GREG CLYDESDALE is professor of economics at the Department of Management and Inter-
national Business, Massey University, New Zealand.
ECONOMIC DECLINE AND THE FAILURE
OF CHINESE ENTREPRENEURS
GREG CLYDESDALE
In his book The Theory of Economic Development, Schumpeter (1934)
pointed out that entrepreneurs are prime movers of economic change. The
entrepreneurs described by Schumpeter were innovators. They opened
new markets, created new types of industrial organization, and introduced
new goods, production methods, and new sources of materials. This innova-
tive entrepreneur stands out like an economic hero whose creativity invigor-
ates the economy with new ideas that lead to economic growth. But less imag-
inative entrepreneurs can also play an important role. They can copy the
business ideas of others and, in so doing, play an important role in spreading
new business techniques and raising productivity throughout an economy
(Baumol 1988). The economic importance of the entrepreneur was again
stressed by Birch (1979) who found that new and growing smaller firms
account for 81.5 percent of new jobs. Given this role, it raises concern when
entrepreneurs fail to seize opportunities and the economy stagnates. It leads
to two questions. The first is “why might entrepreneurs fail to seize opportu-
nities” and second “what is the relationship between entrepreneurial failure
and economic decline?”
Orthodox economics says little about entrepreneurial failure. In the ortho-
dox neoclassical world, entrepreneurs were agents who exploited environ-
mental changes in a rational way. For example, if a change in the price of one
industry reduced its profitability, the entrepreneur would reduce investment
in that industry, and the economy would see a shift of resources to other more
profitable industries. Entrepreneurs built businesses on the basis of profit
that was calculated on the basis of price of the goods they sold and the price
of the inputs used. As entrepreneurs responded to price signals, the resources
in an economy w