INTRODUCTION

The understanding of entrepreneur owes much to the work of economist Joseph

Schumpeter and the Austrian School of economics. In Schumpeter ( 1950 ), an

entrepreneur is a person who is willing and able to convert a new idea or anvention into a

successful innovation. Entrepreneurship forces “creative destruction” across markets and

industries, simultaneously creating new products and new models. In this way, creative

destruction is largely responsible for the dynasism of industries and long-run economic

growth. Despite Schumpeter’s early 20thcentury contributions, the traditional

microeconomic theory of economics has little room for entrepreneurs in its theoretical

frameworks ( instead assuming that resources would find each other through a price

system ). ( The economist Magazine, March 11,2006, pp 67 ).

Entrepreneurship received a boost in the formalized creation of so-called

incubators and science parks ( e.g.,those listed at NBIA.org ), where business can start at

a small scale, share service and space while they grow and eventually move into space of

their own when they have achieved a large enough scale to be viable stand-alone

businesses. It is being encouraged in an effort to revitalize fading downtowns and inner

cities in America, which may have excellent resources but suffer from a lack of spiritied

development.

For Frank H. Knigh ( 1967 ) and Peter Drucker ( 1970 ) entrepreneurship is about

taking risk. The behaviour of the entrepreneur reflects a kind of person willing to put his

or her career and financial security on the line and take risks in the name of an idea,

spending much time as well as capital on an uncertain venture. Still another view of

entrepreneurship is that it is true the process of discovering, evaluating and exploiting

opportunities, which go on to reify themselves in the form of new business ventures. In

this model an entrepreneur could be defined as “someone who acts with ambition beyond

that supportable by the resources currently under his control, in relentless pursuit of

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opportunity” ( a definition common entrepreneurship professors Howard Stevenson and

Jeffry Timmons ). Pinchot ( 1985 ) coined the term Intrapreneurship to describe

entrepreneurial-like activities inside organization and government. The concept is

commonly referred to as Corporate Entrepreneurship. The place of the disharmony-

creating idiosyncratic entrepreneur in traditional economic theory ( which describes many

efficiency-based ratios assuming uniform outputs ) presents theoretic quandaries. William

Baumal has added greatly to this area of economic theory and was recently honored for it

at the 2006 annual meeting of the American Economist Association. ( The economist,

March,2006,pp 67 ). Entrepreneurship is widely regarded as an intergral player in the

business culture of American life and particularly as an engine for job creation and

growth. Robert Sobel published The Entrepreneurs : Explorations Within the American

Business Tradition in 1974.

Entrepreneurs have many of the same character traits as leaders. Similarly to the

early great man theories of leadership; however trait-based theories of entrepreneurship

are increasingly being called into question. Entrepreneurs are often contrasted with

managers and administrators who are said to be more methodical and less prone to risk-

taking. Although such person-centric models of entrepreneurship have shown to be of

questionable validity, a vast but clearly dated literature studying the entrepreneurial

personality found that certain traits seem to be associated with entrepreneurs :

i. David McClelland ( 1961 ) described the entrepreneur as primarily motivated by

an overhelming need for achievement and strong urge to build.

ii. Collins and Moore ( 1970 ) studied 150 entrepreneurs and conclude that they are

tough, pragmatic people driven by needs of independence and achievement. They

seldom are willing to submit to authority.

iii. Bird ( 1992 ) sees entrepreneurs as mercurial that is prone to insight, brainstorms,

deceptions, ingeniousness and resourcefulness. They are cunning, opportunistic,

creative and ansentimental.

iv. Buseniz and Barney ( 1997 ) claim entrepreneurs are prone to overconfidence and

over generalizations.

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v. Cole ( 1959 ) found there are four entrepreneur : the innovator, the calcuting

inventor, the over-optimistic promoter and the organization builder. These types

are not related to the personality but to the type of opportunity the entrepreneur

faces.

vi. Burton W.Folsom, Jr. distinguishes between what he calls a political antrepreneur

and a market entrepreneur. The political entrepreneur uses political influences to

gain income through subsidies, protectionism, government-granted monopoly,

government contracts, or other such favorable arrangements with governments

( see crony and corporate welfare ). The market entrepreneur operates without

special favors from government.

