre-
preneurship, Explorations in Entrepre-
neurial History. Reflecting the changed
intellectual perspective within the profes-
sion, the journal'snamne waschanged to
Explorationsin Economic History. Before
we turn to the analytical and policy impli-
cationsof the new perspective on current
economic d evelopment, however, let us
consid er how the problemsof entrepre-
neurship that had earlier been anticipated
have in fact been overcome.5
IV. Overcoming Problemsof
Entrepreneurship
Entrepreneurial constraintshave been
relaxed in the LDC'sby a combination
of d ifferent cond itions. First, government
tariff, pricing, and resource allocation
measureshave operated to raise returns
and red uce the risk and uncertainty facing
potential investorsin many new activities.
Ex post, these policy measuresmay appear
to have eliminated any need for entrepre-
neurship. Ex ante, however, with the un-
certaintiesof possible supply or d emand
d isruptionslooming before the nascent ac-
tivity, the prospectsmay have looked very
d ifferent to the aspiring investor [51, Ed -
ward Mason, 1967, p. 82]. In ad d ition,
public-sector corporationswith ample re-
sourceshave been established in many
LDC'sto initiate prod uction in activities
where private investment (d omestic or
foreign) wasnot forthcoming, or wascon-
sid ered politically objectionable. T he per-
formance of these public-sector corpora-
tionshasbeen mixed ; see, e.g, Charles
Frank [23, 1971]; and John Sheahan [74,
1976]. But in many casesthey have un-
questionably had the effect of launching
prod uction and generating externalitiesin
activitieswhere entrepreneurship from
other sourceswasunavailable or waspolit-
ically und esirable.
Further, with expand ing d emand and
favorable incentivesin prod uct markets,
the supply of entrepreneurship turned out
to be highly elastic even in culturesand
societies on which social scientistsand
other observershad earlier been pessimis-
tic. T hus, field research has d isclosed
abund ant evid ence of entrepreneurial be-
havior in such areasasmanufacturing in
Pakistan, Nigeria, and Mexico (see, respec-
tively, GustavPapanek [67, 1967, chap.
2]; Wayne Nafziger [64, 1977], and F. De-
rossi [15, 1971]. See also the numerous
workscited in Derossi [15, 1971, pp. 419-
23]). More d isaggregated stud ieshave re-
vealed similar behavior in such activities
assteel in Ind ia [35, William A. Johnson,
1966, chap. 2], capital good sin Brazil [43,
Leff, 1968, chap. 2], cocoa in Ghana [28,
Reginald H. Green and Stephen Hymer,
1966], and consumer d urablesin Argen-
tina [12, T homasCochran and Ruben
Reina, 1962]. Moreover, in ad d ition to en-
trepreneurship supplied by gifted ind ivid -
uals, entrepreneurial problems in the
LDC'shave also been eased by the emer-
gence of a new institution, the "Group"
(see Harry Strachan [78, 1976], Lawrence
White [87, 1974], and N. H. Leff [45,
1978]). Somewhat similar to the Japanese
zaibatsu and the American conglomerate,
the "Group" isa large-scale firm that in-
vests and prod ucesin several prod uct
linesthat involve vertical integration or
other economic and technological com-
plementarities. Much of the private and
d omestically-owned ad vanced sector in
the LDC'sisin fact organized in the
Group pattern of ind ustrial organization.
T he Groups mobilize capital from
wealthy people linked by family or other
personal ties; in ad d ition they often pos-
sesstheir own banksand other financial
intermed iaries. T he Groupsallocate this
capital among their d iversified activities
in a manner that approximateswithin the
firm the functioning of a capital market
[44, Leff, 1976]. T he Groupsalso move
other primary inputsaswell asintermed i-
5T hisexperience also shed slight on the cond itions
that d etermine shiftsin the profession'sresearch in-
terests. T he major cause of the d ecline of analytical
interest in the entrepreneurship problem seemsto
have been the change in objective cond itions-what
Harry Johnson called "the apparent real world " [34,
1977, p. 501]. But the movementscited in related
intellectual field sappear to have been important for
facilitating changesin perception, the "apparent"
in Johnson'sphrase.
ate prod uctswithin their firmsto over-
come imperfections in the factor and
prod uct markets. Finally, the Groups' par-
ticipation in many d ifferent activitiesin-
creases internal information flows and
red ucesthe uncertainty surround ing in-
vestment and prod uction d ecisions. T hus,
quite apart from any special personality
traitsof the Groups' owner-managers, the
Group structure performsmany of the
special functionsrequired for entrepre-
neurship in und erd eveloped economies.6
T he appearance of the Groupsand of
entrepreneurswith a marked capacity for
innovation and risk-bearing in the LDC's
may conflict with stand ard generalizations
concerning managerial preferences for
the "quiet life" in the LDC'sand , espe-
cially, with often-expressed contrastswith
the more-d eveloped countries. One of the
implicationsof thisresearch, however, is
the need to revise such stereotypes. As
just noted , firmsin the LDC'shave in fact
often d emonstrated a marked capacity to
act in an entrepreneurial manner. And
strengthening the revisionist comparative
perspective isa stud y by John Meyer of
U. S. firmsin the 1950's[56, 1967]. Analyz-
ing balance-sheet d ata, Meyer found am-
ple evid ence of American companiesin
almost every ind ustry, which "und ertake
the 'easy life' not out of compulsion but
because they simply prefer it" [56, 1967,
p. 315].
T he emergence of the Groupsand of
the other responseswe have d iscussed
suggeststhat pessimism about entrepre-
neurship in the LDC'swascaused by a
seriousid entification problem. Absence of
entrepreneurship in earlier period swas
generally attributed to d eficienciesin the
supply of entrepreneurship d ue to alleged
socio-cultural rigid ities. In the
postwar
(and increasingly postcolonial) period ,
however, structural changesoccurred , no-
tably with more buoyant aggregate d e-
mand and heightened government sup-
port for d evelopment. With these new
cond itionsgenerating a sharp rightward
shift in the d emand sched ule for entrepre-
neurship, the supply response hasbeen
sufficiently elastic to permit the high rates
of economic d evelopment that we have
noted . T hissupply response hascome ei-
ther d irectly with authentic entrepre-
neursor, ind irectly, via the emergence of
the Groupsand of government policies
which, in good Gerschenkronian manner
[27, 1968] red uced the d emand sfor entre-
preneurship asa rigid "prerequisite" for
d evelopment.
