<p>This is hard to answer because it is <a href="https://www.investopedia.com/ask/answers/032615/why-do-some-economists-consider-entrepreneurship-be-factor-production.asp" rel="nofollow noreferrer">disputable</a> if entrepreneurship is a factor of production just to begin with. There are economists who would argue that any entrepreneurial activity already falls under labor/human capital.</p>
<p>Setting the caveat above aside there are two major views on how entrepreneurship as a factor should be treated (see <a href="https://www.investopedia.com/ask/answers/032615/why-do-some-economists-consider-entrepreneurship-be-factor-production.asp" rel="nofollow noreferrer">here</a>). In one view entrepreneurship cannot be divorced from ownership of assets since as argument goes people can take entrepreneurial risk only if they actually have 'skin in the game'. In centrally planned economy asset are collectively owned state and all market risks are socialized. Under this view there can be no entrepreneurship in centrally planed economy. Moreover, managers would not count under such view either.</p>
<p>A second view would treat entrepreneurship as purely an intellectual activity of combining different factors of production (to be clear the previous view also agrees on this part but they add assets as additional requirement). For example, in <a href="https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-2-factors-of-production" rel="nofollow noreferrer">Fed St. Louis</a> series for students the entrepreneurship as a factor of production is defined as:</p>
<blockquote>
<p>The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit.</p>
</blockquote>
<p>The above definition does not have asset ownership as a part of requirement and manager's work here could be considered to be an entrepreneurial factor. The additional important requirement is that this is done to earn profit but as far as I understand here it does not matter if the payment is considered profit or wage in accounting manner but rather from economic perspective. Furthermore, generally speaking profits can exist in centrally planned economies, to the extent these are shared with the managers in some explicit or implicit way, you could argue that under this definition entrepreneurship can exist in centrally planed economy.</p>
<p>This being said, centrally planned economies most likely don't have much of it. According to highly cited work of <a href="https://academic.oup.com/oxrep/article-abstract/23/1/63/510594" rel="nofollow noreferrer">Audretsch (2007</a>):</p>
<blockquote>
<p>Measurement of entrepreneurship capital is no less complicated than is measuring
the traditional factors of production. Just as measurement of physical capital, labour,
and knowledge invokes numerous assumptions and simplifications, creating a metric for
entrepreneurship capital has also presented a challenge. Many of the elements that constitute
entrepreneurship capital defy quantification. In any case, entrepreneurship capital, like all
of the other types of capital, is multifaceted and heterogeneous. <em>However, entrepreneurship
capital manifests itself in a singular way—the start-up of new enterprises.</em></p>
</blockquote>
<p>The emphasis was added by me. Hence an entrepreneurship can be measured by the rate at which new enterprises form (and in fact this is the way in which most literature measures it). It goes without saying that historically speaking centrally planned economies are not exactly known for high rates of new enterprise formation.</p>

