Module 2

Entrepreneurial Development
Group 1

Traces the development of entrepreneurs throughout history, the students might be less
familiar with, thereby increasing their awareness and understanding. The main focus of this
section are the ways innovation is driven by economic necessity (the need to survive), its
economic impact on productivity (increase in productivity), and social change (impact on the
way people interact, connect, and influence on way of living).

Learning Outcomes:

1. Recall important events, dates, and people who significantly contributed to

technological discoveries.
2. Identify historical periods associated with entrepreneurial activities and significant
technological discoveries.
3. Construct timeline indicating the stages of the evolution of economic life.

Overview
This chapter traces the development of entrepreneurs since the dawn of history. This
development can be summarized into four periods: Stone Age; Agricultural Age; Industrial Age;
and post-industrial or “Information Age.” Since the first light of civilization, the crucial element
in economic development is increase productivity over time brought about by innovation. For
purposes of discussion, innovation is herein defined as the process of “creative destruction”
(Schumpeter, 1942). It is the deliberate abandonment of the old methods and replace them with
newly improved methods resulting in an increase in productivity. During the Stone Age hunting
and gathering tools have been used by Homo Habilis - ancestor of Homo Sapiens. This primeval
ability to fashion stone tools marked the earliest innovation that differentiates homo sapiens from
the primates. The second wave of innovation appeared during the Agricultural Revolution
(10,000 B.C. – 5,000 B.C.). People began to plant and domesticate wild animals. The third wave
of innovation came during the Industrial Revolution (1750 A.D. – 1830 A.D.) when people
began to introduce machines in farms and factories. The fourth wave happened in a post-modern
or the Information Revolution (1960 – present) when people developed computers.
In this chapter students will learn that innovation does not refer chiefly to the
development of technology, but also of the changes in economic organization from simple tribes
to complex international political economy, multinational corporations and global market. These
changes have been more important than technological discoveries themselves (North, 1981).
Stone Age (5 million – 10,000 B.C.), also known as Palaeolithic age came with the appearance
of homo habilis, the precursor to modern man in Africa approximately 5 million years ago.
Found in woods and woodlands, earliest humans may have survived by scavenging from
carcasses of creatures that had been wiped out by predators or died of natural causes
(Attenborough and Collins, 1990). At the later stage hunting tools were developed (Binford,
1986). This period sparked the earliest stage of innovation – the first light to entrepreneurial
creation. Major occupation was hunting and gathering, and humans began to move to sparsely
wooded areas (Gavashelishvili and Tarkhnishvili, 2016). With little physical and intellectual
capital to increase productivity, they were entirely dependent upon the environment and lived in
small groups in order to survive. Since the population was determined by the amount of food
available in the immediate foraging area, life expectancy was short of only around twenty years.
More than half of the children born did not endure long enough to start a family, although some
elders might live long into their forties (North, 1981; Livi-Bacci, 1992). The exchange of goods
between groups was rare as no organized trading system existed. During the Stone Age
population growth rate was almost nil around.0007%, doubling in about 100,000 years (Getzen,
1997). As tribes became larger for the local area some families separated and occupied new
lands. Evolution of crude technology is evident such as spears and stone knives and were meant
for better exploitation of food available. This increased efficiency, but not productivity and in
some cases reduced it as large land, tree-dwelling, and water mammals were depleted of food
and clothing. Evidently, hunting and gathering for food during brought out less than what could
have supported an increase in the population using the same measure of resources. By the close
of the Stone Age, population limits were achieved in some fully populated areas. This may have
contributed to the development of domestication of wild animals and plant cultivation to feed the
excess population initiating the Agricultural Age.

