Why You Know More About Entrepreneurship Than Economists
A single fact throws much of what we think we understand about entrepreneurship into confusion: over 90% of successful entrepreneurs make less money than other people who perform similar tasks and similar responsibilities, even after ten years of running their business. For example, an entrepreneur who owns a restaurant will most likely make less money over ten years than a person who manages a restaurant of a comparable size. This leads to a curious paradox: entrepreneurship, as a powerful engine of job creation, is an important economic activity, but economics can’t help us understand it—or even make sense of it.
From the point of view of the rational actor at the heart of classical economics, those who choose to become entrepreneurs are acting irrationally. And in the U.S., the proportion of entrepreneurs who choose entrepreneurship—about 86%, in the most recent estimate—vastly exceeds the percentage of those who are driven to it by necessity.Yet most economics textbooks and graduate programs in economics leave entrepreneurship out of account. And the mathematical models favored by modern economists, though heavily empirical, fail to account for motives and values other than generalizing them as “non-pecuniary.”