CC BY-SA 4.0
2020-08-02T12:14:27.717Z
"as far as I understand here it does not matter if the payment is considered profit or wage in accounting manner but rather from economic perspective." Do you mean that there is no difference if a manager earns income through profitting or from getting awarded with wage paid by the State, thus that pursue of profit can be replaced by pursue of bonuses?
KarmaPeasant
CC BY-SA 4.0
2020-08-02T12:17:04.193Z
@user161005 I mean the economic profit that again should not be equated just with a bonus per se. See here some explainer https://www.investopedia.com/terms/e/economicprofit.asp
1muflon1
CC BY-SA 4.0
2020-08-02T12:22:01.707Z
I see, I just thought that you were thinking the opposite, that we can replace profits with bonuses and act like everything will work okay.  "An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit." What about some kind of crisis manager who helps to save sinking business by helping it to break even instead of suffering from losses? Would it be wrong to call them entrepreneurs?
KarmaPeasant
CC BY-SA 4.0
2020-08-02T12:24:08.950Z
@user161005 depends on which of the above definitions you prefer if the one that requires assets then no. If the latter one then it could be depending on the details
1muflon1
CC BY-SA 4.0
2020-08-02T12:45:49.220Z
By "details" do you mean "it depends on if their goal is to make the firm to break even or to earn profit"?
KarmaPeasant
CC BY-SA 4.0
2020-08-02T12:52:06.040Z
@user161005 what I mean is how close does the manager fits the definition " An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit". Just being a ordinary manager even a crisis manager per se would in my opinion not satisfy this definition. For example, if manager is just some sort of enforcer of politburo we can even debate if he/she has any agency to combine other factors of production and whether there is some genuine profit motive that such definition would require.
1muflon1
CC BY-SA 4.0
2020-08-02T12:53:23.077Z
" It goes without saying that historically speaking centrally planned economies are not exactly known for high rates of new enterprise formation." But the country can have lots of capable entrepreneurs if the plan has been introduced recently. The metric would be low because private business is forbidden, **not** because there is lack on entrepreneurs who are able to seek new opportunities and accept all the risks.
KarmaPeasant
CC BY-SA 4.0
2020-08-02T13:02:12.887Z
@user161005 that measure actually does not require businesses to be private. In fact under that measure even government set up enterprises would count. In principle, you could argue that untapped entrepreneurial potential could show up by central planners constantly innovating with new businesses. Also, just mere existence of a resource does not make it usable as a factor. If US would somehow legitimately claim whole mars as part of its territory would that land count towards the US stock of land if for foreseeable future we wont be able to use it? In the same way depending on child labor laws
1muflon1
CC BY-SA 4.0
2020-08-02T13:03:11.490Z
children can be counted as part of labor stock or not. If children are prohibited for doing any work then it makes no sense to include them in $L$ if they legally can do it  then you can add them there. The logic would extend to all other factors including entrepreneurship.
1muflon1
CC BY-SA 4.0
2020-08-02T13:04:05.227Z
"whether there is some genuine profit motive that such definition would require." So an Entrepreneur is driven by profit motive. Suppose I'm a businessman and my firm earns low-risk profits. I have opportunity to close down the business, take its funds and open new business in different place that would earn me even higher low-risk profits. But I refuse because the business is a family business, it has sentimental value for me. Does it mean that I'm NOT an entrepreneur?
KarmaPeasant
CC BY-SA 4.0
2020-08-02T13:08:57.880Z
@user161005 I dont think that profit motive means you need to necessary do anything with highest profit but now we are going into territory where only thing we can discuss are opinions. For example, if I use my PC to play PC-games and I use exactly the same PC to produce computer program as an entrepreneur is the PC capital or consumer good or both? Thats a discussion thats beyond the scope of what can be discussed in comments
1muflon1
CC BY-SA 4.0
2020-08-02T13:14:20.030Z
"I dont think that profit motive means you need to necessary do anything with highest profit" How is it so? If an Entrepreneur is moved by the profit motive, then at the same level of risk they must be always choosing more profits over less profit. After all, "the profit motive" means that it's a thing that they maximize. As for your example with PC, I don't understand how it's relevant here.
KarmaPeasant
CC BY-SA 4.0
2020-08-02T13:19:43.153Z
@user161005 because in your example you are involving family, emotional attachment and so on (which was implicit in mentioning family business). For example, definition of labor from an textbook of labor economics by Borjas is "Labour is a commodity that supplied by labourers in exchange for a wage paid by demanding firms". So does that mean that if you supply labor in exchange for some wage and some emotional attachment equivalent of entrepreneur supplying his talents for profit and emotional attachment for family business does that means that laborer stops being laborer? You can discuss that
1muflon1
CC BY-SA 4.0
2020-08-02T13:20:30.310Z
as a philosophy problem but in economics we abstract from such things so they are just not included in definitions.
1muflon1
CC BY-SA 4.0
2020-08-02T13:27:28.343Z
Just to make sure that I understand all implications correctly, are you implying that being lead by profit motive does **not** require treating earning profits as the ultimate priority, that you can have other priorites that can at times supersede earning higher profits (or any profits at all)? For an example, that an entrepreneur can choose to suffer from losses rather than earning profits at cost of break their moral code?
KarmaPeasant
CC BY-SA 4.0
2020-08-02T13:35:21.180Z
@user161005 this is opinion territory that I dont want to get into but note few things: 1.We are talking about economic profit, if you value  good conscience at say $\$100$ then breaking it must enter as cost your profit function. This wont be expressed in accounting but we are not talking about accounting profit. 2. Emotions, mental states, morals are usually abstracted from in economics where they are just given as an exogenous preferences and are not studied by the field so they are often not taken explicitly into account when drafting definitions so we can only opine about how they fit in
1muflon1
CC BY-SA 4.0
2020-08-02T19:53:59.180Z
Is it reasonable to view entrepreneurship as risk absorption?
Criticize SE actions means ban
CC BY-SA 4.0
2020-08-02T20:34:11.733Z
@user253751 taking risk is part of it but I would hesitate to say it’s *just that* for simple reason that risk taking is more broader term as you can absorb risk by various hedging/insurance methods that do not seem to be entrepreneurial. But I suppose it is fair to say that any entrepreneurial activity carries risk because profits are not guaranteed
1muflon1
CC BY-SA 4.0
2020-08-02T11:00:23.297Z
2020-08-02T11:13:21.987Z
2020-08-02T11:13:21.987Z
1muflon1
<p>Let's don't count self-employed people without other employees (like &quot;lone wolf&quot; craftsmen) and people who have an illegal business as entrepreneurs. By centrally-planed economy I mean an economy without legal private sector (or where its contribution to GDP is so small, that it can safely be ignored).</p>
<p>If the answer is &quot;yes&quot;, then how? For an example, can we count a state-owned factory director as an entrepreneur?</p>