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CHAPTER 1 : SOCIAL

1.1 THE SOCIAL

Entrepreneurship cannot be fully understood without making reference to the socio

culture context in which it rises and develops. The entrepreneur is an innovator who

combines and transforms the factor such as labor, land, and capital, but also knowledge

and social capital in order to produce value-added goods and services to be sold in a more

or less competitive market, within a given context. The socio-culture environment

influences entrepreneurial attitudes and motives, the resource that can be mobilized, the

constraints and opportunities related to starting and expending a business and the culture

climate that can either legitimize or hinder the entrepreneurial role.

To put it differently, based on the theory of corporate social responsibility and

stakeholder relation, (Freeman, 1984; Clarkson, 1995; Chiesi, Martinelli, and Pellegatta,

2000), the context of entrepreneurship can be realyzed in terms of a plurality of

stakeholders. All those groups and individuals whose cooperation is needed for a

successful business performance and who have claims, rights and interests at stake with

the firm’s activities: shareholders and investors, employees, consumers/clients, supplies,

and the various communities which provide the infrastructures, laws, non violent

conflicts regulation, and social legitimation. The analysis in term of social deviance and

ethnic marginality, structural and cultural contextual variables, of situational constraints

and opportunities, in the light of such concepts as double embeddedness, stakeholder and

institutional mix. Finally, ethnic entrepreneurship as a paradigmatic case.

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1.2 RELATIONSHIP BETWEEN ENTREPENEUR AND SOCIAL

Schumpeter (1942) contributed to the study of the context of entrepreneurship not

only analysis of the culture roots of entrepreneurial conduct, but also through the

investigation of the relationship between the entrepreneurial function and the bourgeois

class, which is closely related to the question of weather entrepreneurship is a universal

or a historically contigent phenomenon. The capitalist entrepreneur takes advantage of

rationally based components of his social and cultural environment, such as money,

science and individuals freedom, and orients his conduct to rational values, but not to

average product of capitalist culture. In capitalist society, the bourgeoisie is the leading

class, because bourgeois families have performed the innovating and leadership in the

economy and because they acquire, consolidate and transfer prestige, power and wealth o

future generations.

Ethnic and migrant entrepreneur tend to crowd in low threshold markets, where

entrance rules are either rather inclusive or exclusive and loosely enforced, and where

capital requirement and economics of scale are small. But a firm’s changes of survival

are smaller in low threshold markets (as shown by the high mortality rates of this kind of

firm). Ethnic and migrant entrepreneurs who survive and grow are, therefore, those who

possess resources to gain competitive advantages and set barriers of newcomers through

product, process and marketing strategies, and who operate in market niches.

Typical examples of product innovation are found in new product mixes for

leisure activities such as inter-ethnic food and music and in new location for old product

in clothing, home furniture, oriental medicine practices. Ethnic and migrant entrepreneur

innovation takes advantages of the hybridization and expansion of consumer tastes,

which are fostered by globalization. This kind of strategies runs against the thesis of

economic assimilation in “normal market” as the key to ultimate success for ethnic and

migrant entrepreneurs.

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Flexible employment practice, low-skilled tasks and externalization of costs

through outsourcing are the most frequently applied strategies for process innovation

among ethnic firm (Ram, 1994).other strategies include the employment of irregular

immigrant labour with low wages and no labour rights ( Martinelli, 2002b).

Sociological research on ethnic entrepreneurship shows how bounded solidarity

and enforceable trust the important or entrepreneurial success as sourses of social capital

(Coleman, 1989). They are contrasted to the corresponding values of the cultural

credentials of the economic approach. Bounded solidarity is created among immigrant

customers, workers and investors because they are treated as foreigners and they.

Throughout the theoretical history of entrepreneurship, scholars from multiple

disciplines in the social sciences have grappled with a diverse set of interpretations and

definitions to conceptualize this abstract idea. Over time, "some writers have identified

entrepreneurship with the function of uncertainty-bearing, others with the coordination of

productive resources, others with the introduction of innovation, and still others with the

provision of capital" (Hoselitz, 1952).