V. Continuing Problems
Although sufficient entrepreneurship
hasbeen available in the d eveloping coun-
triesto permit high ratesof economic
growth and investment in new activities,
other problemshave emerged and have
ind eed been highlighted by the accom-
plishmentsin output expansion.
T huswid espread successhasnot been
achieved in technological entrepreneur-
ship. In the area of ind ustrial technology,
LDC firmsoften find it more economical
to import off-the-shelf knowhow via li-
censing agreementsrather than "reinvent
the wheel." Because of wid espread tech-
nological importation and imitation, how-
ever, the call for d evelopment of new
technologiesad apted to LDC factor en-
d owments, prod uction scales, and ind ige-
nousconsumption need shasbeen a con-
tinuing theme in the literature (see David
Felix [21, 1977]). Some resultshave been
achieved in "d escaling" prod uction tech-
niquesand in economic substitution of la-
bor for capital (see, for example, Howard
6Asemphasized below, the Group mod e of ind us-
trial organization can easily give rise to other market
d istortions. Note, however, that because the Group
isa pattern of ind ustrial organization in which own-
ership and control have not been separated , static
and d ynamic efficiency lossesattributable to shirking
and to monitoring or agency costsare also red uced .
For analysisof such efficiency lossesin the mod ern
corporation, see Michael Jensen and William Meck-
ling [33, 1976]; and Armen Alchian and Harold Dem-
setz [2, 1972].
Pack'sresearch on Kenyan manufacturing
[66, 1976], aswell asthe earlier stud ies
d iscussed in Morawetz [57, 1974, pp. 512,
522]). Similarly W. Paul Strassman [79,
1968] recountssuccessesin ad apting proc-
esstechnology to local materials; e.g., us-
ing bagasse for paper prod uction. By con-
trast, attemptsat technological innovation
by the Ind ian fertilizer ind ustry were not
successful [55, Stephen Merrett, 1972, p.
403]. T he general picture hasbeen a fail-
ure to achieve major breakthroughsin in-
novating "appropriate technologies" [18,
Richard Eckaus, 1977].
It may be inappropriate, however, to
charge LDC firmswith entrepreneurial
incapacity in thisarea. T he performance
of multinational corporationshere afford s
some comparative perspective. Multina-
tional corporationshave two important
ad vantagesrelative to local firmsin the
d evelopment of "appropriate" technolo-
gies: greater experience in the manage-
ment of R&Dand a lower cost of capital
and d iscount rate for evaluating the pres-
ent value of such efforts. Nevertheless,
multinational corporations, too, have
achieved only marginal successesin d evel-
oping new technologiesappropriate for
the LDC's (see, for example, Richard
Moxon [63, 1977]; and Samuel Morley and
Gord on Smith [60, 1977; 61, 1977]). T his
experience suggeststhat cond itionsother
than possible entrepreneurial failure are
also relevant. For example, the small stock
of complementary basic knowled ge avail-
able about these environmentsasa public
good raisesthe costsof d eveloping "appro-
priate technologies." And , ashasoften
been noted , the inability of private firms
to appropriate the full social benefitsof
innovations[3, Kenneth Arrow, 1962] and
the structure of relative pricesfacing en-
trepreneurson the LDC's [88, White,
1978] may mean that the private returns
to R&Deffortsin thisarea are in fact low.
Furthermore, the achievementsof LDC
entrepreneurship in promoting output
growth and structural change have them-
selvesled to new economic d istortionsd ue
to market power [51, Mason, 1967]. T his
familiar phenomenon of successful entre-
preneurship creating economic d istor-
tionsislikely to have consequencesthat
are particularly seriousin the LDC's, for
two reasons. First, monopoly power exac-
erbatessituationsof income d istribution
that were alread y highly unequal and thus
aggravatessocial and political tensions.
Second , the economic d istortionsengen-
d ered by successful entrepreneurship are
especially severe in the LDC'sbecause of
the pred ominance of the Groupsin the
mod ern sector and because of the far-
reaching government interventionism in
these economies.
T hus, government policies d esigned ,
inter alia, to overcome problemsd ue to
incomplete and imperfect marketshave
themselves often created or reinforced
positionsof market power. For example,
such policieshave led to pricesfor capital
and foreign exchange that d iverge sharply
from social opportunity costs[49, Little
et al., 1970] with ensuing lossesin alloca-
tional efficiency. Similarly, government
measuresto accelerate ind ustrialization
have also d istorted relative pricesin the
prod uct market, particularly asbetween
agriculture and ind ustry [48, Michael Lip-
ton, 1976]. At a more d isaggregated level,
Jeffrey Nugent's12-sector programming
stud y of the Greek economy d isclosed that
the d ivergences between market and
shad ow priceswere closely related to gov-
ernment allocation policies(and to private
monopoly power) [65, 1970, pp. 847-51].
And Joel Bergsman'sstud y of Brazil, Mex-
ico, Pakistan, and the Philippines[7, 1974]
showed that restrictive import policies
had a large quantitative impact in the cre-
ation of x-inefficiency and monopoly
profits.7 More generally, substantial d ead -
7
For the late 1960's, Bergsman'sestimate of the
annual magnitud e of these effectsamounted to some
2.2 percent of GNP in Mexico; 2.6 percent in the
Philippines; 5.4 percent in Pakistan; and 6.8 percent
in Brazil [7, 1974, p. 419].
weight lossesare caused by the LDC bu-
reaucratic structures and incentives,
which Anne Krueger [41, 1974] hasana-
lyzed as"the rent-seeking society" (see
also Nachum Finger [22, 1971]). T hus
partly in an effort to counteract market
imperfections of the sort that inhibit
entrepreneurship, government action
hasoften created new d istortionsof its
own.
T he Groups' success in overcoming
problemsof entrepreneurship hasalso led
to seriouseconomic d istortions. In effect,
the Groupshave taken factor-market im-
perfectionsin the LDC'sand transmuted
them into prod uct-market imperfections.