<macroeconomics><public-economics>
Do countries with centrally-planned economy have Entrepreneurship as a factor of production?
KarmaPeasant
# Do countries with centrally-planned economy have Entrepreneurship as a factor of production?

(Asked by: username_0 on 2020-08-02)

Let's don't count self-employed people without other employees (like "lone wolf" craftsmen) and people who have an illegal business as entrepreneurs. By centrally-planed economy I mean an economy without legal private sector (or where its contribution to GDP is so small, that it can safely be ignored).

If the answer is "yes", then how? For an example, can we count a state-owned factory director as an entrepreneur?

**Tags:** macroeconomics, public-economics

---

## 1 answers

### Answer by username_1 on 2020-08-02. Score: 2 | Accepted answer

This is hard to answer because it is [disputable](https://www.investopedia.com/ask/answers/032615/why-do-some-economists-consider-entrepreneurship-be-factor-production.asp) if entrepreneurship is a factor of production just to begin with. There are economists who would argue that any entrepreneurial activity already falls under labor/human capital.

Setting the caveat above aside there are two major views on how entrepreneurship as a factor should be treated (see [here](https://www.investopedia.com/ask/answers/032615/why-do-some-economists-consider-entrepreneurship-be-factor-production.asp)). In one view entrepreneurship cannot be divorced from ownership of assets since as argument goes people can take entrepreneurial risk only if they actually have 'skin in the game'. In centrally planned economy asset are collectively owned state and all market risks are socialized. Under this view there can be no entrepreneurship in centrally planed economy. Moreover, managers would not count under such view either.

A second view would treat entrepreneurship as purely an intellectual activity of combining different factors of production (to be clear the previous view also agrees on this part but they add assets as additional requirement). For example, in [Fed St. Louis](https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-2-factors-of-production) series for students the entrepreneurship as a factor of production is defined as:

> The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit.

The above definition does not have asset ownership as a part of requirement and manager's work here could be considered to be an entrepreneurial factor. The additional important requirement is that this is done to earn profit but as far as I understand here it does not matter if the payment is considered profit or wage in accounting manner but rather from economic perspective. Furthermore, generally speaking profits can exist in centrally planned economies, to the extent these are shared with the managers in some explicit or implicit way, you could argue that under this definition entrepreneurship can exist in centrally planed economy.

This being said, centrally planned economies most likely don't have much of it. According to highly cited work of [Audretsch (2007](https://academic.oup.com/oxrep/article-abstract/23/1/63/510594)):

> Measurement of entrepreneurship capital is no less complicated than is measuring
> the traditional factors of production. Just as measurement of physical capital, labour,
> and knowledge invokes numerous assumptions and simplifications, creating a metric for
> entrepreneurship capital has also presented a challenge. Many of the elements that constitute
> entrepreneurship capital defy quantification. In any case, entrepreneurship capital, like all
> of the other types of capital, is multifaceted and heterogeneous. *However, entrepreneurship
> capital manifests itself in a singular way—the start-up of new enterprises.*

The emphasis was added by me. Hence an entrepreneurship can be measured by the rate at which new enterprises form (and in fact this is the way in which most literature measures it). It goes without saying that historically speaking centrally planned economies are not exactly known for high rates of new enterprise formation.