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CHAPTER2 : TECHNOLOGY

2.1 THE TECHNOLOGY

The innovation theories, Schumpeter (1936) is the most influent scholar in thias

perpective. His contribution highlighted the importance of individuals in pursing

innovation, through new goods and services, new process, new raw materials,

reorganization of an industry. Further contributions in this perspective argued that

innovation extended to technological transfer and timing in new product launch, 9

( Baumol, 1993)

Individuals who create companies are called entrepreneurs. These people decide

to start a business and are either successful or unsuccessful.  The Webster dictionary

defines an entrepreneur as “one who organizes, manages, and assumes the risks of a

business or enterprise.” Individuals who decide to become entrepreneurs believe that

their best career opportunity is starting, managing, and owning all or part of a company

rather than working for others.

There are numerous definitions of entrepreneurship.  For example, a leading

textbook defines entrepreneurship as “the pursuit of opportunity without regard to

resources currently controlled.”  A practicing entrepreneur who has thought a great deal

about the subject, ( Bob Reiss, 2000 ) has expanded this definition to include the

recognition of the opportunity and includes certain characteristics of entrepreneurs.  His

definition of entrepreneurship expands the definition above and is “the recognition and

pursuit of opportunity without regard to the resources you currently control, with

confidence that you can succeed, with the flexibility to change course as necessary, and

the will to rebound from setbacks.”  The latter definition will be used in this web site and

an entrepreneur will be considered a person who pursues entrepreneurship.

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Technological entrepreneurship is a key source of economic and progress. It

refers to creation of new firms by independent entrepreneurs and corporations to exploit

technological discoveries. These new firms create jobs, contributes to the well beign of

their communities and generate wealth for their owners ( Bhide, 2000). These firms are

also the change makers in their respective industries as they bring in new technological

paradigms that alter the dynamics of competition and rules of rivaly ( Acs and Audretscg,

1990 ).

8THE ENTREPRENEURIAL PROCESS

FOR A NEW BUSINESSOPPORTUNITY

Economics of New Businesses

Decide to Start a New

Business

Define and Analyze

New Ventures Technolog

yService

ProprietaryCommodity

Attracting Stakeholders

and Resources LAUNCHGROWTH

Legal Form of

Organization and

Taxation Issues

Business Planning

FinancingGrow and

Operate the Business

Become "Cash Cow"

Go PublicSell the Business

Liquidate

HARVEST

2.2 OPPORTUNITY

The first decision an entrepreneur must make is whether to start a new business or

purchase an existing one. This portion of the web site assumes the reader wants to initiate

a new business but many of the same concepts apply to buying an existing business.

The entrepreneur must have an idea. Initially, the individual may be thinking about

several new venture ideas. There are a variety of sources of ideas for new ventures. They

include are invitations from friends and business contact, prior employment, hobbies,

social encounters, observation, deliberate search, and copy other successful ideas.

In the process of identifying the prospects, the entrepreneur must decide whether

he/she wants to enter a commodity, proprietary, service or technology business. While it

is true that a technology business is a proprietary business, it is separated in this list

because so much venture capital is used in technology businesses versus other types of

new businesses. After the new venture opportunities are defined, the entrepreneur must

analyze them and decide which one to pursue. Once the entrepreneur has decided what

business to start, they must next attract stakeholder such as customers, employees,

investors and suppliers.

The entrepreneur must have customers or else the business will eventually die.

Finding and recruiting employees is an important function for the entrepreneur.

Sometimes it is difficult to attract talented persons because there is concern whether the

organization has the funding. Obtaining funds from investors is always a challenging and

continuing activity for entrepreneurs. Suppliers often demand payment before delivering

items to new companies thus possibly causing cash flow problems for the new

entrepreneurial venture.

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2.3 GROWTH

Once the entrepreneur has launched the company, then the individual must

operate the company. Assuming the new venture is successful, the entrepreneur must

develop plans to grow the company. The entrepreneur must balance cash flow and growth

appropriately as well as the possible infusion of funds from external sources.

The entrepreneur must also prepare a business plan. The business plan is useful

for operating the company and raising funds for the venture and is such an important part

of the entrepreneurial process that entire books have been written about writing a

business plan book. The entrepreneur must determine the legal form for the company;

that is, one must decide whether the company will be a sole proprietorship, partnership,

corporation, limited liability company or some other type of legal entity. It is important

for the entrepreneur to consult a competent attorney and certified public accountant to

determine the best form of legal organization for the entrepreneur. Various taxation

issues will have to be considered as part of this decision. Finally, the entrepreneur must

decide how to finance the new venture. Some of the options for financing include the

entrepreneur, friends and family, angel investors and venture capitalists. Entrepreneurs

can also seek loans from banks and government organizations like the small business

administration.