In the process, rapid economic growth has
occurred , but the Groupshave also cre-
ated a special form of oligopoly capitalism
in the d eveloping countries. T he Groups'
pattern of vertical integration and multi-
activity operations in fact aggravates
problemsof market power. For, with this
structure, they face little of the counter-
vailing power that mitigatesprod uct-mar-
ket d istortionsin the more-d eveloped
economies[26, John Kenneth Galbraith,
1952]. T hus, in input-output notation, in
an economy with i supplier activitiesand
j
client activities, the countervailing
power facing a firm with an oligopoly in
one activity may be conceptualized asa
function of the market power of the oli-
gopolists in the (i - 1) (j - 1) activities.
In the case of a Group operating in k <
(i j) activities, however, countervailing
power isa function of (i
-
k) (j - k).
Hence, countervailing power d eclinesex-
ponentially with k the number of activi-
tiesin which a Group operates. Because
of the Groups' multi-activity operations,
market power within ind ivid ual activities
isnot red uced by countervailing power,
but rather isamplified within the econ-
omy.
T he economic consequencesof thissitu-
ation are serious, for market power ena-
blesthe Groupsto withhold from other
firmsand from consumersthe pecuniary
external economiesthat are an important
feature of the d evelopment process[69,
Paul Rosenstein-Rod an, 1943]. More gen-
erally, the successof the Groupsand of
other private-sector ind ivid ualsin over-
coming microeconomic problemsof en-
trepreneurship posesan acute d ilemma
for government: to permit the entrepre-
neurs' unrestricted expansion or to at-
tempt to correct the economic d istortions
and the associated social imbalancessuch
aswid ening d isparitiesin the d istribution
of income.
Such problemsare well-known to eco-
nomic theory, for the topic of entrepre-
neurship hasnever fit easily into a frame-
work of competitive market equilibrium
(see Robinson [68, 1934]; Kald or [36,
1934]; but see also Kirzner [39, 1973]). In
the d evelopment literature, these d istor-
tions have sometimes been attributed
mainly to an import-substitution pattern
of d evelopment; and it would be tempting
to treat them asend ogenousto that partic-
ular d evelopment strategy. Similar d istor-
tionsand the associated social tensions
have also been noted , however, in coun-
triessuch asSouth Korea and Malaysia,
which have followed an export-promoting
orientation. T hisobservation is in one
sense encouraging, for it suggeststhat en-
trepreneursin d eveloping countriesmay
be neutral with respect to specific ex-
change-rate regimes and d evelopment
strategies. T hus entrepreneurs in the
LDC'sappear to respond to whatever in-
centivesare available and can therefore
be used asan instrument for implement-
ing alternative d evelopment strategies. At
the same time, however, the social and
economic problemscreated by successful
entrepreneurship-monopoly profitsand
wid ening income d isparities-appear to
be general to LDC'sand are not limited
to the particular case of an import-substi-
tution pattern of d evelopment. Note fur-
ther that the capacity to resolve such so-
cial tensionsisof more than marginal
relevance for economistsinterested in d e-
velopment. AsCarlosDiaz-Alejand ro has
noted , the failure to d eal effectively with
such problemsearly in the d evelopment
processwasa major factor in the subse-
quent economic retard ation of a once-
promising LDC, pre-Peron Argentina [16,
1970, pp. 55-66, 106-40].
VI. T he Entrepreneurship Problem
and Macro Development Patterns
T hese externalitiesof private entrepre-
neurial performance have effectson eco-
nomic d evelopment that d iffer sharply in
contemporary LDC'sfrom the pattern of
the United Statesd uring the late nine-
teenth century. T hisisbecause private en-
trepreneursin the contemporary LDC's
possesslittle of the social and id eological
legitimacy that protected the robber bar-
onsin the United States. On the contrary,
the id eological and political climate isof-
ten marked ly against private capitalists;
see, for example, Ed ward Shils[75, 1961]
and Yair Aharoni [1, 1977, pp. 167-69].8
Further, the practice of utilizing imported
technology, noted above, also hasimpor-
tant political sid e-effects. Because of
the entrepreneurs' technological d epen-
d ency, the local intelligentsia tend to re-
gard d omestic ind ustrialistsasan up-d ated
version of Paul Baran'scomprad or pup-
petsof foreign capitalist interests[4, 1957,
pp. 194-97]. Consequently, not only are
private entrepreneursd enied cred it for
their achievementsin ind ustrial d evelop-
ment, but their legitimacy and broad er
political support are seriously compro-
mised . Finally, hostility toward private-
sector entrepreneurs isfurther exacer-
bated , asnoted earlier, when the entre-
preneurscome from ethnic, communal,
or tribal groupsd ifferent from the political
lead ership.
Und er these cond itions, government is
likely to take strong action to restrict the
activitiesof private entrepreneurs. In its
mild er forms, such restrictionshave taken
the form, asin Ind ia, of having an Anti-
MonopoliesCommission curtail private
sector investment in certain activities. In
some African countries, where much of
the entrepreneurial activity takesplace in
the export agricultural sector, state mar-
keting board swith monopsony power
have played a similar restrictive role. In
some cases(e.g., some African countries)
where income red istribution d ominated
concern for economic growth, entrepre-
neurial groupshave been expelled , with
negative consequences for economic
growth (see the analysisof JamesT obin
[81, 1974]). Even in lessd rastic cases, how-
ever, governmental hostility and political
risksmay d etermine a flow of private, d o-
mestic entrepreneurship which, in equi-
librium, islow.
Investment by state-corporationshas
also been used asa policy tool in thiscon-
text. Policy here hasnot been oriented
by the often-cited (and often-justified ) ra-
tionale for public-sector investment-
overcoming capital market d eficiencies
and sluggishnessof private entrepreneur-
ship [74, Sheahan, 1976, pp. 206-10].
Rather the objective hasbeen preemption
of d omestic private capitalists, to forestall
the expansion of the local bourgeoisie's
economic base.9 T he economic impactsof
such a strategy at the micro level vary.
Creation of state-owned corporationsisno
guarantee of Schumpeterian entrepre-
8
Some ad d itional contrastswith the situation of
the U.S. robber baronsare the lack of constitutional
limitationsin the LDC'son government involve-
ment in the economy; and the much greater d egree
to which power isconcentrated in the central gov-
ernment in contemporary LDC's. T hese cond itions
extend the scope for the red istribution possibilities
of state action against private-sector entrepreneurs.
