**ENTREPRENEURSHIP, ENTREPRENEURS AND CORRUPTION:
CONCEPT, CHARACTERISTICS, SKILLS AND EFFECTS
Dr. Majid Zamahani
Department of Public Administration, Payame Noor University (PNU), Iran.
[email protected]
Abstract
The words entrepreneurship and entrepreneur have acquired special significance in
the context of economic growth in a rapidly changing socio-economic and socio-cultural
climates, particularly in industry, both in developed and developing countries. Therefore, an
entrepreneur is one of the important segments of economic growth. Basically, entrepreneur is
a person responsible for setting up a business or an enterprise. The relationship between the
entrepreneur, personality characteristics, values, and other dimensions helps explain why
some become entrepreneurs and others do not. Corruption also as an omnipresent
phenomenon is a serious problem in communities. Although corruption would appear to
affect entrepreneurs in the same manner as other investors – by changing the relative costs of
products and services – its effect on entrepreneurs appears to be more serious because it
changes the nature of the risks associated with entrepreneurial activities. Some scholars
believe that in some certain circumstances corruption helps entrepreneurship and business,
but overwhelming evidence in recent decades suggests that the impact of corruption has been
and continues to be negative on all fronts. However, this paper after reviewing the concept of
entrepreneurship, continues by looking at psychological characteristics of entrepreneurs such
as problem solving style and innovativeness, work experience, education, environment and
perception. Then, it examines the skill set of the entrepreneurs which gives them a
competitive edge over others. Finally, this article will try to deal with the consequences of
corruption on entrepreneurship through review of the literature in this connection.
Introduction
Entrepreneurs are risk takers. They are agents of change who can effectively live with
uncertainty and stimulate and implement lasting changes. Entrepreneurs can have a high
status in society as leasers of industry and of the nation. It is necessary to create employment
and to contribute to the growth of the economic wealth of a country. Entrepreneurs are also
free thinkers which implies a combination of a large element of creativity coupled with
experience, the knowledge of economic, social, psychological and demographic trends, plus
the experience base for comparison and being comfortable with new technology and change.
Therefore, entrepreneur is one of the most important inputs in the economic development of a
country or of regions within the country.
Corruption also increases poverty, subverts the financial system, endangers the social fabric
of the culture, lawlessness and insecurity, citizens’ distrust of the government, undermines
the legitimacy of the state and stifles entrepreneurial. Thus, corruption is anti-poor, antidevelopment, anti-growth, anti-investment, anti-entrepreneurship and inequitable. However,
the paper reviews the concept and nature of corruption and entrepreneurship and also
clarifying the consequences of corruption on entrepreneurs.
Concept of entrepreneurship
The concept of entrepreneurship has gained wide popularity in recent years around the globe.
A better understanding of entrepreneurship in the less developed countries could have a
particularly high return for mankind. “Entrepreneurship is clearly not a uniformly distributed
quality, yet the appearance of the entrepreneur is considered by most analysts to be
nonrandom. If scholars could identify the origins of entrepreneurship, policy-makers might
be able to develop educational methods for upgrading entrepreneurial skills”. (Broehl, Jr,
1982)
Many definitions of entrepreneurship can be found in the literature. The earliest definitions of
entrepreneurship are as follows:
“Entrepreneurship is defined as self-employment of any sort. Entrepreneurs buy at certain
prices in the present and sell at uncertain prices in the future. The entrepreneur is a bearer of
uncertainty”. (Richard Cantillon, 1730)
“Entrepreneurs attempt to predict and act upon change within markets. Knight emphasizes
the entrepreneur's role in bearing the uncertainty of market dynamics. Entrepreneurs are
required to perform such fundamental managerial functions as direction and control”. (Frank
Knight, 1921)
“The entrepreneur is the innovator who implements change within markets through the
carrying out of new combinations. The carrying out of new combinations can take several
forms; 1) the introduction of a new good or quality thereof, 2) the introduction of a new
method of production, 3) the opening of a new market, 4) the conquest of a new source of
supply of new materials or parts, 5) the carrying out of the new organization of any industry”.