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CHAPTER 3 : ECONOMIC

3.1 THE ECONOMIC

Shared knowledge and collective intelligence has replaced the three traditional

pillars of value creation: land, labor, capital. In this new age, nonetheless, knowledge

capacity is underutilized as many industry leaders do not recognize the power of

intellectual capital and favor more rigid approaches to managing people and the fountains

of innovation they represent, both individually and collectively. It is difficult for

traditional management to accept that voluntary and open, market-based communities of

knowledge practice provide flexible processes of disciplined pluralism and promote

innovation, as opposed to the rigid processes of forced allegiance to other forms of

knowledge management, such as through guilds. Therefore, the fundamental political

problem of knowledge-led economic growth is that of devising the appropriate means for

channeling government action into support for markets driven by community knowledge

practices.

With the advent of the knowledge economy, the stage has been set for ensuring

the flow of knowledge and intangible assets (e.g., brands, patents, R&D projects, trained

staff) by means of policy measures. Accordingly, policymakers step into the role of

context builder that should favor human interactions for the transformation of those assets

into wealth creating resources. The prevailing doctrine, stated simply, is that

policymakers have to deploy and direct resource towards the intellectual capital with a

view to exercising more effective sway over individuals and organizations that create,

disseminate and transform knowledge.

If there were a growing recognition among policymakers that the power of

knowledge innovation is a fundamental driver of strategic changes, governments,

accordingly, would do much to downplay subsidies as a way of promoting knowledge

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innovation. In the frame of open-ended market guidance, a new knowledge policy would

be structured by which more stress would be laid on a greater role for the array of

initiatives that free agents could put in practice both within national frontiers and across

borders.

In as much as the international community were to become committed to

sustaining the emerging trend and accounting for the challenges of the knowledge

economy, policymakers would be focusing more attention on the principles of freedom,

openness and institutional fluidity of knowledge innovation communities, which embody

the principles of the free-market economy, are on sustained trends of growth

improvement.

The greatest challenge firms face today, in the knowledge economy age, is that of

being connected with knowledge innovation agents in a meaningful way to enhance their

capacity to handle innovation as the process to put knowledge into action. The economic

policy that complies with this challenge contends that free makers of knowledge

innovation and free knowledge markets are corollaries, and hence embraces the principle

of a light, free market-supporting regulation.

The value proposition of knowledge policy is that it helps shape a new market

context in which a powerful step toward building a knowledge-intensive economy is

taken by communities of free agents of knowledge innovation. By this view, the struggle

of the free economy remains at the heart of the debate on knowledge-relevant economic

policy.Throughout the theoretical history of entrepreneurship, scholars from multiple

disciplines in the social sciences have grappled with a diverse set of interpretations and

definitions to conceptualize this abstract idea. Over time, "some writers have identified

entrepreneurship with the function of uncertainty-bearing, others with the coordination of

productive resources, others with the introduction of innovation, and still others with the

provision of capital" (Hoselitz, 1952). Even though certain themes continually resurface

throughout the history of entrepreneurship theory, presently there is no single definition

12

of entrepreneurship that is accepted by all economists or that is applicable in every

economy.

2.2 LINK WITH ENTREPENEUR

Although there is only limited consensus about the defining characteristics of

entrepreneurship, the concept is almost as old as the formal discipline of economics itself.

The term "entrepreneur" was first introduced by the early 18th century French economist

Richard Cantillon. In his writings, he formally defines the entrepreneur as the "agent who

buys means of production at certain prices in order to combine them" into a new product

(Schumpeter, 1951). Shortly thereafter, the French economist J.B. Say added to

Cantillon's definition by including the idea that entrepreneurs had to be leaders. Say

claims that an entrepreneur is one who brings other people together in order to build a

single productive organism (Schumpeter, 1951).