9
Interpretationsof ind ivid ual casesmay of course
d iffer, for it isoften d ifficult to d istinguish between
the rationale and the effective cause for such mea-
sures. Further, in some instancesa self-fulfilling
prophecy may be involved : government preemption
of scarce capital and foreign exchange resources
lead sto unimpressive investment performance by
private entrepreneurs-which isthen invoked to jus-
tify further state-enterprise expansion.
neurship, of static efficiency, or of attain-
ing broad er social goals [74, Sheahan,
1976, pp. 210-27; 1, Aharoni, 1977, pp.
170-71, 245-80]. Such concernsmay in-
d eed missthe essence of the story: forma-
tion of a d ominant "new class" [17, Milo-
van Djilas, 1958] in nascent regimesof
state capitalism. At the macro level, David
Morawetz'ssurvey [59, 1977] ind icates
und istinguished performance of such re-
gimes with respect both to economic
growth and to social objectives.
Further, in light of our earlier d iscus-
sion, it should not be surprising that gov-
ernmentsasd ifferent asthose of Allend e
in Chile and Bhutto in Pakistan attempted
to expropriate en bloc the Groupsin their
countries. T he existence of the Groupsas
large-scale, coord inated enterprisessub-
ject to d eeply-felt social and political hos-
tility, ind eed , createsa situation poten-
tially ripe for socialization. T hus we
observe in many contemporary LDC'san
unanticipated transplant: a constellation
of political-economy forcesthat can lead
to a scenario similar to the one that Joseph
Schumpeter envisioned for the more-d e-
veloped countriesin hisCapitalism, So-
cialism, and Democracy [73, 1942].
T wo cond itions, however, operate
against such a d evelopment path in the
LDC'swhere Groupsare well established .
T he institution of the Group haspermit-
ted the expansion of large-scale ind ustry
without the separation of ownership from
control. Moreover, because of the Group
framework, the d ecline of family partici-
pation and interest in the business, which
Schumpeter stressed as a motivational
precond ition facilitating socialization, has
not occurred . Because of these cond itions,
effortsat socializing Group activitiesmust
contend with seriousresistance, aswell
asthe uncertaintiesinvolved in managing
the Groups' operationsif they are taken
over. Consequently, although pressures
for socialization are present in many
LDC's, such a d evelopment pattern lead -
ing to state-capitalism d ominance isby no
meanscertain.
T he actual outcome seemsto d epend
on specific historical and social cond itions.
Pressuresfor socialization are mitigated
if the Groupsare of the same ethnic group
asthe political elite; or, alternatively, if
they have been socially assimilated in a
society with a d egree of cultural pluralism.
Another key variable isthe length of time
elapsing since the onset of ind ustrializa-
tion and urbanization in the LDC. T his
cond ition helpsd etermine the size of the
mid d le class, which can be mobilized in
support of Group interests. Differencesin
these cond itionsappear to explain the d is-
parate evolution toward state-capitalism
d ominance or toward maintenance of the
Groupsin, for example, Chile and Brazil,
ascontrasted with, say Ugand a and T an-
zania.
Finally, the problemscreated by entre-
preneurial successin the LDC'shave also
led to alternative d evelopment patterns
in countrieswhere private entrepreneurs
have persisted . In Brazil, the willingness
(und er an authoritarian regime) to accord
private capitalistsa legitimate place in the
d evelopment processhasled to a pattern
of fruitful coexistence with state corpora-
tions. In Mexico, effortsto d eal with social
tensionsby meansof red istributive taxa-
tion in the early 1970'sled private entre-
preneursto red uce their investment in
the face of political uncertainties; the en-
suing economic slowd own blocked the re-
form measures[77, Leopold o Solis, 1976].
In Chile, Argentina, and Uruguay, the pat-
tern hasbeen a stalemate between private
entrepreneursand groupsseeking to al-
leviate social imbalances. End emic politi-
cal crisis, in turn, hasbeen a major cause
of chronic inflation [32, Hirschman, 1963,
pp. 161-223]. And economic d evelop-
ment hasbeen stunted in the ensuing bal-
ance-of-paymentsd ifficultiesand import
constraints. T hus, the problem of entre-
preneurship in these countrieshasnot
been "solved ," but hasrather been trans-
formed and d isplaced to the macro level.10
VII. Implicationsfor Research
on Entrepreneurship
and Economic Development
Questionsof political integration such
asthose just raised ..may best be treated
by political scientists. But our d iscussion
also suggeststhat important topicsremain
for economistsin future research on en-
trepreneurship and d evelopment.
In view of the importance that public-
sector corporationshave assumed in sup-
plying entrepreneurship or in substituting
for private entrepreneurship, it would be
helpful to have a theory of the behavior
of such firmsin the special cond itionsof
the LDC's. A rare analytical-empirical
stud y in thiscontext isthe paper by Rich-
ard Funkhouser and Paul MacAvoy, who
analyzed and mod elled the comparative
performance of Ind onesian government
and private firmsthat operate in the same
activities[25]. Prod uctivity wasgenerally
much lower in the public-sector corpora-
tions, partly because of their more lavish
use of labor inputs. Such behavior may
reflect a managerial objective function
which, d ue to political pressures, includ es
argumentsother than profit maximiza-
tion. More generally, thispattern suggests
interesting analogiesto the mod elsof "ex-
pense preference" behavior of regulated
firmsin the United States(see, e.g., Frank-
lin Ed ward s[19, 1977]). Such mod elsmay
well prove useful for future research in
an unexpected context, state corporations
in the LDC's.
T he behavior of state corporationsthat
are monopolistsin their activitiesraises
other questionsto which only tentative
hypothesescan be proposed . Government
take-over and operation of existing activi-
tiesseemsoften to be associated with non-
entrepreneurial behavior; the example of
the Argentina railwayscomesread ily to
mind . By contrast, government entry into
new activitiesthat are highly capital-in-
tensive and utilize ad vanced process-tech-
nology may be associated with more en-
trepreneurial behavior (see Jud ith
T end ler [80, 1968] on electricity and Pe-
ter Evans[20, 1977] on petrochemicals
in Brazil). T he abund ant resourcesthat
are usually allocated to such state compa-
nies, however, and the poor performance
of the numerouswhite elephantsin Nkru-
ma'sGhana preclud e any facile generali-
zations. T he need for more research in
thisarea isevid ent, particularly to clarify
the cond itionsund er which the operation
of state rather than private d omestic en-
terprisesmakesan economic d ifference.
