Institutional change in the Schumpeterian-Baumolian construct: power, contestability and evolving entrepreneurial interests

Abstract

Baumol's hypothesis, i.e. that the allocation of entrepreneurial talent in productive, unproductive and destructive activities is determined by the rules of the game, is supported by a growing body of empirical research and underpins new avenues of research in entrepreneurial studies. However, Baumol's paper offers precious few insights, beyond policy action, regarding how change to the rules of the game can be effected, because it views institutions as endogenous. This paper sets out to address this gap through an extension of Schumpeterian–Baumolian construct. The paper argues that changing institutions is a contestable process: its outcome determined by the complex nexus of interests and power endowments of actors. Changing the outcome of this contestation is dependent on the emergence of new entrepreneurial groupings and/or the evolution of the power endowments or interests of existing ones. Two historical illustrations are used to support the hypothesis and of this study.