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?


This is hard to answer because it is disputable 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). 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 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):

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.

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  • $\begingroup$ "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? $\endgroup$ – user161005 Aug 2 at 12:14
  • $\begingroup$ @user161005 I mean the economic profit that again should not be equated just with a bonus per se. See here some explainer investopedia.com/terms/e/economicprofit.asp $\endgroup$ – 1muflon1 Aug 2 at 12:17
  • $\begingroup$ 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? $\endgroup$ – user161005 Aug 2 at 12:22
  • $\begingroup$ @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 $\endgroup$ – 1muflon1 Aug 2 at 12:24
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    $\begingroup$ @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 $\endgroup$ – 1muflon1 Aug 2 at 13:02

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