Further, asnoted earlier, entrepreneur-
ship in the LDC'sinvolvesa special em-
phasison risk and uncertainty because of
the d eficienciesof formal capital markets
in those countries. Consequently, thissub-
ject isparticularly appropriate for stud y
by economists, with their comparative ad -
vantage in the analysisof risk and uncer-
tainty. Sociologistsand psychologistsmay
be better able to answer such questions
asthe social cond itionsand personality
traitsthat affect the capacity for bearing
risk and uncertainty. But economistsare
need ed to take account of the economic
cond itionsund er which preferencesare
transformed into actual investment be-
havior.
For example, most entrepreneursin the
LDC's(includ ing the Groups) have highly-
leveraged firms, which must rely heavily
on self-finance for capital. Because of their
close connectionswith their own financial
intermed iaries, they may optimize with
high gearing ratios. And with the d egree
10
Note that many LDC'shave thusarrived at a
conflict and trad e-off situation, which wasimplicit
in Hirschman'semphasison a society's"capacity to
take d evelopment d ecisions" [31, 1958]-a concept
that includ ed political aswell aseconomic entrepre-
neurship. What hashappened isthat private entre-
preneurs' successin taking economic d ecisionsso
exacerbatessocial d issension that the country'sca-
pacity to take political d ecisionsisthereby inhibited .
Leffi: Entrepreneurship in Economic Development 59
of leverage d etermined end ogenously,
such firmsmay behave more "entrepre-
neurially" than would firmswith an id en-
tical d egree of risk aversion in the more-
d eveloped countries. Similarly, because of
capital-market imperfections, entrepre-
neursin the LDC'slack a continuum of
investment opportunitiesthat issmooth
in termsof trad e-offsbetween risk and
returns. Consequently, they may be
forced to corner solutionsin which they
choose riskier investments than they
would , given their d egree of risk aversion,
if they had the same opportunitiesavaila-
ble to investorsin the more-d eveloped
countries. T he attention that much earlier
research on entrepreneurship hasgiven
to psycho-cultural valuescan hard ly sub-
stitute for economic analysisof invest-
ment behavior.
In ad d ition, aswe have seen, institutions
such asthe Groupscan substitute for the
personality traitsof ind ivid ual entrepre-
neurs. Much of the research on entrepre-
neurship hasfocused on thislatter topic.
Our d iscussion, however, suggeststhat
more attention be given to the possibility
that innovationsin firm (or market) insti-
tutionscan red uce the entrepreneurial
requirements per unit of innovative
d ecision-making. Such institutional inno-
vationsare especially important because
they are more easily subject to imitation
and to a high rate of d iffusion than are
pure personality traits. In thisperspective,
economic theoriesof the d emand and sup-
ply of institutional innovations(see, for ex-
ample, William Silber [76, 1975]) have a
central place in future research on
entrepreneurship.
Further work by psychologists and
other social scientistson the social-psycho-
logical cond itionslead ing to entrepre-
neurship may also yield new scholarly in-
sights. Although I have emphasized the
importance of d emand cond itions, thisis
not meant to imply that the supply of en-
trepreneurship is equally elastic in all
countriesand cultures."I In thissupply
context, an ind ication that the line of re-
search opened by David McClelland [52,
1961], Everett Hagen [29, 1962], and oth-
erswasnot a d ead end comesfrom an
unexpected source: a cross-section aggre-
gate prod uction-function stud y [24, Kath-
erine Freeman, 1976]. Regressing obser-
vationsof net national prod uct against
observationsof labor and electricity inputs
(a proxy for capital services) in 21 coun-
tries, Freeman obtained statistically signif-
icant parameter estimates of the usual
magnitud es. She then ad d ed to the regres-
sion McClelland 'sobservationsof "need
achievement" in these countriesa genera-
tion earlier asan ind ex of the level of en-
trepreneurial valuespresent in these soci-
eties when the labor force wasin its
formative years. Not only wasthe entre-
preneurship variable highly significant,
but itsinclusion red uced the variance of
the other coefficientsand increased the
measure of the economy-wid e returnsto
scale [24, 1976, p. 823, T able 2].
In ad d ition, research on the social-psy-
chological cond itionsthat permit entre-
preneurial "empire build ers" to build
firmsthat also function rationally and
prod uctively may also be fruitful (see, for
example, Reeve D. Vanneman [83,1973]).
T he availability of routinized manage-
ment techniquesfor monitoring and man-
aging large-scale organizations, however,
may now red uce the need sfor special per-
sonality configurationsin thisarea. Fi-
nally, most stud iesof entrepreneurship in
LDC'shave focused on the manufacturing
sector. In view of the importance of risk-
bearing, innovation, and expansion in ag-
riculture for economic d evelopment,
II
Some observersof Southeast Asia have even d is-
cerned a significant correlation between the per-
centage of overseasChinese in the local population
and economic growth ratesin, respectively, Singa-
pore, Malaysia, T hailand , the Philippines, and In-
d onesia. Familial (asopposed to social or cultural)
cond itionsmay, of course, also affect the supply of
entrepreneurs. For an analysisin the American con-
text, see Bernard Saracheck [70, 1978].
more work on entrepreneurship in agri-
culture would be especially welcome.
(See, for example, Wayne G. Broehl [9,
1978].)
VIII. Conclusions
Asthisresearch agend a ind icates, major
components of the entrepreneurship
problem clearly remain important, while
new questionshave emerged to stimulate
future intellectual effort in this field .
T hese analytical interests, however,
should not d ivert attention from an impor-
tant fact: earlier theoretical concernsthat
lack of entrepreneurship would prove a
seriousbarrier for economic d evelopment
have turned out to be much exaggerated .
Not only wasa seriousid entification prob-
lem overlooked , but the variousresponses
we have d iscussed permitted the impact
of entrepreneurial constraintsto be re-
laxed at the micro and ind ustry level.
In an id eal-type market system, without
uncertainty, factor-market imperfections,
and externalities, entrepreneurship would
not be necessary. T hese cond itionsare
clearly not satisfied in the LDC's. But
government interventionism and the
Groups(which internalize uncertainty, in-
formation, and factor-market flows) have
emerged to substitute both for a perfect
market and for pure entrepreneurship.
