The Scope and Delegation of the Entrepreneurial Functions
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The Scope and Delegation of the Entrepreneurial Functions

The Scope of Entrepreneurial Functions The industrialist, the merchant, the farmer and the small employer are not the only examples of entrepreneurship. In view of the function of uncertainty-bearing that goes with it, the work of professional persons like lawyers, doctors, consulting engineers and with that of such humble self-employed persons as panwalas, bootblacks and vegetable-hawkers, all these categories of persons are also to be regarded as entrepreneurs in Economics.

The Scope of Entrepreneurial Functions

The industrialist, the merchant, the farmer and the small employer are not the only examples of entrepreneurship. In view of the function of uncertainty-bearing that goes with it, the work of professional persons like lawyers, doctors, consulting engineers and with that of such humble self-employed persons as panwalas, bootblacks and vegetable-hawkers, all these categories of persons are also to be regarded as entrepreneurs in Economics.

Take the example of a physician. A part of the work he does is that of labor, of course of a superior type. But in the course of his professional practice, he too has to take certain decisions which involve uncertainty. For example, he has to choose the town in which to practice, the location of his clinic in the town of his choice and the type of clientele to which he will cater. He invests in equipment some of which may become obsolete, and he decides about adopting newer types of medical supplies appearing on the market and urged on him by visiting salesmen. He may expand his activity by organizing a clinic, with partners or with his subordinate assistants only. He takes chances on shifts in the population of his locality; on changes in the incomes of his patients; on the appearance of rival doctors. Thus uncertainty attaches to almost all his decisions. And since he bears such uncertainly, he is an entrepreneur.

Delegation of the Entrepreneurial Functions

Certain developments have taken place in the business world on account of which it has become possible for the entrepreneur to delegate some of his functions.

There was a time when the entrepreneur initiated, organized, directed and financed the enterprise. He also took the entire risk. The two functions of organizing and risk-taking were indissolubly bound up. But since the advent of the joint stock company, we have witnessed a splitting up of these functions. The golden rule, "control goes with risk" has been broken. An entrepreneur of proved capacity and known integrity will not find much difficulty in raising the entire capital from others. Further, he may initiate plans and design everything, but the actual execution of the plan may be left in the hands of the paid managers. Thus, the shareholders bear the risk, organizing is done by the entrepreneur and the management is carried on by the salaried employees.

The development of insurance business, too, has taken off the hands of the entrepreneur several of his worries and risks. If the treasurer absconds with money, if the factory catches fire, and the materials ordered from abroad sink in mid-ocean, the insurance companies are there to make good the loss. Again, the entrepreneur can, by means of "hedging", cover his losses from unexpected changes in the price of raw materials.

No doubt, the entrepreneur has been relieved of several duties and worries, but the delegation of functions is far from complete. The insurance companies relieve the entrepreneur of insurable risks only, i.e., those risks which may be statistically predicted. The observation of a large number of them produces generalization about them so that the probability of their occurrence can be computed by the laws of large numbers. Examples of insurable risks are the hazards of fire, theft of merchandise, accidents to employees or customers, and the death of a key person.

On the other hand, certain types of risks are unique. The lack of uniformity prevents their being lumped into large aggregates permitting the computation of the probability of their occurrence. Changes in the supply and demand conditions for a commodity belong to this category. In the uniqueness of business ventures, the mathematics of probability is not of much help. Business ventures are, therefore, laden with uncertainty. They are in the nature of u gamble.

We have already referred to the uncertainty that is inherent in the large number of decisions the entrepreneur has to arrive at. Now we have seen how while some of his risks may have been delegated to insurance companies and the like, such a delegation is far from complete and, therefore, the essential function of uncertainty-bearing remains to be performed by the entrepreneur himself.

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