(Joseph Schumpeter, 1934)
“The entrepreneur recognizes and acts upon market opportunities”. (Israel Kirzner, 1979)
The Entrepreneurship Centre at Miami University of Ohio has also defined the
entrepreneurship as the following: "Entrepreneurship is the process of identifying,
developing, and bringing a vision to life. The vision may be an innovative idea, an
opportunity, or simply a better way to do something. The end result of this process is the
creation of a new venture, formed under conditions of risk and considerable uncertainty".1
Therefore, entrepreneurial is often viewed as a function which involves the exploitation of
opportunities which exist within a market. Such exploitation is most commonly associated
with the direction and/or combination of productive inputs. Entrepreneurs usually are
considered to bear risk while pursuing opportunities, and often are associated with creative
and innovative actions. In addition, entrepreneurs undertake a managerial role in their
activities, but routine management of an ongoing operation is not considered to be
entrepreneurship.
Entrepreneurs: Concept, Characteristics and Skills
“Entrepreneurship is about people, their choices and actions in starting, taking over or
running a business, or their involvement in firm’s strategic decision making. It covers an
individual’s motivation and capacity, independently or within an organization to identify an
opportunity and to pursue it in order to produce new value or economic success”.
(Commission of the European communities, 2003)2.
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Entrepreneurs are important agents of change in every society, yet they are among the most
enigmatic characters in the drama of economic development particularly in the less developed
world. Although it is their purposive activity that bridges the gap between plan and reality,
the precise functioning of entrepreneurs is often unclear.
As early as the 1950s, researchers began looking for personality factors that determine who is
– and who is not – likely to become an entrepreneur. McClelland (1961) found that
entrepreneurs had a higher need for achievement than non-entrepreneurs and were, contrary
to popular opinion, only moderate risk takers.
A great deal of research on the personality characteristics and socio-cultural backgrounds of
successful entrepreneurs was conducted in the 1980s and 1990s. Timmons’ (1994) analysis of
more than 50 studies found a consensus around six general characteristics of entrepreneurs:
(1) commitment and determination; (2) leadership; (3) opportunity obsession; (4) tolerance of
risk, ambiguity and uncertainty; (5) creativity, self-reliance and ability to adapt; and (6)
motivation to excel.
Review of literature in this connection show that, entrepreneur is a person who habitually
creates and innovates to build something of recognized value around perceived opportunities.
However, the major characteristics of entrepreneurs that have been listed by many
commentators include the following.3
• Self confident and multi-skilled. The person who can 'make the product, market it and
count the money, but above all they have the confidence that lets them move comfortably
through unchartered waters'.
• Confident in the face of difficulties and discouraging circumstances.
• Innovative skills. Not an 'inventor' in the traditional sense but one who is able to carve out
a new niche in the market place, often invisible to others.
• Results-orientated. To make be successful requires the drive that only comes from setting
goals and targets and getting pleasure from achieving them.
• A risk-taker. To succeed means taking measured risks. Often the successful entrepreneur
exhibits an incremental approach to risk taking, at each stage exposing him/herself to only
a limited, measured amount of personal risk and moving from one stage to another as
each decision is proved.
• Total commitment. Hard work, energy and single-mindedness are essential elements in
the entrepreneurial profile.
If you are thinking of starting a business, you will need a broad array of entrepreneurial skills
to succeed in today's competitive market. You must possess basic skills necessary to enable
you to start, develop, finance, and market your own home business enterprises. There are a
number of qualities and skills you need to have, including personal attributes, business skills
and management capability. While you may not have all of them right now, according to
literature there are five basic skills you really must have to run any kind of business. These
five skills are:
1. Sales and marketing skills. Sales and marketing are the two most important skills you
must have when you plan to start your own business. A business is nothing if it has no
customers. To get customers, you must be able to market your business and possess the
skills to close the sale. As you plan your business, you must begin to think how to reach
your target audience and the people who may need your products or service. This entails
understanding the concept of marketing, and using the tools that your budget permits.
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You must have a knack for understanding what people wants, listening to their needs, and
interact well with other people.
It would be extremely helpful if you possess excellent written and oral communication
skills to help you sell your products and services (more so if you are a solo entrepreneur
who will be doing everything by yourself). You need to create a buzz about your business
by talking to people and presenting to them your business. You need to write ads, press
releases and story ideas about your business. Starting a business is a time to get out of
your timid self and begin to aggressively market your venture. That’s the only way you
can succeed.
2. Financial know-how: You are in business to make money. Therefore, the most important
skill you must have is the ability to handle money well. This includes knowing how to
stretch the limited start-up capital that you have, spending only when needed and making
do with the equipment and supplies that you currently have. You also need to identify the
best pricing structure for your business in order to get the best kind of return for your
products or services.