Ind eed , the very successof LDC robber
baronsin d ealing with d ifficultiesof entre-
preneurship hasled to a re-d efinition of
the d ifficulty: the problem hasnow be-
come the new economic d istortions, social
imbalances, and political d issension en-
gend ered by successful entrepreneurial
performance. Asa result of thistransfor-
mation, Schumpeter'sCapitalism, Social-
ism and Democracy [73, 1942] hasbecome
more relevant for many current LDC's
than the entrepreneurship sectionsof his
T heory of Economic Development [72,
1934].
Recognition that public and private re-
sponseshave largely overcome the origi-
nal problemsof entrepreneurship hasper-
mitted a new perspective on the nature
of the d evelopment problem. Most impor-
tantly, it hasbecome clear that economic
d evelopment in most current LDC'scan
proceed without these countrieshaving
to wait for a psycho-cultural transforma-
tion that would increase the supply of
entrepreneurs. Moreover, taken in con-
junction with wid espread evid ence of
price-responsive behavior in the LDC's,
relaxation of entrepreneurial constraints
impliesthat these economiesare far less
"fragmented " and beset by rigid itiesthan
had earlier been assumed . Consequently,
economic d evelopment in most LDC's
can be analyzed and promoted with the
economist'sstand ard tools(includ ing oli-
gopoly theory for the d istortionscreated
by the Groups, and monopoly theory for
state enterprises). More exotic perspec-
tivesare not need ed .
Economistsworking on the less-d evel-
oped economies have followed thisap-
proach in practice. In omitting specifica-
tion of entrepreneurship in recent
d evelopment mod els, they have in effect
treated entrepreneurship asa slack varia-
ble. Consequently, it iswell to bring the
literature up-to-d ate on the reasonsfor
this rad ical d eparture from earlier
perspectives.
REFERENCES
1. AHARONI, YAIR. Markets, planning
and d evelopment. Cambrid ge, Mass.:
Ballinger, 1977.
2. ALCHIAN, ARMEN A. AND DEMSET Z,
HAROLD. "Prod uction, Information
Costs, and Economic Organization,"
Amer. Econ. Rev., Dec. 1972,
62(5),
pp. 777-95.
3. ARROW, KENNET H J. "Economic Wel-
fare and the Allocation of Resources
for Invention," in T he rate and d irec-
tion of inventive activity. Ed ited by
R. R. NELSON. Princeton: Princeton
University Press, 1962, pp. 353-58.
Leff
Entrepreneurship in Economic Development 61
4. BARAN, PAUL A. T he political econ-
omy of growth. New York: Monthly
Review Press, 1957.
5. BAUMOL, WILLIAM J. "Entrepreneur-
ship in Economic T heory," Amer.
Econ. Rev., May 1968, 58(2), pp. 64-
71.
6. BEHRMAN, JERE R. Supply response
in und erd eveloped agriculture: A case
stud y of four major annual crops
in T hailand , 1937-1963. Amsterd am:
North-Holland , 1968.
7. BERGSMAN, JOEL. "Commercial Pol-
icy, Allocative Efficiency and 'X-Effi-
ciency'," Quart. J Econ., August 1974,
88(3), pp. 409-33.
8. BOULDING, KENNET H E. T he image:
Knowled ge in life and society. Ann
Arbor: University of Michigan Press,
1956.
9. BROEHL, WAYNE G. T he village entre-
preneur: Change agentsin Ind ia'sru-
ral d evelopment. Cambrid ge, Mass.:
Harvard University Press, 1978.
10. CHENERY, HOLLIs B. AND SYRQUIN,
MOISES. Patterns of d evelopment,
1950-1970. Lond on: Oxford Univer-
sity Press, 1975.
11. COCHRAN, T HOMAS C. "Entrepre-
neurship," in International Ency-
cloped ia of the Social Sciences. Vol.
5. Ed ited by DAVID L. SILLS. New
York: Macmillan, 1968, pp. 87-91.
12. AND REINA, RUBEN E.
Entrepreneurship in Argentine cul-
ture: T orcuato Di T ella and S.LA.M
Philad elphia: University of Pennsylva-
nia Press, 1962.
13. DAVIS, LANCE E., ET AL. American
economic growth. New York: Harper
& Row, 1972.
14. DEAN, EDWIN H. T he supply re-
sponsesof African farmers: T heory
and measurement in Malawi. Arnster-
d am: North-Holland , 1966.
15. DEROSSI, FLAVIA. T he Mexican
entrepreneur. Paris: OECD Develop-
ment Centre, 1971.
16. DiAz-ALEJANDRO, CARLOS F. Essays
on the economic history of the Argen-
tine Republic. New Haven: Yale Uni-
versity Press, 1970.
17. DJILAS, MILOVAN. T he new class.
New York: Praeger, 1958.
18. ECKAUS, RICHARDS. Appropriate
technologiesfor d eveloping countries.
Washington: National Acad emy of Sci-
ences, 1977.
19. EDWARDS, FRANKLIN R. "Managerial
Objectivesin Regulated Ind ustries:
Expense-Preference Behaviorin Bank-
ing,"
J
Polit. Econ., Feb. 1977, 85(1),
pp. 147-62.
20. EVANS, PET ER. "Multinationals, State-
Owned Corporations, and the T rans-
formation of Imperialism: A Brazilian
Case Stud y," Econ. Devel. Cult.
Change, Oct. 1977, 26(1), pp. 43-64.
21. FELIX, DAVID. "T he T echnological
Factor in Socioeconomic Dualism: T o-
ward an Economy-of-Scale Parad igm
for Development T heory," in Essays
on economic d evelopment and cul-
tural change: In honor of Bert F.
Hoselitz. Ed ited by MANNING NASH.
Chicago: University of Chicago Press,
1977, pp. 180-211.
22. FINGER, NACHUM. T he impact of gov-
ernment subsid ieson ind ustrial man-
agement: T he Israeli experience. New
York: Praeger, 1971.
23. FRANK, CHARLES R., JR. "Public and
Private Enterprise in Africa," in
Government and economic d evel-
opment. Ed ited by GUST AV RANIS.
New Haven: Yale University Press,
1971, pp. 88-123.
24. FREEMAN, KAT HERINE B. "T he Sig-
nificance of McClelland 'sAchieve-
ment Variable in the Aggregate Pro-
d uction Function," Econ. Devel. Cult.
Change, July 1976, 24(4), pp. 815-24.
