Democracy and Entrepreneurship: Hope and Despair

By David B. Audretsch

As the insurgents stormed the Capital, there could no longer be any remaining doubt – democracy was in danger. The warning signs had been gathering for years. Not just in the United States, but throughout most of the developed world. In fact, rich and compelling empirical evidence makes it clear that democracy has been eroding across a broad spectrum of national and institutional contexts.

Democracy does not occur in a vacuum. As our research shows, it is inextricably linked to entrepreneurship. It is freedom that makes the most compelling connection between democracy and entrepreneurship. Although they are not related together in any systematic or formal manner in the entrepreneurship literature, both democracy and entrepreneurship share the same underlying force or context. Just as a vast literature has found that entrepreneurship requires a context to make free choices in both thought and action, so too does the freedom of thought and action serve as a cornerstone for democracy. Democracy and entrepreneurship both emanate from a context enabling people to freely think, decide and act.

In our research, we analyze four different contexts that highlight the inextricable link between democracy and entrepreneurship. The first is the episode of national socialism in Germany. Everyone knows that, under the leadership of Adolf Hitler, democracy was dismantled. What is less well known is that one of the early key policies implemented by Hitler was to eradicate entrepreneurship. The number of new-firm startups fell from 300 in 1932, the year prior to Hitler’s ascendance to office, to around 200 by the start of the Second World War, and then was essentially eliminated by 1940. Instead, the economy was controlled by National Socialism through cartelization of industries. What transpired under Hitler’s National Socialism was to not only cartelize most of German industry but also to leverage those cartels to choke off independent and autonomous decision making in small and medium-sized businesses and new-firm startups and ultimately dismantle democracy. Eradicating entrepreneurship contributed to the demise of democracy in Nazi Germany by curtailing independence and autonomy in thinking, decision making and actions.

The second context analyzed in our research is the United States towards the end of the nineteenth century. In searching for the roots of Democracy in America, in 1835, Alexis de Tocqueville found his answer in the pervasiveness and dominance of small business, "What most astonishes me in the United States, is not so much the marvelous grandeur of some undertakings, as the innumerable multitude of small ones." According to de Tocquerville, the autonomy and independence of small business was conducive to the critical and active questioning and challenging of authority but also responsibility inherent in democracy. But two decades after the American Civil War, large, dominant corporations, at that time labeled as Trusts, had replaced the vivid American landscape of blossoming small business along with the concomitant independence and autonomy of decision making. Accompanying the perception of diminished freedoms was the fear that democracy was being dismantled in that their interests and concerns were being preempted by the Trusts and the demise of independent and autonomous decision making inherent in small business.

The third context identified in our research is contemporary. Systematic and robust measurement analysis finds an alarming declines in both democracy and entrepreneurship. The overarching or underlying common denominator across a broad spectrum of national and institutional contexts is that both democracy and entrepreneurship are losing momentum and relevance.

The final context our research analyzes is the Covid-19 crisis, which has greatly exacerbated concerns about both the demise of democracy and the decline of entrepreneurship. This is because Covid-19 adversely impacted the underlying force that links democracy to entrepreneurship – the ability of people to engage in free choice with an absence of authoritarian restrictions.

In the contemporary world, democracy is under threat. Entrepreneurship, too, is seemingly on the decline, not just in a single national context, but throughout many of the developed economies. The mandate for entrepreneurship policy has been predicated by the primacy of employment, innovation, economic growth, productivity, social impact, and social inclusion, to mention just a handful. Perhaps the contribution that entrepreneurship makes to underscore democracy is the most important case for policy intervention of all. We would anticipate and certainly encourage research measuring, identifying and analyzing the links between entrepreneurship and democracy as being especially important and fruitful, not just in helping keep the field of entrepreneurship vital and relevant but mostly in helping society address one of the most pressing and compelling challenges of our time.

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Article Details
Democracy and Entrepreneurship
David B. Audretsch, Petra Moog
Research Article, First Published August 10, 2020
10.1177/1042258720943307
Entrepreneurship Theory and Practice (ETP)

About the Author

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David B. Audretsch, is a Distinguished Professor and Ameritech Chair of Economic Development at Indiana University, where he is also serves as Director of the Institute for Development Strategies. He also is a part time Professor at the Department of Innovation Management and Entrepreneurship, University of Klagenfurt, Austria and an Honorary Professor of Industrial Economics and Entrepreneurship at the WHU-Otto Beisheim School of Management in Germany.

Audretsch's research has focused on the links between entrepreneurship, government policy, innovation, economic development and global competitiveness. He is co-author of The Seven Secrets of Germany, published by Oxford University Press. He is co-founder and Editor-in-Chief of Small Business Economics: An Entrepreneurship Journal. He was awarded the Global Award for Entrepreneurship Research by the Swedish Foundation for Entrepreneurship. He has received honorary doctorate degrees from the University of Augsburg, Jonköping University and the University of Siegen. Audretsch also was awarded the Schumpeter Prize from the University of Wuppertal.

Audretsch has consulted with numerous international organizations, including the World Bank, OECD, European Union and the United Nations, as well as private companies. He currently serves as a member of the Advisory Board to a number of research and policy institutes, including the Swedish Entrepreneurship Forum in Stockholm, the Jackstädt Centre for Entrepreneurship in Wuppertal, Germany, and the American Center for Entrepreneurship in Washington, D.C., as well as a member of the Scientific Advisory Board of the University of Siegen in Germany.