If you are able to manage your cash flow well when the business starts to run, you will be
able to survive the ups and downs of self employment.
3. Self-motivation skills: To succeed in business, you must be a self-starter with a clear
desired goal in mind. You must have the confidence in yourself, and in your ideas (how
can you sell your ideas to others if you yourself do not believe in them?). More
importantly, you must be willing to focus your energy and work hard towards each and
every step that will make your enterprise a success. Especially if you work at home, it is
doubly hard to get into the work mindset: sometimes, the television is just too tempting
that it is hard to get out of your pajamas and begin typing in your computer. You
therefore must have that extra drive and commitment to make sure that you are taking the
necessary steps to make your dream of a successful business a reality.
4. Time management skills. The ability to plan your day and manage time is particularly
important for a home business. When you wake up in the morning, you must have a clear
idea of the things you must do for the day. Especially if you are running a one-person
operation, you must have the ability to multi-task be the secretary at the start of the day
typing all correspondences and emails, become the marketing man writing press releases
before noon, make sales call in the afternoon, and become a bookkeeper before your
closing hours. Imagine if you are selling products and you still have to create the
products, deliver and fulfill the orders, rush to the bank to cash the checks. Lots of job for
a simple home-based business! No, you don’t have to be a superman (or superwoman).
You simply have to know how to manage time and prioritize your tasks.
5. Administration skills. If you can afford to hire an assistant who will organize your office
space and file your papers and mails, lucky you! However, most start-up entrepreneurs
cannot afford such luxuries. Over and above the tasks of managing, marketing and
planning your business, you also need to possess a great deal of administration skills. You
need to file your receipts so tax time will not be a trip to Hades. You need to do all the
work in terms of billing, printing invoices, collecting payments, and managing your
receivables.
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Starting a business is never easy, even if you have the perfect background and possess all
the above skills. Having all the needed skills and qualities will not even ensure your
success. But having these basic skills will, at least, lessen the pain of the start-up process,
giving you greater chance in seeing your business grow and prosper. Thus all these skills
leads to the success of the entrepreneur, and adds value in the present environment.
Corruption: Concept and Nature
Corruption has different meanings in deferent societies. One person’s bribe in some societies
is another person’s gift in others. A politician or political leader or public official who helps
friends, family members, and supporters may seem praiseworthy in some societies and
corrupt in others.
According to Tanzi (1995), “the term corruption comes from the Latin verb rumpere -to
break-. What is ‘broken’ might be a moral, a social norm or an administrative rule”. The
World Bank, the United Nation, the Council of Europe, the Organization for Economic
Cooperation and Development (OECD), the European Community and a number of
international anti-corruption organizations defines corruption as ‘an abuse of official position
for one’s own benefit or for the benefit of another’4.
Therefore, corruption is in its simplest terms, the abuse of power, most often for personal
gain or for the benefit of a group to which one owes allegiance. It can be motivated by greed,
by the desire to retain or increase one’s power, or, perversely enough, by the belief in a
supposed greater good. And while politicians or civil servants most often apply the term
‘corruption’ to abuse of public power, it describes a pattern of behaviour that can be found in
virtually every sphere of life. The challenges facing corruption analysts begin with how to
define it. Most people know corruption when they see it. The problem is that different people
see it differently.
Corruption and its effects on entrepreneurship and entrepreneurs
As derives from the definitions of entrepreneurship and characteristics of entrepreneurs
mentioned above, the entrepreneurship is meaningful in the business fields. Some scholars
believe that in some certain circumstances corruption helps entrepreneurship and business,
but overwhelming evidence in recent decades suggests that the impact of corruption has been
and continues to be negative on all fronts.
In this line, Theobald (1990) believes, “corruption among other things, assists in capital
formation; fosters entrepreneurial abilities, allows business interest to penetrate bureaucracy
and permits the logic of market to insinuate itself into transactions from which public controls
exclude it”. The efficient grease hypothesis also argues that corruption could increase
economic growth because it acts as grease money, which enables firms to avoid bureaucratic
red tape. Lui (1985) in support of this view showed that in a queuing model corruption could
be growth enhancing. In this respect, the different of the size of bribes by different firms may
reflect their different opportunity cost with respect to bureaucratic delay, so buying lower red
tapes could increase efficiency.
