Abstract
Amidst considerable debate on the relationship between entrepreneurship and economic inequality, scholarship only indirectly addresses how entrepreneurship informs individuals’ relative well-being. We theorize on the nuanced relationship between entrepreneurship and equality of eudaimonic well-being through the lens of New Institutional Economics. Drawing on theories of human flourishing, we suggest that entrepreneurial action is an underappreciated mechanism by which individuals pursue well-being. Equality of well-being is thus influenced by a society’s entrepreneurial accessibility: the freedom of individuals to choose to engage in entrepreneurial action. We present a multilevel framework in which institutional factors enable entrepreneurial action by promoting entrepreneurial accessibility—a factor, that, in turn, affects well-being for individual entrepreneurs as well as societal eudaimonic equality. The ex ante conditions for equality of well-being entail institutions that yield broad entrepreneurial accessibility. Our work highlights the institutional prerequisites for human flourishing in the entrepreneurial society beyond (unequal) economic distributions.
Plain English Summary
So much attention is given to entrepreneurship’s relation to income inequality that the more fundamental issue of well-being is often overlooked. Where many look to the relative equality of incomes as a societal benchmark, we call for a focus on equality in the opportunity to pursue well-being. We further suggest that engaging in entrepreneurship is a vital means of this pursuit. In turn, the freedom to pursue entrepreneurship regardless of social status or background becomes a central factor in the relative well-being of members of society—even for those who do not choose entrepreneurship. Thus, the major implication of this study is that rather than seeking to equalize outcomes, policy should be designed to promote the freedom for individuals to flourish—especially through entrepreneurial action.
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Notes
From 1820 to 2020, world population increased sevenfold, from one billion to 7.9 billion people. Hence, global GDP was more than 100 times larger in 2020 than in 1820. See also https://data.worldbank.org/.
Although we focus on entrepreneurship in the economic sphere, our logic also applies to other spheres, notably social and political entrepreneurship.
Empirically, indices attempting to measure inequality of opportunity at the cross-country level yield highly different results and country rankings (Brunori et al., 2013).
These studies leverage mathematical properties like deviation (e.g., the Gini coefficient), combinatorics (e.g., Herfindahl–Hirschman concentration indices), or entropy (e.g., Theil’s index).
Importantly, preferences (e.g., risk preferences and aspirations) and personality do not directly restrict the individual’s choice set; rather, they influence the choices that this person makes from that set. This is not to say that individual beliefs like self-efficacy or locus of control are unimportant; after all, entrepreneurial accessibility is perceptual and based on the individuals’ subjective assessment of the conditions they face. Furthermore, research finds an important interaction between individual-level traits and country-level institutions, e.g., Boudreaux et al. (2019). They find that entrepreneurial self-efficacy and opportunity recognition are positively associated with entrepreneurial activity, and this effect is even stronger in countries with good institutions. Whereas fear of failure discourages entrepreneurship, and those who fear failure less benefit more from good institutions. Hence, both the social and individual environment are important considerations.
A wide-tent conception defines entrepreneurs as “social change agents who, despite the radical uncertainty we all necessarily confront in the world, notice, cultivate, and exploit opportunities to bring about economic, social, political, institutional, ideological, and cultural transformations” (Storr, Haeffele-Balch & Grube, 2015, p. 123). Even though social entrepreneurship may have important linkages to well-being, we elect to focus on profit-driven entrepreneurship in the economic sphere to make the analysis more tractable. The profit-driven category can be further defined and measured. While public discourse often equates the terms entrepreneurship and self-employment or new firm formation, evidence suggests a country that fosters a small share of (Schumpeterian) high-growth firms or high-impact firms will see more economic growth (Henrekson & Sanandaji, 2014, 2020; Shane, 2008). Entrepreneurship by employees of the firm, known as intrapreneurship (Parker, 2011, p. 19), has received a growing recognition of its importance in developed economies (Bosma et al., 2012). Furthermore, while entrepreneurial success cannot be known in advance, a crucial predictor seems to be whether entrepreneurship is motivated by opportunity or necessity—whether one becomes an entrepreneur because of a potent business idea or for other reasons, such as a lack of a better means to earn a living—with the former being more conducive to economic growth (Vivarelli, 2013).
Of course, personal fulfillment is subjective; while some would like to explore outer space, others merely wish to savor the ebb and flow of the seasons in a quiet life. Unlike the hedonic well-being tendency to focus on material goods, the eudaimonic perspective highlights that consumption is only valuable as a means to more fundamental human goals (Sen, 1980). This view of well-being suggests deeper limitations of a “pure” focus on economic gains—in particular, neglecting how the institutional “rules of the game” constrain individual choice.
We thank an anonymous reviewer for pointing out that institutional rules are not solely beholden to private interests—political actors certainly influence the formation of these rules and institutions. Politicians too can have great influence on the outcomes of business (e.g., Ge et al., 2017).
The Legatum Institute (2020), https://www.prosperity.com/about/resources (accessed: 01/06/21).
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Acknowledgements
We are grateful for useful comments and suggestions from Alexander Cartwright, Jay Barney, Per Bylund, Maria Minniti, Mark Packard, and participants at the Academy of Management Perspectives Symposium Workshop at Oklahoma State University in May 2019.
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Elert and Henrekson received financial support from the Marianne and Marcus Wallenberg Foundation and Jan Wallanders och Tom Hedelius stiftelse.
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Boudreaux, C.J., Elert, N., Henrekson, M. et al. Entrepreneurial accessibility, eudaimonic well-being, and inequality. Small Bus Econ 59, 1061–1079 (2022). https://doi.org/10.1007/s11187-021-00569-3
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DOI: https://doi.org/10.1007/s11187-021-00569-3