Bert Hoselitz on Entrepreneurship and Economic Development

A few posts and consequent conversations about Bert Hoselitz have appeared at Organizations and Markets in the last few years.

I discovered him when I found the reprint of his excellent piece on “The Early History of Entrepreneurial Theory”.

Others discovered him as the translators (with James Dingwall) of Menger’s Principles of Economics.

Hoselitz founded the journal Economic Development and Cultural Change and edited it for more than three decades. Indeed, economic development was his professional passion. He worked extensively in India and was part of the very active community of scholars from across the social sciences that were engaged in development projects supported by USAID, the UN, and the NGOs. One of his papers appears in a compendium of 45 articles on theory and practice of economic development that were gleaned from hundreds of papers presented at a conference in Geneva that marked the United Nations’ Decade of Development.

The paper by Hoselitz is similar to another he wrote for The American Journal of Economics and Sociology a decade earlier.

Both papers are built on the argument that economic progress in the post-colonial, post-WWII developing world can benefit from entrepreneurial activity in small- and medium-sized manufacturing companies if  (1) governments make sufficient investments in infrastructure, notably power and transportation; (2) there are stable institutions to support and protect contracts and market entry; and (3) governments do not embrace pan-economic central planning. He believes that mixed economies can work.

It appears to me that  Hoselitz was interested in the confluence of economics, sociology, and psychology in the creation of a class of entrepreneurs in developing countries. He draws on German Historical School traditions  in this endeavor, and from scholars associated with the School, notably Stombart and Weber. For Hoselitz, there is an entrepreneurial “type”; he follows Stombart, Erich Fromm, and David McClelland in looking for the personality of the entrepreneur, as opposed to the manager. He even goes so far in the earlier paper to use Russian industrial bosses as the polar opposite. (I suspect this was in part due to competition with the Soviets for the hearts and minds of the bulk of post-colonial tropical countries in economic development.)  Hoselitz brings the types and the institutional environment together:

“The underdeveloped countries are thus in a situation in which the men playing the leading role in guiding economic development will be either of the manager type or the entrepreneur type in Redlich’s terminology. Given a level of economic advancement, it will depend on political decisions, as well as the sources of capital for investment, which of the two forms of business  leadership will prevail. If economic development is subjected to rigorous government control, or even if the public sector of the economy is large, the managers are likely to predominate and to impress characteristics of managerial activity on the ideas and practices of entrepreneurship in the developing country. On the other hand, if public enterprises remain rigidly confined to a limited set of industries and are elsewhere kept in the background and if sufficient private capital is forthcoming, a climate of genuine entrepreneurship, such as was present in western Europe during most of the nineteenth century, may predominate.” (1952, p.100)

There is one additional point that Hoselitz makes in both papers. He sees the preponderance of the entrepreneurial type and the entrepreneurial firm (i.e. small) in the finance and trading sectors of developing countries and very little in the manufacturing sector. He sees this as a capital access issue; traders and moneylenders turn small amounts of capital over often and under little uncertainty.  They have no (or few) nonfamily employees. To acquire capital assets, hire and manage employees, and to take on significant uncertainty requires financial and human capital, which are both scarce.

In the later paper, he introduces a tantalizing term: pariah entrepreneurship, which he attributes to Weber. Entrepreneurial types perform entrepreneurial functions in economies where they are outside the political, social, and economic power circles. Weber spoke of the Huguenots and Jews, and Hoselitz speaks of  Middle Eastern traders in post-colonial Africa.  These pariahs are, in fact, able to fill niches in the markets (e.g. the rural-urban interface, small scale retailing and finance) because the institutional environment permits it. Hoselitz notes that it was a remnant of Western European institution-building during colonization.

This intrigues me. In what other forms does the pariah become an entrepreneur? Can we extend this to personalities or to outsiders from other economic sectors (stockbrokers becoming successful winemakers, perhaps)? While in France this week, I’ll ponder this over glasses of wine.

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About Randy
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