Over the next century, British economists such as Adam Smith, David Ricardo,

and John Stuart Mill briefly touched on the concept of entrepreneurship, though they

referred to it under the broad English term of "business management." Whereas the

writings of Smith and Ricardo suggest that they likely undervalued the importance of

entrepreneurship, Mill goes out of his way to stress the significance of entrepreneurship

for economic growth. In his writings, Mill claims that entrepreneurship requires "no

ordinary skill," and he laments the fact that there is no good English equivalent word to

encompass the specific meaning of the French term entrepreneur (Schumpeter, 1951).

The necessity of entrepreneurship for production was first formally recognized by

Alfred Marshall in 1890. In his famous treatise Principles of Economics, Marshall asserts

that there are four factors of production: land, labor, capital, and organization.

Organization is the coordinating factor, which brings the other factors together, and

Marshall believed that entrepreneurship is the driving element behind organization. By

creatively organizing, entrepreneurs create new commodities or improve "the plan of

producing an old commodity" (Marshall, 1994). In order to do this, Marshall believed

that entrepreneurs must have a thorough understanding about their industries, and they

must be natural leaders. Additionally, Marshall's entrepreneurs must have the ability to

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foresee changes in supply and demand and be willing to act on such risky forecasts in the

absence of complete information (Marshall, 1994).

Like Mill, Marshall suggests that the skills associated with entrepreneurship are

rare and limited in supply. He claims that the abilities of the entrepreneur are "so great

and so numerous that very few people can exhibit them all in a very high degree" (1994).

Marshall, however, implies that people can be taught to acquire the abilities that are

necessary to be an entrepreneur. Unfortunately, the opportunities for entrepreneurs are

often limited by the economic environment which surrounds them. Additionally, although

entrepreneurs share some common abilities, all entrepreneurs are different, and their

successes depend on the economic situations in which they attempt their endeavors

(Marshall, 1994).

Since the time of Marshall, the concept of entrepreneurship has continued to

undergo theoretical evolution. For example, whereas Marshall believed entrepreneurship

was simply the driving force behind organization, many economists today, but certainly

not all, believe that entrepreneurship is by itself the fourth factor of production that

coordinates the other three (Arnold, 1996). Unfortunately, although many economists

agree that entrepreneurship is necessary for economic growth, they continue to debate

over the actual role that entrepreneurs play in generating economic growth. One school of

thought on entrepreneurship suggests that the role of the entrepreneur.

National macroeconomic policies as well as global international economic forces

are shaping the business environment in which the modern entrepreneur operates. If

he/she is to survive and/or benefit from the impact of market globalization, the

understanding and access to information on economics, macroeconomic analyses and

focecasts, short and long term economic trends, monetary and financial developments,

international economics, etc. are vital to his/her operations. This page lists and rates

electronic resources related to economics, economic development and international

economics.

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CHAPTER 4 : CULTURE

4.1 THE CULTURE

More than one more a leg of a social system oriented to the enterprising culture

and the innovation, is the essential foundation. That three of their priorities of

government were education, education and education.

Then in the subject of the enterprising culture the priorities would have to

be education, education, education, education and education. Education to our children so

that they have a creative, innovating and enterprising mentality - to not only create

companies -. Education to the investing futures to understand the value of the ideas over

the money and that the investments, aside from personal monetary yield must also

produce social yield in form of general value and wealth. Education to that they will have

to decide investments of capital risk and in great companies in the mentality gain-of

winning and of the collaboration over the one to take it everything to it and to absorb.

Education to the managing futures public in delimiting the space in which they

can really contribute value. And, finally, education for which is to educate our daughters.

Because after all, as a person of the sector of education said to me kill a time, how it is

possible to be educated in the enterprising mentality if those that have it to do not have it.

As I always say, the future on the Catalan economy within twenty years she depends

more on the Conselleria de Enseñanza that of the economic ones. We will understand it

sometimes.One fourth leg of a system that creates innovating companies must be, at least

in Europe by its special idiosincracia, a sector of capital powerful public risk. However,

the capital public risk would not be due to move such exactly by criteria that the capital.

