Sociological Theories of Entrepreneurship (Summary) : Examples

The field of entrepreneurship can be traced back to the industrial revolution, where entrepreneurial activity marked the rise of innovation, eventually promoting social change all over the world. This article will discuss the sociological perspective on entrepreneurship as a whole by analyzing two major approaches, a) Classical Approach and b) the Modern Approach. The classical approach summarizes the works of Weber and Marx including certain limitations and examples. On the other hand, the modern approach deals with theories such as Hoselitz’s Theory, Mccleland’s Theory, Cochran’s Theory and Schumpeter’s theory. These theories are influenced by both sociology as well as other fields such as economics, psychology, cultural studies, etc.

Introduction to Entrepreneurship

Entrepreneurial activity in the economic sphere largely refers to the building of new and independent businesses and organizations, resulting in market innovation and job creation. Private start-ups, brand creation, non-profit organizations and other independent ventures are all examples of entrepreneurial enterprises. The original entrepreneurs were traders and merchants that possessed major control over goods and services. The Industrial Revolution brought with it the advent of complex market systems and a capitalized economy. The concept of mass production came about, leading to increased competition among the elites, which finally resulted in the introduction of innovative technologies and products (Allis, 2022). To boost economic growth, rich businessmen invested in newer goods and supplies, bringing us to the considerable entrepreneurial activity that we see today around the globe.

Sociology of Entrepreneurship

Classical Approach to Entrepreneurship

Although classical sociologists such as Max Weber and Karl Marx did not extensively theorize the act of entrepreneurship, their works do possess mention how the entrepreneurial activity was a driving force of social change in earlier times.

Max Weber’s Theory of Social Change

Max Weber was a German sociologist in the early 1900s. He attributed the spread of entrepreneurial activity to the ethical attitudes of a particular community. Moreover, this theory also explains how religion is intertwined with the act of entrepreneurship.

According to Weber, an individual’s interest in certain economic activities is determined by the ethical values that they have been taught by their community. Thus, religion plays an extremely important role in deciding economic behaviour. Based on a large-scale data set of nearly ninety thousand workers in India, research found that some religions, such as Islam and Christianity, are found to be conducive to entrepreneurship, while others, such as Hinduism, inhibit entrepreneurship (Tamvada et al., 2007). In his book The Protestant Ethic and the Spirit of Capitalism, Weber argues that religions such as Hinduism and Buddhism do not put great focus on materialism and tend to shun capitalist products, thus inhibiting the desire for entrepreneurial activity. This was one of the main reasons why the Protestant work ethic led to the birth of capitalism in Northern Europe.

Weber’s theory can be backed by various examples. When the Japanese economy boomed in the 1980s, many people attributed its success to the Japanese religion of Shintoism (Gurtler, 2018). Another interesting fact is that England, which is the oldest capitalistic region in the world and one that went on to colonize various different countries, is largely Protestant. The economic rise of the United States of America was also driven by Protestant immigrants from Europe (Gurtler, 2018). Thus, there is some evidence for the fact that religion might play an important role in influencing economic behaviour.

Karl Marx’s Theory of Capitalism

Marx classified the entrepreneur as the elite capitalist who appropriates profit and exploits labour through economic mechanisms. According to Marx, the entrepreneur sets up a production process and aims to maximization of profits, however, he is not deserving of the surplus value that is generated from the process, since the source entity of that profit is the wage worker who has been exploited in the equation (Tsaliki, 2006). Marx thus inadvertently vilifies all those who claim to be entrepreneurs. Marx’s critique of the capitalist system is very evident in his works and his theory explains the driving force behind a large number of up-and-coming entrepreneurial organizations across the globe.

People want to work for something they are passionate about and they do not want to forgo control in the hands of those that will appropriate the gains that come from someone else’s hard work. Facebook CEO Mark Zuckerberg said, “If I didn’t have complete control of Facebook, I would have been fired.” He does not want to lose control of his company, because he cannot imagine himself working a regular job that pays fixed wages (CNBC, 2019).  This is one of the reasons why he refused Yahoo’s offer to buy Facebook in 2006.

Over the last few years, startups have increased tremendously in India. At Least 14000 new startups have been set up in the last five years, making India the third-largest startup ecosystem in the world after the US and China (The Economic Times, 2022). Indian students are focusing on entrepreneurship because they do not want to be exploited in 9-5 jobs hoarded by corporate organizations.

Modern Approach to Entrepreneurship

The modern approach to entrepreneurship is classified by the merging of sociological context into other largely influential fields such as business economy, psychological research and cultural studies. These theories have largely been developed by acclaimed individuals who view entrepreneurship as an act that is impacted by various factors. The theories that will be discussed here are Hoselitz’s Theory, Mccleland’s Theory, Cochran’s Theory and Schumpeter’s theory.

Hoselitz’s Theory of Leadership

Hoselitz defined entrepreneurship as majorly an act of leadership and control. He disagrees with the traditional Marxist approach, asserting that maximization of profits comes secondary in the act of entrepreneurship while the primary factor is leadership style and management technique. According to Hoselitz, most entrepreneurs hail from a particular social class. This class is usually endowed with generational wealth and power which further leads to training and development of leadership skills in individuals belonging to that particular class. Therefore, according to Hoselitz, socio-cultural factors such as class and community play an important role in determining the extent to which an individual will engage in entrepreneurial activity.