> **Comments:**
> **username_0**: "as far as I understand here it does not matter if the payment is considered profit or wage in accounting manner but rather from economic perspective." Do you mean that there is no difference if a manager earns income through profitting or from getting awarded with wage paid by the State, thus that pursue of profit can be replaced by pursue of bonuses?  
> **username_1**: @user161005 I mean the economic profit that again should not be equated just with a bonus per se. See here some explainer https://www.investopedia.com/terms/e/economicprofit.asp  
> **username_0**: I see, I just thought that you were thinking the opposite, that we can replace profits with bonuses and act like everything will work okay.  "An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit." What about some kind of crisis manager who helps to save sinking business by helping it to break even instead of suffering from losses? Would it be wrong to call them entrepreneurs?  
> **username_1**: @user161005 depends on which of the above definitions you prefer if the one that requires assets then no. If the latter one then it could be depending on the details  
> **username_0**: By "details" do you mean "it depends on if their goal is to make the firm to break even or to earn profit"?  
> **username_1**: @user161005 what I mean is how close does the manager fits the definition " An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit". Just being a ordinary manager even a crisis manager per se would in my opinion not satisfy this definition. For example, if manager is just some sort of enforcer of politburo we can even debate if he/she has any agency to combine other factors of production and whether there is some genuine profit motive that such definition would require.  
> **username_0**: " It goes without saying that historically speaking centrally planned economies are not exactly known for high rates of new enterprise formation." But the country can have lots of capable entrepreneurs if the plan has been introduced recently. The metric would be low because private business is forbidden, **not** because there is lack on entrepreneurs who are able to seek new opportunities and accept all the risks.  
> **username_1**: @user161005 that measure actually does not require businesses to be private. In fact under that measure even government set up enterprises would count. In principle, you could argue that untapped entrepreneurial potential could show up by central planners constantly innovating with new businesses. Also, just mere existence of a resource does not make it usable as a factor. If US would somehow legitimately claim whole mars as part of its territory would that land count towards the US stock of land if for foreseeable future we wont be able to use it? In the same way depending on child labor laws  
> **username_1**: children can be counted as part of labor stock or not. If children are prohibited for doing any work then it makes no sense to include them in $L$ if they legally can do it  then you can add them there. The logic would extend to all other factors including entrepreneurship.  
> **username_0**: "whether there is some genuine profit motive that such definition would require." So an Entrepreneur is driven by profit motive. Suppose I'm a businessman and my firm earns low-risk profits. I have opportunity to close down the business, take its funds and open new business in different place that would earn me even higher low-risk profits. But I refuse because the business is a family business, it has sentimental value for me. Does it mean that I'm NOT an entrepreneur?  
> **username_1**: @user161005 I dont think that profit motive means you need to necessary do anything with highest profit but now we are going into territory where only thing we can discuss are opinions. For example, if I use my PC to play PC-games and I use exactly the same PC to produce computer program as an entrepreneur is the PC capital or consumer good or both? Thats a discussion thats beyond the scope of what can be discussed in comments  
> **username_0**: "I dont think that profit motive means you need to necessary do anything with highest profit" How is it so? If an Entrepreneur is moved by the profit motive, then at the same level of risk they must be always choosing more profits over less profit. After all, "the profit motive" means that it's a thing that they maximize. As for your example with PC, I don't understand how it's relevant here.  
> **username_1**: @user161005 because in your example you are involving family, emotional attachment and so on (which was implicit in mentioning family business). For example, definition of labor from an textbook of labor economics by Borjas is "Labour is a commodity that supplied by labourers in exchange for a wage paid by demanding firms". So does that mean that if you supply labor in exchange for some wage and some emotional attachment equivalent of entrepreneur supplying his talents for profit and emotional attachment for family business does that means that laborer stops being laborer? You can discuss that  
> **username_1**: as a philosophy problem but in economics we abstract from such things so they are just not included in definitions.  
> **username_0**: Just to make sure that I understand all implications correctly, are you implying that being lead by profit motive does **not** require treating earning profits as the ultimate priority, that you can have other priorites that can at times supersede earning higher profits (or any profits at all)? For an example, that an entrepreneur can choose to suffer from losses rather than earning profits at cost of break their moral code?  
> **username_1**: @user161005 this is opinion territory that I dont want to get into but note few things: 1.We are talking about economic profit, if you value  good conscience at say $\$100$ then breaking it must enter as cost your profit function. This wont be expressed in accounting but we are not talking about accounting profit. 2. Emotions, mental states, morals are usually abstracted from in economics where they are just given as an exogenous preferences and are not studied by the field so they are often not taken explicitly into account when drafting definitions so we can only opine about how they fit in  
> **username_2**: Is it reasonable to view entrepreneurship as risk absorption?  
> **username_1**: @user253751 taking risk is part of it but I would hesitate to say it’s *just that* for simple reason that risk taking is more broader term as you can absorb risk by various hedging/insurance methods that do not seem to be entrepreneurial. But I suppose it is fair to say that any entrepreneurial activity carries risk because profits are not guaranteed  

---