25. FUNKHOUSER, RICHARD AND MAC-
AvoY, PAUL. "A Sample of Observa-
tions on Pricing in Public and Private
Enterprises." Mimeo, n.d .
26. GALBRAIT H, JOHN KENNET H. Amer-
ican capitalism: T he concept of coun-
tervailing power. Boston: Houghton
Miffin, 1952.
27. GERSCHENKRON, ALEXANDER. "T he
Mod ernization of Entrepreneurship,"
in Continuity in history and other
essays. Cambrid ge, Mass.: Harvard
University Press, Belknap Press, 1968,
pp. 128-39.
28. GREEN; REGINALD H. AND HYMER,
ST EPHEN. "Cocoa in the Gold Coast:
A Stud y in the Relations between Afri-
can Farmers and Agricultural Ex-
perts,"J. Econ. Hist., Sept. 1966, 26(3),
pp. 299-319.
29. HAGEN, EVERET T E. On the theory
of social change: How economic
growth begins. Homewood , Ill.: Dor-
sey Press, 1962.
30. HARRIS, JOHN R. "Entrepreneurship
and Economic Development," in
Business enterprise and economic
change: Essaysin honor of Harold F.
Williamson. Ed ited by LouisP. CAIN
AND PAUL J. USELDING. Ohio: Kent
State University Press, 1973, pp. 141-
72.
31. HIRSCHMAN, ALBERT 0. T he strategy
of economic d evelopment. New
Haven: Yale University Press, 1958.
32. . "Inflation in Chile," in
Journeys toward progress: Stud ies of
economic policy-making in Latin
America. New York: T wentieth Cen-
tury Fund , 1963, pp. 161-223.
33. JENSEN, MICHAEL C. ANDMECKLING,
WILLIAM H. "T heory of the Firm:
Managerial Behavior, Agency Costs
and Ownership Structure," J
Finan.
Econ., Oct. 1976, 3(4), pp. 305-60.
34. JOHNSON, HARRY G. "Method ologies
of Economics," in T he organization
and retrieval of economic knowled ge.
Ed ited by MARK PERLMAN. Bould er,
Colo.: Westview Press, 1977, pp. 496-
509.
35. JOHNSON, WILLIAM A. T he steel in-
d ustry of Ind ia. Cambrid ge, Mass:
Harvard University Press, 1966.
36. KALDOR, NICHOLAS. "T he Equilib-
rium of the Firm," Econ.
J.,
March
1934, 44(173), pp. 60-76.
37. KILBY, PET ER, ed . Entrepreneurship
and economic d evelopment. New
York: Free Press, 1971.
38. KINDLEBERGER, CHARLES P. AND
HERRICK, BRUCE. Economic d evelop-
ment. T hird ed ition. New York:
McGraw-Hill, [1958] 1977.
39. KIRZNER, ISRAEL M. Competition and
entrepreneurship. Chicago: Univer-
sity of Chicago Press, 1973.
40. KNIGHT , FRANK H. Risk, uncertainty,
and profit. New York: Houghton Mif-
flin, 1921.
41. KRUEGER, ANNE 0. "T he Political
Economy of the Rent-Seeking Soci-
ety," Amer. Econ. Rev., June 1974,
64(3), pp. 291-303.
42. KUZNET S, SIMON. Economic growth
of nations: T otal output and pro-
d uction structure. Cambrid ge, Mass:
Harvard University Press, Belknap
Press, 1971.
43. LEFF, NAT HANIEL H. T he Brazilian
capital good s ind ustry, 1929-1964.
Cambrid ge, Mass: Harvard University
Press, 1968.
44. . "Capital Marketsin the Less-
Developed Countries: T he Group
Principle," in Money and
finance
in
economic growth and d evelopment.
Ed ited by RONALDI. McKINNON.
New York: Dekker, 1976, pp. 97-
122.
45. . "Ind ustrial Organization and
Entrepreneurship in the Developing
Countries: T he Economic Groups,"
Econ. Devel. Cult. Change, July 1978,
26(4), pp. 661-75.
46. LEIBENST EIN, HARVEY. "Entrepre-
neurship and Development," Amer.
Econ. Rev., May 1968, 58(2), pp. 72-
83.
47. LEWIS, W. ART HUR. T he theory of
economic growth. Lond on: Allen Un-
win, 1955.
48. LIPT ON, MICHAEL. Why poor people
stay poor: Urban biasin world d evel-
opment. Cambrid ge, Mass: Harvard
University Press, 1976.
49. LIT T LE, IAN M. D.; SCIT OVSKY, T IBOR
ANDSCOT T , MAURICE. Ind ustry and
trad e in some d eveloping countries: A
comparative stud y. Lond on: Oxford
50. MARRIS, PET ER AND SOMERSET ,
ANT HONY. African businessmen: A
stud y of entrepreneurship and d evel-
opment in Kenya. Lond on: Routled ge
& Kegan Paul, 1971.
51. MASON, EDWARDS. "Monopolistic
Competition and the Growth Process
in LessDeveloped Countries: Cham-
berlin and the Schumpeterian Dimen-
sion," in Monopolistic competition
theory: Stud iesin impact. Essaysin
honor of Ed ward H. Chamberlin. Ed -
ited by ROBERT E. KUENNE. New
York: Wiley, 1967, pp. 77-104.
52. MCCLELLAND, DAVIDC. T he achiev-
ing society. Princeton, N.J.: Van Nost-
rand Press, 1961.
53. MCCLOSKEY, DONALDN. "Did Victo-
rian Britain Fail?" Econ. Hist. Rev.,
Dec. 1970, 23(3), pp. 446-59.
54. AND SANDBERG, LARS G.
"From Damnation to Red emption:
Jud gmentson the Late Victorian En-
trepreneur," Exploration. Econ. Hist.,
Fall 1971, 9(1), pp. 89-108.
55. MERRET T , ST EPHEN. "T he Growth of
Ind ian Nitrogen Fertilizer Manufac-
ture: Some Lessons for Ind ustrial
Planning," j Devel. Stud ., July 1972,
8(4), pp. 395-410.
56. MEYER, JOHN R. "An Experiment in
the Measurement of BusinessMotiva-
tion," Rev. Econ. Statist. August 1967,
49(3), pp. 304-18.
57. MORAWET Z, DAVID. "Employment
Implications of Ind ustrialisation in
Developing Countries: A Survey,"
Econ. J, Sept. 1974, 84(335), pp. 491-
542.