Agricultural Revolution (10,000 B.C. – 5,000 B.C.). Millennia after millennia, humans became
extremely adept at hunting which led to the extinction of large animals. In most locations food
became so scarce and compelled humans to make a choice: either to continue moving out for
food and die, or, stay permanently in a place by feeding on plants. At about the same time,
through many years of adaptation with the changing climate, they might have observed that some
plants constantly reproduce or regenerate naturally through their seeds and others through their
roots, stems, and leaves. Eventually, they became capable to domesticate wild animals and
propagate plants by sticking with the natural process along with some improvement in tools. This
marked the commencement of the second wave of entrepreneurial innovation – agricultural
revolution (farming). The discovery of farming was revolutionary. People came to realize the
natural power of the land to support a much large number of families which later on grew into
towns and cities. Even today much of the population of the world subsist from the outcomes of
the agricultural revolution. Population growth multiplied at a rate of .0465% which double every
1,500 years (Getzen, 1997). The tremendous growth in population by 60 times larger than
throughout the Stone Age can be associated with the theory known as demographic transition.
This refers to the historical movement of high birth and death rates to low birth and death rates as
tribes economically develop. This development is well-established in studies linking decrease in
fertility to social and economic development (Myrskylä, Mikko, et al., 2009). But the most
significant to social and economic improvement was also due to increase in productivity (gradual
innovation in farming i.e., farm improvements, building of irrigation canals, invention of farm
implements, and selection of better seeds). Since intensive cultivation of land (plowing, sowing,
harrowing, harvesting, irrigation or drainage) required permanent abode of farmers, there must
have been at the early stage some form of usage and property rights (Zückert 2003). On the other
hand, large productivity increase resulted in surplus of harvest and need to be stored for times of
scarcity or trade them for tools and other necessary things. Accordingly, an early form of money
was developed which allowed people to trade goods and services through delayed payments and
save the surplus for larger purchases in the future (Liuliang Yu and Hong Yu, 2004). The
development of property rights along with barter trade and money as a medium of exchange
stimulated the growth of early entrepreneurs who initiated the earliest form of trade and
investment.
Moreover, stored harvest had to be protected against looters. By necessity an army had to be
organized to protect farmers against appropriation of productive lands through conquest and
slavery. Those who successfully gathered troops in battle gained power, and through a hierarchy
of rules and commands, they controlled most of the wealth of society. Yet, governance was more
than a military necessity, but, foremost for food security which can be secured or protected
against stronger bands of tribes. Farm innovation such as road building, irrigation system, and
storage facilities had to be organized through collective actions. This necessitated a set of
regulations that govern collective farm practices that everyone must agree or cooperate with the
existing system than to go back to the old ways of hunting and gathering. People must have
realized that governance by ruling elite do more good than harm. Eventually, feudal system
became an accepted way of doing things. As population grew returns of investment became
larger, more cooperation among people was required with an emphasis on the division of labor.
The new form of social organization sustained the rapid growth of population by creating the
cultural, political, and economic institutions that make civilization.
As society grew, the quest for economic gain through territorial expansion increased and caused
the decline of civilizations. Widespread conflict and war during ancient times overturned social,
economic, and cultural fabric of society. This was also accompanied by a decline in population
growth. For instance, Ancient Greece expanded between 500 B.C. – 146 B.C. (de Blois and van
der Spek, 1997). Under the rule of Alexander the Great, Ancient Greece ruled from Macedonia
in the north to the Mediterranean Sea in the south, the Aegean Sea in the east and the Ionian in
the west. It was divided into city-states in constant war with each other. The poorer class of
people rebelled against the aristocracy and wealthy. Top generals of Alexander the Great began
to wage their claims over former Persian territories and Greek city-states. Without legal and
political unity, it was difficult to unite and forge an alliance between city-states. This explains
why the Romans, less sophisticated but with centralized city-state were able to assimilate the
Greek world in 200 B.C. In 400 B.C. The population in Greece reached up 13 million and
rapidly declined with the arrival of Romans. Ancient Rome ruled as an empire for 500 years
between 140 B.C. – 360 A.D. (Kaplan and Jouni Häkli, 2002). The fall of the Roman empire was
caused primarily by widespread decay in the moral and social order, civil wars and barbarian
invasions, and decline in the technological invention. The empire became so vast to rule that the
main occupation of the Romans were administration and military instead of producing goods
more effectively to support the growing population majority of the people lived in subsistence
level. Consequently, Roman population declined from 44 million in 200 A.D. to 22 million in
600 A.D.

While productivity increased tremendously during the Agricultural Era, it was also accompanied
by the disparity of wealth distribution. Population was split into two classes of people: peasants
who worked the land and stayed at the subsistence level, while rulers controlled all the wealth.
While there was no wealth inequality during the Stone Age, wealth distribution during
Agricultural Age was unequal disproportionately converged at the top of social hierarchy.

