Journal of Economic Psychology 25 (2004) 149–151

www.elsevier.com/locate/joep

Book review

Foundations of entrepreneurship and economic development, by David A. Harper,

London and New York, Routledge, 2003. pp. xii + 276, ISBN 0 415 15342 5, 70.00,$95.00, hardcover

This book is written by David Harper, an Associate Professor in Economics and

Co-Director of the Austrian Economics Program at New York University. Harper

also has extensive senior level experience developing economic policies for govern-

ment. The focus of Harper’s current book is the role of entrepreneurship in economic

development. Here, Harper emphasises institutional policy frameworks, an area often

overlooked in research on entrepreneurship since the field is dominated by researchon R &D, technological progress and education. As Harper points out, this oversight

is surprising since economic progress relies on the development of new businesses.

The book centres on Kirzner’s (1997) definition of entrepreneurship and so is po-

sitioned within the Austrian view of entrepreneurship, a view that can be traced back

to both Mises (1966) and Hayek (1948). Kirzner’s definition focuses on an entrepre-

neur’s alertness and talent for spotting opportunities. Harper suggests that Kirzner

builds on Hayek’s conceptualisation of an entrepreneur, since Kirzner defines an en-

trepreneur as a person with knowledge, not obvious to others in the market, aboutthe opportunities provided by a resource.

Kirzner identifies three classes of entrepreneurship: Pure arbitrage, speculation (or

intertemporal arbitrage) and Schumpeterian innovation. While not discussed in the

book, this classification provides an important contribution to the current discussion

within the strategic management literature. Recently, the resource based view of the

firm has been extended by incorporating organisational learning to better explain the

behaviour of firms competing in dynamic environments (Teece, Pisano, & Shuen,

1997). However, the literature is still not definitive in its comparison of the re-source-based view with the dynamic capabilities approach. For example, can firms

exhibit either approach or both approaches? Under what conditions might each ap-

proach be appropriate or evident? By revisiting Kirzner’s work, the resource-based

view of the firm can be placed within the arbitrage and speculation categories of en-

trepreneurship. Here, an entrepreneur operates in a world characterised by imperfect

information and will see opportunities for resources that others do not. By being

alert to opportunities, the entrepreneur will buy under-priced resources and put them

to new uses and new means. The third class of entrepreneurship, innovation, buildson the dynamic capabilities approach as it focuses on the processes required to turn

new resources into new ends. Every time a process or routine is practiced, learning

doi:10.1016/j.joep.2003.08.003

150 Book review / Journal of Economic Psychology 25 (2004) 149–151

takes place and the entrepreneur further develops his or her specialised knowledge

about the best use of resources. Kirzner’s classification of entrepreneurship is also

important in that it places more emphasis on opportunity recognition rather than en-

trepreneurial processes – an emphasis called for recently by Shane (2000).

The book has a very well-organised structure that, after defining an entrepreneur,presents a model of the antecedents of entrepreneurship that aids in organising re-

maining chapters. Harper examines two antecedents of entrepreneurship: Personal

characteristics of an entrepreneur and the external (i.e., institutional) environment

in which the entrepreneur operates. Harper asserts that of all types of personal fac-

tors, empirical evidence suggests that an entrepreneur is more likely to have: (1) an

internal locus of control and so believe that events are contingent on his or her own

behaviour; and (2) a high perceived self efficacy so that he or she knows the knowl-

edge and capabilities required for success. In his discussion of the external environ-ment conducive to entrepreneurship, Harper includes a discussion of law, property

rights, contract, monetary policy, political and legal decentralisation and cultural as-

pects. These chapters intentionally focus on broader institutional policies to enhance

alertness rather than outlining specific policies to affect entrepreneurship and inno-

vation directly (e.g., national innovation systems, education and business incuba-

tion). Again, this is a positive contribution to the extant literature, which has

largely overlooked institutional policies. What impresses me with these two chapters

is the depth and breadth of Harper’s reading as he covers many bodies of literaturewith considerable ease.

The book then moves on to describe the culture that is most likely to enhance en-

trepreneurship. He concludes that the most important cultural dimension is Hofst-

ede’s (1980) individualism vs. collectivism dimension. What I particularly like

about this chapter is Harper’s care to point out that different cultures, with their

own path histories, provide evidence of entrepreneurship – i.e., Harper does not take

the view of cultural hegemony. Further, Harper cites Triandis (1995), who notes

10,000 cultures in a world of only 192 nations, thus making it difficult to assign adominant culture to any particular country.

The next chapter outlines public policy approaches and questions whether policy

makers should: (1) look at ways to heighten alertness of individuals; (2) promote all

types of entrepreneurship; or (3) promote only �successful’ entrepreneurship. In this

book, the conclusion is that ‘‘the policy goal is to enhance successful entrepreneurial

alertness that gives rise to significant improvement of economic coordination’’ (Har-

per, 2003, p. 176).

As I have already mentioned, this book is very tightly structured; the structure ofthe book is captured in a model toward the end of Chapter 2 (Harper, 2003, p. 52).

Harper also makes good use of summary tables, for example, comparing individual

and collective cultures in Chapter 6 and describing the market policy process in

Chapter 7. The book sets out to ‘‘explore the circumstances that are most favourable

to a robust sense of personal agency and a heightened level of entrepreneurial alert-

ness’’ (Harper, 2003, p. 211). Harper makes no excuse about the wide range of topics

that need to be covered in his book. Any book endeavouring to examine entrepre-

neurship and economic development would not be complete without a discussion

Book review / Journal of Economic Psychology 25 (2004) 149–151 151

of these points. However, because of the breadth of coverage (and the need to pre-

sent the work in just one volume), the topics are not covered in the depth that might

be expected by subject specialists. Rather than see this as a criticism, I see it as an

indication of areas worthy of future research. I applaud Harper on his book and con-

sider it an important work that defines a future stream of research linking entrepre-neurship and economic development.

References

Harper, D. A. (2003). Foundations of entrepreneurship and economic development. London: Routledge.

Hayek, F. A. (1948). Individualism and the economic order. Chicago: University of Chicago Press.

Hofstede, G. H. (1980). Cultures consequences: International differences in work related values. California:

Sage.

Kirzner, I. M. (1997). Entrepreneurial discovery and the competitive market process: An Austrian

approach. Journal of Economic Literature, 35(1), 60–85.

Mises, L. v. (1966). Human action. A treatise on economics (3rd edition). San Francisco: Fox and Wilkes.

Shane, S. A. (2000). Prior knowledge and the discovery of entrepreneurial opportunities. Organization

Science, 11(4), 448–469.

Teece, D. J., Pisano, G. P., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic

Management Journal, 18(7), 509–533.

Triandis, H. C. (1995). Individualism and collectivism. Colorado: Westerview Press.

Jenny Darroch

Department of Marketing

University of Otago

P.O. Box 56, Dunedin, New Zealand

E-mail address: jdarroch@business.otago.ac.nz