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4.2 WILD AND CRAZY INCENTIVES

Entrepreneurs may seem crazy to people on the outside looking in, but if they're

crazy, they're crazy like foxes. Out of their surprising antics and counterintuitive actions

come unique and strong cultures that serve to inspire and motivate employees and

customers. Entrepreneurs who are not afraid to do apparently wild and crazy things not

only create powerful cultures, they leave their own inimitable mark on their

organizations. Some examples:

Traveling band. Dennis Garberg of the Sunflower Group, a promotional services

supplier, has created a "Nitty Gritty Dirt Band" with employees. He plays lead

(and only) harmonica. The band travels to the company's best customers and

entertains them with music and barbecue to show appreciation for their

businesses. The employees say they get a real kick out of seeing their president

and CEO rock-and-roll on the harmonica, even though Dennis knows he looks a

little silly and says he is not really very good. So, why does he do it? To

encourage what he likes to call "reasonable risk-taking" in the company and to

help create an environment that's both participatory and productive.

"Glammy" Awards. Connie Suss and her partners run the Bijin Salon and Day

Spa, a wellness and beauty center. In addition to events for employees like Hat

Day, Wig Day and Spring Madness Day, she orchestrates an annual "Glammy"

award presentation. The evening celebrates the company's success by giving

employees amusing prizes for everything from superior phone answering to

giving great massages. In addition to recognizing the special attributes of

employees, the awards reinforce all the values that Connie and her partners

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believe are critical to success. Their goal with events like this is to create an

environment in which employees can pursue "Wow!" reactions on a daily basis.

Golden Bell/Magic Bus. Drew Hiss wants his employees at Paydata, a payroll

processing service, to know that he values them. He arranges summertime fish-fry

dinners and guided fishing trips for them. His other wild and crazy ideas include

the "Golden Bell" that's rung in the office whenever an employee gets a new order

or kudos from a customer. The bell rings a lot. And the "Magic Bus" appears now

and then to take employees to a special lunch or even to a bowling alley, as a way

to thank them for their efforts.

Jeopardy game. Tray Vedock, head of SKC Communication Products, a

distributor of telecommunication equipment, loves to play a Jeopardy-type

incentive game with employees to encourage a proactive attitude and increase

sales. His prizes are unusual. The champion of one game won a month's car

payment. I'd like to get into that game! It tells Tray's employees that a positive

attitude and higher performance go together in his company.

Day trips. Michael Carter, president of Carter Broadcasting Group, surprises

employees with day trips. One of the latest was to a local casino where employees

were put in teams, given some cash and told to work together to maximize their

winnings. His philosophy is, "Together we win; together we lose." He wanted to

reinforce the importance of that philosophy in his organization.

Fire walk. Jeff Smith runs i2b Labs, a dot.com incubator. He gave employees in

one of his companies the astonishing opportunity to walk over hot coals barefoot

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—and led the way himself. Even those who were hesitant at first managed to get

across. The event not only helped build relationships and enhance trust among his

employees, it also created a memorable life experience.

4.3 THE POWER OF CULTURE

Entrepreneurs in successful companies create cultures that have meaning for

employees. The meaning is a reflection of the entrepreneur's own values and beliefs. By

daring to be a bit wild and crazy, by experimenting with events and activities, you'll learn

what works and what doesn't in reinforcing the culture that you want to create. At the

same time, the wild and crazy things you do to enhance culture form the mythology of

the company. They become part of the story that communicates what's important around

here and how people ought to act at work.

Entrepreneurs and employees in growth companies often tell me they want to be

involved in an organization that's "fun." Entrepreneurs want to build a culture they can

enjoy, and employees want to work in a culture that's enjoyable to be part of. By being

wild and crazy, entrepreneurs can achieve both.

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CHAPTER 5 : POLITIC

5.1 THE POLITIC

Politic is an adjective formal behaviour that is politic is very sensible. ( Mac

Millan : 1090, 2002 ).In politic everyboby that involve in this field have to take a risk to

maintain. Why the politic is one of the environment of the entrepreneur? The answer is

politic has a big influence in the entrepeneurship. Politic is related with government and

the law in the country. If we want to build a business and want to be an successful

entrepreneur we should have a good relationship in the three of these.( Hebert, R.F. and

Link, A.N.; 53,1988 ).

A free , open minded society spawns entrepeneurship and increases the rights and

responsibilities of each citizen. Perpetuating an entrepeurial environment is one of

America’s greatest challenges as well as our brightest hope. The collective welfare of our

workers , savers ( investors ) and successors depends upon successful new business

formations. Without the revenue from these dynamic , rapidly growing enterprise the

regnant demands of our body politic will clearly go unfunded. ( Mc Clelland ; 43,1961 ).

