On the relationship between inequality and entrepreneurship

Published date01 March 2018
DOIhttp://doi.org/10.1002/sej.1270
Date01 March 2018
RESEARCH ARTICLE
On the relationship between inequality and
entrepreneurship
Mark D. Packard
1
| Per L. Bylund
2
1
Department of Managerial Sciences, College
of Business, University of Nevada, Reno,
Reno, Nevada
2
School of Entrepreneurship, Spears School of
Business, Oklahoma State University,
Stillwater, Oklahoma
Correspondence
Mark D. Packard, Department of Managerial
Sciences, College of Business, University of
Nevada, Reno, 1664 N. Virginia Street, Reno,
NV 89557.
Email: mpackard@unr.edu
Per L. Bylund, School of Entrepreneurship,
Spears School of Business, Oklahoma State
University, 217 Business Building, Stillwater,
OK 74078.
Email: per.bylund@okstate.edu
Funding information
Institute for Humane Studies
Research Summary: We reexamine and explore the modern view
of inequality against entrepreneurial market process theories, which
leads us to three key assertions. First, we question the validity of
income inequality as a proxy for true inequality (i.e., inequality of
individual well-being), observing nonlinearity between the two con-
structs. Second, we explore the entrepreneurial microfoundations
of growing and shrinking inequality in market societies,arguing that
individual inequality is primarily the outcome of abnormal gains
from disequilibrating creative destructive processes. These shifts
are temporary, however, as equilibrating (arbitraging) entrepreneur-
ship competes away monopoly profits. Growing inequality trends,
then, are seen primarily as the result of increasingly large, but also
shorter, waves of creative destruction. Finally, we reconsider the
issue of the injustice of inequalitythrough this market process lens.
Managerial summary: We contribute three arguments to the
debate over economic inequality. We are (or ought to be) con-
cerned over differences in individual well-being, not income. Stud-
ies of income inequality can be misleading. We argue that a key
and so far overlooked source of economic inequality is entrepre-
neurship. Disruptive entrepreneurship (via innovation) redistributes
economic resources away from the present industry, reallocating
them in a more unequal redistribution, with the successful disrup-
tor capturing an unequal share of resources. Imitative entrepre-
neurship, however, tends to mitigate this inequality, competing
away abnormal profits while expanding new productsdiffusion
among consumers. Finally, we observe that economic inequality
may not be as unjust as previously thought, and we caution
against corrective policy that might inhibit entrepreneurship.
KEYWORDS
competition, economics, emerging economies, entrepreneurship,
inequality
Received: 30 March 2015 Revised: 14 March 2017 Accepted: 23 March 2017 Published on: 14 October 2017
DOI: 10.1002/sej.1270
Copyright © 2017 Strategic Management Society
Strategic Entrepreneurship Journal. 2018;12:322. wileyonlinelibrary.com/journal/sej 3
1|INTRODUCTION
There should exist among the citizens neither extreme poverty nor again excessive wealth, for both are
productive of great evil. Plato
[The virtuous] will be done an injustice if it is claimed they merit equal things in spite of being so unequal
in virtue and political capacity.Aristotle
Concerns over the moral and social costs of economic inequality, defined as the unequal distribution of
resources, have pervaded philosophical and political thought for many generations to no imminent conclusion.
Recently these concerns have taken center stage in policy debates due to increased academic attention and the
empirical observation of growing income inequality. Stiglitz (2012), for example, foresees increasing economic insta-
bility and diminishing economic performance as a result. Piketty (2014) makes the case that in a free society, income
inequality is inevitable because the rate of return on capital tends to exceed the general growth rate of the econ-
omy (r > g). Acemoglu and Robinson (2014) observe, however, that the mechanisms underlying this popular expla-
nation are comparatively impotent and that other factors must also play a role. Underscoring this debate, it
becomes apparent that economists have so far observed the nature and effects of economic inequality at the macro
level. We have yet to ascertain the microeconomic paths by which such inequality emerges or its drivers and causes,
leaving us rather inept at explaining the justice of such inequality and the overall effects of addressing that inequal-
ity through corrective political action.
We pursue a more nuanced view of societal inequality to ascertain theoretical mechanisms underlying the out-
come. This endeavor leads us to three key conclusions: (a) that concerns over inequality do or ought to pertain to
individual differences in well-being, not income; (b) that entrepreneurship is a key mechanism in the emergence and
mitigation of inequality in a market economy; and (c) that a societal focus on mitigating different forms of observ-
able inequality, the partial outcome of an ongoing market process, is therefore overall misplaced, and that our focus
should instead be on general economic progress as a result of market processes. In all, we challenge the academic
trend toward pursuing solutions to resolve this inequality and instead petition scholars to consider more fully the
potential unintended consequences of such reactions.
First, we critique income inequality as a variable of interest. What one makes in income is an indirect and falli-
ble metric of individual status, ignorant of what one actually does with the money or to what extent differences in
income advantage one over another. In short, what does it matter if one earns $1,000 in a month and another
$1 million if both are able to consume the same things? More importantly, how are we to gauge how well-off one is
compared to another given the heterogeneity of subjective values and preferences? If one voluntarily chooses a
path that leads to higher income and another chooses a path that leads to lower income but more free time to pur-
sue other values, are they not both comparatively better-off in their own view? Understanding individuals as con-
sumers seeking their own well-being is critical when seeking to interpret their actions. Taking a demand-side view,
then, suggests that individual differences are far more complex and nuanced than is captured in aggregate statistics.
Seen through a demand-side lens, the modern picture of growing inequality reverses. As Deaton (2013)
observes, overall economic well-being worldwide is growing at an accelerated rate, and poverty is rapidly shrinking.
As a result, and in conjunction with the diminishing marginal utility of money, we observe that inequality in well-
being, or the differences in well-being between the best-off and the worst-off, is shrinking over time.
Second, we explore the entrepreneurial foundations of inequality (in terms of well-being) in a market economy
and how exercising entrepreneurship in the market can influence it over time. We adopt a model, in which entrepre-
neurship is the primary driver of market change (Mises, 1998b; cf. Kirzner, 1973; Schumpeter, 1942), to trace the
effects of entrepreneurship on market outcomes. By entrepreneurship, we mean the process of effecting economic
change in producing (or attempting to produce) new economic value (Bruyat & Julien, 2001; Wiklund, Davidsson,
Audretsch, & Karlsson, 2011). As such, we find the absence of the entrepreneur in current explanations of changing
inequality to be a rather large oversight, which we aim to correct.
4PACKARD AND BYLUND

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