According to anthropologists wealth disparity began when human occupation transformed from
hunting and gathering to agriculture. Though, the disparity was not sparked solely by the
introduction of agriculture but by land becoming more valuable and substitutes for human labor
causing labor to be greatly reduced in value (Cowie and Bowles, 2019). One such substitute for
was the ox-drawn plows (an early form of capital), a labor-saving production and separated
wealth from labor. This separation between labor and capital caused economic disparity and still
prevalent today. During that time, a family who wanted their house move to another place by
legal eviction or seeking for greener pasture would require many oxen equivalent to the number
of days, weeks or even months of free labor. So the family had to remove or leave behind some
part of the house to make the transfer possible.
The conflict between labour and landowner is best articulated by David Ricardo in 1817. He
theorized that the value of commodities was determined by the value of labour since land by
itself does not produce commodities and therefore value should chiefly depends on labour.
Consider the following example: when the harvest is scarce (i.e. harvest from poorer lands)
prices of goods rise, landowners gain as they continue to receive land rent while farmers get less
since subsistent wages (amount of labour spent) fall below prices. Conversely, when the harvest
is abundant prices go down, landowners get less than expected since the value of rents fall below
prices while farmers benefit as subsistent wage falls above prices. Fertile lands naturally produce
more food than a land of poorer quality. As a result, it commands a higher rent, while worsen the
condition of farmers since prices are lower owed to higher level of production. As the poorest
land utilized for agriculture receives no rent, all of its earnings going must go to landowners. As
population increases, rents increase and profits fall and this prevent economic progress. Though,
economic life during the agricultural stage was comparably better compared to the pre-
agricultural era, however, the conflict between classes emerge apparently can be attributed to the
introduction of the early form of capitalism characterized by the rigid social demarcation
between landowners and peasants.

Industrial Revolution (1800 – 1950 A.D.) first appeared in England at the close of the
eighteenth and the start of the nineteenth century. In 1733, John Kay invented the “flying
shuttle,” a new mechanized method of weaving cloth (Hills, 1998). That invention created the
third wave of innovations applied in the textile industry. Foremost of weaving invention was
Richard Arkwright in 1770 – an English inventor and leading entrepreneur who invented Cotton
Jenny (Fitton, 1989). His machines were faster in the spinning of yarn and rapidly more efficient
and centralized machines were further developed in English textile industry. Technological
advancement towards mechanization was also seen in other industries such as steam power, iron
making, and the invention of machine tools. Today, people live in a technologically and
industrially advanced 21st century. These advancements would have been completely impossible
if not for the industrial revolution which happened from the 18th to 19th centuries. Productivity
increased tremendously that caused the average standard of living to increase. Population growth
rose to .43 percent and surged to 1.8 percent in 1950 (Getzen, 1997). The world population
quadrupled from 750 to 2.5 billion and life expectancy rose from 20 to 35 years (Getzen, 1997).
The social hierarchies during Agricultural Era broken up by a tremendous increase in social
mobility due to the improvement in wages. A middle-class group of people emerged and actively
participated in a monetary economy. While the shift in social and economic structure was the
driving force of the market-driven growth of the industrial revolution, however, many people
remain poor even today and rural struggle to support the growing population is prevalent along
with the rapidly growing economy. This is not because of the lack of technology but the lack of
equitable property rights, social order, and administrative organization which allow for
technology to be productively applied (Olson, 1996). The increasing wealth disparity remains a
threat to the health of the people not of the shortage of knowledge, technology or money but of
the defect of economic organization.