58. .
T wenty-five
yearsof economic
d evelopment, 1950-1975. Washing-
ton, D.C.: World Bank, 1977.
59. . "Economic Lessons from
Some Small Socialist Developing
Countries." Mimeographed paper
presented to the American Economic
Association, Dec. 1977.
60. MORELY, SAMUEL A. AND SMIT H,
GORDON W. "T he Choice of T echnol-
ogy: Multinational Firmsin Brazil,"
Econ. Devel. Cult. Change, Jan. 1977,
25(2), pp. 239-64.
61. . "Limited Search and the
T echnology Choicesof Multinational
Firmsin Brazil," Quart. J Econ., May
1977, 91(2), pp. 263-87.
62. MORGAN, T HEODORE. Economic d e-
velopment: Concept and strategy.
New York: Harper & Row, 1975.
63. MOXON, RICHARD. "T he Costs, Con-
d itions, and Ad aptation of MNC T ech-
nology in Developing Countries," in
Research in international business
and
finance.
Vol I. Ed ited by ROBERT
G. HAWKINS. Greenwich, Conn: JAI
Press, 1977.
64. NAFZIGER, E. WAYNE. African capi-
talism: A case stud y in Nigerian enter-
preneurship. Stanford : Hoover Insti-
tution Press, 1977.
65. NUGENT , JEFFREY B. "Linear Pro-
gramming Mod elsfor National Plan-
ning: Demonstration of a T esting Pro-
ced ure," Econometrica, Nov. 1970,
38(6), pp. 831-55.
66. PACK, HOWARD. "T he Substitution of
Labour for Capital in Kenyan Manu-
facturing," Econ.
J,
March 1976,
86(341), pp. 45-58.
67. PAPANEK, GUST AV F. Pakistan's d e-
velopment, social goals and private
incentives. Cambrid ge, Mass.: Har-
vard University Press, 1967.
68. ROBINSON, JOAN. "Euler's T heorem
and the Problem of Distribution,"
64 Journal of Economic Literature, Vol. XVII
(March
1979)
Econ. J, Sept. 1934, 44(175), pp. 398-
414.
69. ROSENST EIN-RODAN, PAUL N. "Prob-
lems of Ind ustrialisation of Eastern
and South-eastern Europe," Econ. J,
June-Sept. 1943, 53(210-211), pp.
202-11.
70. SARACHEK, BERNARD. American En-
trepreneursand the Horatio Alger
Myth," J Econ. Hist., June 1978, 38(2),
pp. 439-56.
71. SCHULT Z, T HEODORE W. T ransform-
ing trad itional agriculture. New Ha-
ven: Yale University Press, 1964.
72. SCHUMPET ER, JOSEPH A. T he theory
of economic d evelopment: An inquiry
into profits, capital, cred it, interest
and the businesscycle. Cambrid ge,
Mass: Harvard University Press, 1934.
73. . Capitalism, socialism, and d e-
mocracy. T hird ed ition. New York:
Harper, [1942] 1950.
74. SHEAHAN, JOHN B. "Public Enterprise
in Developing Countries," in Public
Enterprise. Ed ited by WILLIAM G.
SHEPHERD et al. Lexington, Mass.:
Heath, Lexington Books, 1976, pp.
205-33.
75. SHILS, EDWARD A. T he intellectual
between trad ition and mod ernity: T he
Ind ian situation. T he Hague: Mouton,
1961.
76. SILBER, WILLIAM L. "T oward a T he-
ory of Financial Innovation," in
Financial innovation. Lexington,
Mass.: Heath, Lexington Books, 1975,
pp. 53-85.
77. SOLIS, LEOPOLDO. "A Monetary Will-
O'-T he Wisp: Pursuit of Equity
T hrough Deficit Financing." Mimeo,
Princeton University, 1976.
78. ST RACHAN, HARRY W. Family and
other businessgroupsin economic d e-
velopment: T he case of Nicaragua.
New York: Praeger, 1976.
79. ST RASSMAN, W. PAUL. T echnological
change and economic d evelopment:
T he manufacturing experience of
Mexico and Puerto Rico. Ithaca, N.Y.:
Cornell University Press, 1968.
80. T ENDLER, JUDIT H. Electric power in
Brazil: Entrepreneurship in the pub-
lic sector. Cambrid ge, Mass.: Harvard
81. T OBIN, JAMES. "Noteson the Eco-
nomic T heory of Expulsion and Ex-
propriation," J
Devel. Econ., 1974,
1(1), pp. 7-18.
82. T ODARO, MICHAEL. Economic d evel-
opment in the T hird World . New
York: Longman, 1977.
83. VANNEMAN, REEVE D. "Dominance
and Achievement in Entrepreneurial
Personalities," in Micro aspectsof d e-
velopment. Ed ited by ELIEZAR B.
AYAL. New York: Praeger, 1973, pp.
122-45.
84. UNIT ED NAT IONS. Yearbook of na-
tional accountsstatistics, 1967: Part
D: International tables. New York:
Author, 1968.
85. . Yearbook of national accounts
statistics, 1975. Volume III. Inter-
national tables. New York: Author,
1976.
86. WEBER, MAX. T he Protestant ethic
and the spirit of capitalism.
T ranslated by T ALCOT T PARSONS.
New York: Scribner, 1958.
87. WHIT E, LAWRENCE J. Ind ustrial con-
centration and economic power in
Pakistan. Princeton, N.J.: Princeton
88. . "T he Evid ence on Appropri-
ate Factor Proportionsfor Manufac-
turing in Less-Developed Countries:
A Survey," Econ. Devel. Cult. Change,
Oct. 1978, 27(1), pp. 27-59.
89. YOT OPOULOS, PAN A. ANDNUGENT ,
JEFFREY B. Economics of d evelop-
ment: Empirical investigations. New
York: Harper & Row: 1976.

AssociationEntrepreneurship and Economic DevelopmentThe Problem RevisitedAuthor Nathaniel HLeffSource

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

AssociationEntrepreneurship and Economic DevelopmentThe Problem RevisitedAuthor Nathaniel HLeffSource

Hochgeladen von

Copyright:

Verfügbare Formate

American Economic Association

Entrepreneurship and Economic Development: The Problem Revisited

Das könnte Ihnen auch gefallen