At their best,entrepreneurs embody a dynamic combination of business acumen

and civic responsibility. They make a lasting impact on their industries, thanks to their

capacity for self direction, determination, creativity,leadership and integrity. They also set

on example in the business community by sharing the rewards of their professional

success by participating in community, charity and civic leadership.

There is a growing interest among economists in studying the implications of

political connections,particularly in the business world of developing and transition

countries. It hasbeen found that political connections help firms to secure favorable

19

regulatory or tax conditions (Faccio 2005) and obtain access to resources such as bank

loans (Khwaja and Mian 2005), which ultimately increase the value of firms (Shleifer and

Vishny 1994; Fisman 2001).

Despite a vast accumulation of evidence on the relationship between political

connections and economic benefits, most works in this literature assume that

entrepreneurs have political connections and researchers have largely overlooked another

important question: Why do entrepreneurs enter politics? Our purpose in this paper is to

answer this question. There has also been a voluminous literature that examines the

underdevelopment of markets and market-supporting institutions in developing and

transition economies. Governments in these countries normally possess considerable

control over the allocation of resources either through their power of planning or through

their control of state-owned enterprises, including banks (Nee 1992; McMillan 1997).

Because of the high degree of control exercised

by these governments and the imperfections in the product and credit markets, private

businesses cannot fully rely on the markets to secure resources.

The same governments may Also intervene in private business by frequently

imposing unnecessary regulations (red tape) and/or very high tax rates (Johnson et al.

2000; Hellman and Kaufmann 2003; Guriev 2004). According to De Soto (1989) and

Brunetti et al. (1997), these regulations and taxes have come to impose considerable costs

on private firms in transition economies. Apart from the weaknesses in state and market

institutions, the legal systems in these countries are also very weak (Hay and Shleifer

1998). Because laws are either non-existent or are not enforceable, entrepreneurs cannot

rely on the legal system to secure property rights and to enforce contracts (McMillan and

Woodruff 1999a; Frye and Zhuravskaia 2000).

Because of the lack of market-supporting institutions, private entrepreneurs in

these countries either are passive victims or have to rely on other institutions to do

business. Entrepreneurs in Eastern Europe and Russia have been observed to go

underground to escape over-regulation and high taxes (Johnson et al. 1997, 1998;

Friedman et al. 2000). In Vietnam, the courts are incompetent, and entrepreneurs there

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depend heavily on relational contracting in order to lower their contract enforcement

costs (McMillan and Woodruff 1999a, 1999b). In China, to overcome these institutional

difficulties, local governments themselves became involved in business operations, and

this led in the 1980s to the creation of an exceptionally innovative government ownership

form known as the Township-Village Enterprises (TVEs).1 A recent study by Djankov et

al. (2005) finds that entrepreneurs are less likely to expand their businesses if local

institutions are weak. Another response to state and market failures, one which has been

much overlooked in the literature, occurs where entrepreneurs actively participate in

politics to overcome the lack of well-functioning markets and market-supporting

institutions. Or, to put it the other way round, entrepreneurs’ motivation to participate in

politics is shaped by the institutional environment in which they operate (Bartels and

Brady 2003). Many entrepreneurs in Russia, to defend themselves against “legislation

that could raise their taxes, tie them to red tape, or threaten their property rights,” are

vying to secure a seat in the Duma, the popularly elected lower house of Russia’s

legislature. Dmitry Orlov, a political scientist at the Independent Center for Political

Technologies in Moscow, estimates that one fifth of the Duma’s 450 seats are going to be

directly occupied by business people, and twice as many as that (about

180 positions) could go to business lobbyists representing their clients’ interests

(Business Week, Dec 8, 2003). Likewise, an increasing number of businessmen in

Vietnam are running for the National Assembly, the country’s highest legislative body

(Far Eastern Economic Review, May 9, 2002).

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REFERENCES

Mc Clelland, D. The Achieving Society, Van Nostrand, Princeton NJ, 1961.

Mac Millan , English Dictionary ; Advanced Learners,International Student Edition,

2002.

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