Perhaps the most direct impact of technological progress on the daily life of most people is
unemployment and rising inequality. In the early stage of industrial revolution, there were
already fears of unemployment. The common fear was the introduction of labour-saving
mechanization of the cloth industry would only create massive unemployment and worsen
income inequality. While this could be true in some industries, but not in other industries. For
instance, at the start of the 20th century jobs in manufacturing plants and agriculture were
disappearing. However, millions of new jobs eventually have been created in new industries.
Nonetheless, technology is a real threat particularly to people whose labour skills became
obsolete due to the introduction of labour-saving technologies. Technology is seen by many
people as a foe instead of a friend. One historical study present a different way of looking at the
problem. Thomas Picketty (2014) indicated that the rate of return of capital has in recent decades
been greater than income. He indicated that the build-up of wealth by the richest percentiles has
grown faster than income (i.e., from wages among poorer groups). According to him, this is
likely to stay in the 21st century, undermining democracy and political instability, unless far
more progressive tax rates are implemented. He claimed that wealth becomes increasingly
concentrated in the hands of a small elite whose marginal propensity to consume (MPC)
increases as a class compared with the MPC of poor classes. Since economic growth depends on
savings there is a greater tendency for income of the richest to be saved, and these funds are
reinvested into the financial system. Yet unless the saving is at full employment, an attempt to
save more will reduce consumption levels and offer less incentive for firms to increase output
capacity. As the economy tends to run at less than full employment, ‘over-saving’ will reduce
economic growth and increase unemployment. Another drawback of technological progress
which many people might be less familiar is the adverse economic effect of the application of
technology in the production of weapons for destruction. For instance, a study of 170 countries
over a span of 45 years demonstrated that increased in military spending led to slower economic
growth; over a period of 20 years a 1% increased of military spending decreased a country’s
growth by 9%. Military spending was especially detrimental to economic growth of wealthier
countries (d’Agostino and Dunne et al., 2017). There are however arguments in favor for
development of nuclear technology. It is said that weapons of mass destruction deter foreign
attacks, keep the peace, and create jobs. In addition, smart bombs and cruise missiles have
accurate targets of enemy. Hence, lessen the unintended damage to the civilian population and
therefore reduce the danger of war. What this all means is that production of weapons for
destruction has a trade-off that is consumer goods, health care, and other more urgent needs
instead. What other alternatives can be proposed to preserve global peace and economic
prosperity without weapons of mass destructions?

Information Age (1950 – to the Future) is another historic leap of innovation came in the late
20th, a rapid from shift Industrial Revolution to industrialization based on information
technology (Zimmerman, 2017; Manuel, 1996). This era characterizes information as a
commodity that is quickly disseminated and easily available through the use of computer
technology. The labor spent in ICT is heavily concentrated in services rather than labor-intensive
farming and manufacturing. Such an information-driven economy is prevalent only in countries
that have a large human capital investment on Information and Communication Technology
(ICT) such as computerized machinery (Robotics), fiber optics, communication satellites,
Internet, and other ICT tools that have greatly changed the operations of business and industries.
Moreover, ICT-based economic systems are prevalent in countries with higher life expectancy,
lower dependency ratio, and lower population growth rate. With life expectancy of 80 years and
population growth rate of 2 percent, population is expected to double every 40 years. ICT can be
distinguished by looking at how products are manufactured through the copy of their smallest
unit of data known as bits or bytes generally designed for data storage data and execute
instructions in bit multiples called bytes (Negroponte, 1995). These bits can be easily made
cheaply and easily accessible through the computer across the country and globally at a very low
cost. Through ICT product design and subsequent manufacturing process can be effectively and
efficiently made compared to the labor-based and expensive traditional product design and
processing.
Undoubtedly, almost all firms today use computers and internet connection providing consumers
with more diversified and customized products, improving product quality, and selling goods and
services. Today, life without information technology is meaningless. It brings together the tools
that ease manufacturing and distribution of goods, uses and exchange of information, makes
tasks easier to execute as well as solving many mankind’s proble ms. Many studies conducted in
European Countries, Canada, and the United States confirmed the positive effect of ICT on
economic growth (Schreyer, 2000). Another study conducted in 159 diverse countries indicated
that a positive relationship between the growth rate of real GDP per capita in terms of the
number of internet users, fixed broadband internet subscribers and the number of mobile
subscription per 100 inhabitants (Farhadi, Ismail, et al., 2012). However, the effect of ICT use on
economic growth is higher in the high-income groups rather than in other groups. This implies
that if these countries seek to enhance their economic growth, they need to implement specific
policies that facilitate ICT use. Although ICT is well known as a driving engine of economic
growth today, there are few shreds of evidence that showed the negative effect of ICT on
economic growth. For example, the introduction of a new investment good like computers can
impose large adjustment costs on the economy and decrease economic growth (Kiley,1999).
Moreover, in one study no significant relationship was found between ICT investment and
economic growth for the sample of 43 countries over the period of 1985–1999 (Pohjola, 2002).
In another study, no significant positive impact of computer penetration on the economic growth
of 84 countries during 1990–1999, although he confirms the positive link between use mobile
phone and economic growth (Jacobsen, 2003). Apparently, further studies are needed to account
for the effect of ICT not merely as the input of production but also as predictors to
unemployment, income inequality, peace and security, privacy threats, and others.

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