From the Managed to the Entrepreneurial Economy: Considerations for Developing and Emerging Economies

Abstract

Capital and labour are the essential input factors of large-scale production that dominated the business world in modern developed economies until the late 1980s. The increasing level of transaction costs (Coase 1937) incurred in large-scale production dictated increasing firm size over time. Indeed, statistical evidence points towards an increasing role of large enterprises in the economy in this period (Brock and Evans 1989; Caves 1982; Teece 1993). This development towards large-scale activity was visible in most modern developed economies. In this same period, the importance of self-employment and small business seemed to be waning. More recently, with knowledge¹ being recognized as a vital factor in endogenous growth models many scholars further predicted that this would render self-employment and small firms even more futile. How could they generate the means and insights to exploit R&D activities, to employ highly trained knowledge workers and to bring their efforts to the patent or even the commercial stage? Basically, scholars conclude that with the arrival of knowledge as a production factor the world of business becomes dominated by exporting giant firms.² This is the world of global markets, global products and global players. Small firms were thought to be at a disadvantage vis-à-vis larger firms because of the fixed costs of learning about foreign environments, communicating at long distances and negotiating with national governments.