Hoselitz also explained that marginal groups of individuals can thrive in ambiguous situations, thus making them fit to be entrepreneurs. This is the reason why Chinese in South Africa, Indians in the Middle East, etc are talent pools of entrepreneurs (Lounsbury & Glynn, 2001).

In the United States, Gujaratis now run about one-third of all its hotels and motels (StarTribune, 2005).

“For Gujaratis, the enterprise is virtually a cultural obligation and has always earned the most respect. Starting a small corner shop is seen as more impressive than holding a mid-level management job in somebody else’s company.” The Economist, 2015

Mccleland’s Need for Achievement Theory

This theory takes into account psychological factors that impact economic behaviour. According to David Mccleland, entrepreneurial activity is characterized by innate needs that eventually determine the extent to which an individual will engage in entrepreneurship. These needs are the need for achievement, the need for power and the need for affiliation. Individuals who are highly motivated and have a need for achieving challenging goals are usually more interested in entrepreneurship tasks as compared to those who have a low or moderate need for motivation. Individuals who wish to exercise control over others and acquire power are also more likely to be entrepreneurs. People who desire to socially affiliate with others and gain social acceptance and acknowledgement are also likely to become entrepreneurs in the future.

Steve Jobs, CEO of Apple Inc., was known to have a high need for achievement, so much so that he always chased perfection (Murphy Jr, 2019). Other successful entrepreneurs like Falguni Nayak and Jeff Bezos frequently stress on the importance of high drive and passion in entrepreneurial setups.

Cochran’s Cultural Theory of Entrepreneurship

Thomas Cochran emphasized the significance of cultural values in both the attitudes of entrepreneurs as well as investors. According to him, entrepreneurs are influenced by how their culture views certain factors of their occupation, such as risk-taking attitudes and difficulty level of career development. An example is India’s Parsi community, which is certainly small in number, yet possesses immense contributions to the country’s business and entrepreneurial activities (Times Now, 2020).

Some cultures value innovation and entrepreneurship, while others discourage it. The consensus is that individualistic cultures such as those that exist in the global west, put emphasis on individual achievements and autonomy while collectivist cultures discourage it. This leads to more entrepreneurial activity in the American and European areas.

Schumpeter’s Theory of Innovation

In 1991, Schumpeter attributed the entrepreneurial activity to creativity and innovation, largely asserting that reformation of all processes related to goods and services is the only driving factor of entrepreneurship. Thus, according to him, the introduction of new goods, new methods of production, creative acquisitions, new markets and the new organization will all eventually lead to a significant increase in entrepreneurial activity.

This theory essentially lays the foundation for how competition in a market breeds innovation, which further leads to acts of entrepreneurship. This can be backed up by various examples. The rise of Reliance Jio started as an act of innovation, where high speed internet was provided to customers for dangerously low prices for the first time in the country. This led to competition among other telecom providers, leading to new and creative offers regarding data consumption in India. Reliance Jio is now the fastest growing mobile network in the world, all because it challenged its competitors in various ways.

This article lays out significant classical and modern approaches that are necessary to study the sociological context of entrepreneurship. With booming businesses and an uncertain economy, these theories are necessary to help investigate and analyze economic endeavours undertaken by individuals all across the globe.


References

Allis, R. (2022). Startup guide. Retrieved May 23, 2022, from https://startupguide.com/history-of-entrepreneurship-from-ancient-trade-to-the-industrial-age

Audretsch, D. B., Bönte, W., & Tamvada, J. P. (2007). Religion and entrepreneurship. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1025968

CatClifford. (2019, October 3). Mark Zuckerberg: If I didn’t have complete control of Facebook, I would have been fired. CNBC. Retrieved May 23, 2022, from https://www.cnbc.com/2019/10/03/zuckerberg-if-i-didnt-have-control-of-facebook-i-wouldve-been-fired.html

Gurtler, D. (2018, July 19). The connection between religion and business. Roland Berger. Retrieved May 23, 2022, from https://www.rolandberger.com/en/Insights/Publications/The-connection-between-religion-and-business.html

Jr., B. M. (2020, March 8). Steve Jobs knew how to lead and motivate employees. here’s how he did it. Inc.com. Retrieved May 23, 2022, from https://www.inc.com/bill-murphy-jr/steve-jobs-knew-how-to-lead-motivate-employees-heres-how-he-did-it.html

Star Tribune. (2015, December 28). Why gujaratis may be the most successful people in business in the world. Star Tribune. Retrieved May 23, 2022, from https://www.startribune.com/why-gujaratis-may-be-the-most-successful-people-in-business-in-the-world/363675551/?refresh=true

The journey of India’s Parsi Business Community. Business News. (n.d.). Retrieved May 23, 2022, from https://www.timesnownews.com/business-economy/industry/article/the-journey-of-indias-parsi-business-community/680440

Tsaliki, P. V. (2006). Marx on entrepreneurship: A note. International Review of Economics, 53(4), 592–602. https://doi.org/10.1007/bf03029765