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In contrast, the second view rejects the notion that corruption could be efficiency enhancing.
According to Shleifer and Vishny (1993), and Kaufman and Wei (1999), the crucial
assumption of the efficient grease model is that the red tape and regulatory burden can be
taken as exogenous, independent of the incentive for officials to take bribes. The opposite
view asserts that because the bureaucrats have discretionary power with given regulation,
regulatory burden may endogenously set by corrupt officials such that they customize the
nature and amount of harassment on firms to extract maximum bribe possible. In this model
firms that pay more bribes could still face higher, not lower effective red tape. Consequently,
corruption could lower economic efficiency instead of improving it.
On empirical ground, Mauro (1995), Hines (1995), Kaufmann and Wei (2000), and Tanzi
(1998) have shown the negative effects of corruption on economic growth, on business
development, on driving firms to the unofficial economy, on public expenditures, and on
domestic and foreign investment.
UN (1990) also reported, “corruption has a negative, deleterious and devastating influence on
investment and economic growth, administrative performance and efficiency and political
development. Continuance of corruption in a country leads to economic malaise and
squandering of public resources, lowers governmental performance, adversely affects general
morale in the public service, jeopardizes administrative reform efforts and accountability
measures, and perpetuates social and economic inequalities”.5
Murphy et al (1991) believe that, “it is commonly recognized that rent-seeking activities
would lead to reallocation of talent if rent-seeking activities yielded higher returns than other
activities. This would affect growth if the ablest entrepreneurs became rent-seekers”. In this
connection, Jain (1999) also states that, “when public officials have an option to collect rents
from future earnings associated with risky investments, entrepreneurs will hesitate to
undertake projects with long gestation periods. The longer an entrepreneur has to wait to
collect his/her rewards, the higher is the probability that some official will find a way to
separate the reward from the entrepreneur”.
In sum, overwhelming evidence in recent decades suggests that the impact of corruption has
been and continues to be negative on all fronts. Ouma (1991) believes “corruption reinforces
political instability and underdevelopment. Theobald (1990) also concludes, “in short,
corruption impedes economic growth, stifles entrepreneurial, misuses scarce national
resources, weakens administrative capacity, contributes to serious political decay and
undermines stability, democracy and national integration.
Conclusion
Subject of entrepreneurship has received a considerable attention over the past few years,
stemming primarily from the discovery by economic analysts that small firms contribute
considerably to economic growth and vitality. Moreover, many people have chosen
entrepreneurial careers because doing so seems to offer greater economic and psychological
rewards than does the large company route. But, review of the literature in this connection
shows that corruption negatively affects entrepreneurship and entrepreneurs.
Thus, corruption as an omnipresent phenomenon is a serious problem in communities that
stifles entrepreneurship, impedes economic growth, misuses scarce national resources,
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weakens administrative capacity, contributes to serious political decay and undermines
stability, democracy and national integration. Therefore, although corruption would appear to
affect entrepreneurs in the same manner as other investors – by changing the relative costs of
products and services – its effect on entrepreneurs appears to be more serious because it
changes the nature of the risks associated with entrepreneurial activities. As mentioned, it is
commonly recognized that rent-seeking activities would lead to reallocation of talent if rentseeking activities yielded higher returns than other activities. This would affect growth if the
ablest entrepreneurs became rent-seekers and when public officials have an option to collect
rents from future earnings associated with risky investments, entrepreneurs will hesitate to
undertake projects with long gestation periods. The longer an entrepreneur has to wait to
collect his/her rewards, the higher is the probability that some official will find a way to
separate the reward from the entrepreneur”. Resultantly, Murphy et al. also investigated that,
“entrepreneurs are even more vulnerable to post-investment-rent-extraction since they (1) do
not have a lobby group, (2) tend to be credit constrained, and (3) invest in innovative projects
involving slow accumulation of capital.
Endnotes
1
- http://bus.colorado.edu/faculty/meyer/6700syl.htm(03/04/06)
2
- Commission of the European communities (2003). Green Paper – Entrepreneurship in Europe, Brussels, P.
5.
3
- Paul Di-Masi, At: http://www.gdrc.org/icm/micro/micro.html (04/04/06)
4
- http://www.transparency.org/faqs/faq-corruption.html#faqcorr1.
5
- “Corruption in Government” (1990). Report of an Interregional Seminar held in The Haque, The Netherlands
on December 11-15, New York: The United Nations
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