No Progress Without Entrepreneurs

How do innovations, new markets, and economic progress emerge? Zhang Weiying sees the entrepreneur as the central figure in this process. In this interview, the Chinese economist discusses the importance of entrepreneurship, the limits of data and artificial intelligence in economic decision-making, and the institutional foundations of successful market economies: freedom, property rights, and trust.

You argue that economics has overlooked the role of the entrepreneur for too long and has focused too heavily on prices as the main coordination mechanism of markets. Why, in your view, is the entrepreneur the key figure for understanding how markets actually work?

Mainstream neoclassical economics builds its analysis on a world of given resources, given technologies, given consumer preferences, and near-complete information. In such a static framework, prices naturally take centre stage: prices coordinate resource allocation and push the economy towards equilibrium. But this is a highly stylised theoretical construct, not the real market. The theory starts by eliminating the very conditions that make entrepreneurs necessary.

In reality, the future is not only uncertain but actually indeterminate, depending on the choices of people yet to come, and nothing is given to everyone. Not only do technologies change through invention and innovation; even new resources can be created, and preferences can change. In such an uncertain and indeterminate world, the market is not merely an allocative mechanism; it is a process of discovery and creation, as Hayek and others have recognised. Prices do not emerge out of thin air. Before there can be a price for a new product or a new transaction opportunity, someone must first perceive that opportunity. That someone is the entrepreneur.

Entrepreneurs perform two core functions: arbitrage and innovation. Through arbitrage, they spot market disequilibria where resources are misallocated, and their pursuit of profit closes those gaps, enabling prices to adjust. In this sense, entrepreneurs are the equilibrating force of the market, as pointed out by Israel Kirzner. Through innovation, they create goods, technologies, and demand that previously did not exist. Think of automobiles, smartphones, or cross-border e-commerce: none of these products had pre-existing prices. They were imagined and brought into being by entrepreneurs.

If we remove entrepreneurs from the picture, price signals have no one to interpret and act upon. Prices coordinate activity only after entrepreneurs have discovered or created exchange possibilities. Economics fixated on prices can explain how given resources are allocated within an established market order, but it cannot explain how new markets, new industries, and sustained economic growth come into existence. To grasp how markets evolve, innovate, and »create something from nothing«, we must place the entrepreneur at the heart of market theory.

You distinguish between management and entrepreneurship: while management works with existing resources, entrepreneurship creates something that did not exist before. What qualities define a true entrepreneurial personality – and why can these abilities not simply be replaced by data, analysis, or artificial intelligence?

Managers operate within given tasks and constraints. Their task is to optimize the use of existing resources, following established goals and known techniques. They solve well-defined problems where targets, alternatives, and boundaries are clear; this is decision-making based on hard knowledge, where data and calculation can yield a unique optimal solution, as textbook models assume.

Entrepreneurs do the opposite. They do not merely solve problems under fixed constraints; they seek to change the constraints themselves. A genuine entrepreneur possesses three intertwined qualities. First, alertness to opportunities that others cannot see. Second, imagination: the capacity to visualize products, business models, and futures that do not yet exist. Third, the courage to bear unquantifiable uncertainty and act on subjective judgement, even when most observers remain sceptical.

Now, why cannot AI or data analysis replace these capacities? All algorithms and predictive models draw upon historical data. They extrapolate from past patterns. Entrepreneurship concerns the unprecedented—the genuinely new, for which there is no historical dataset. As stated earlier, the future is not merely uncertain; it is indeterminate. Entrepreneurs’ choices today shape what the future becomes.

Data can optimize existing operations; it cannot invent new demand. Equipped with identical datasets, two competent managers will converge on similar solutions. But two entrepreneurs facing identical data may reach entirely different judgements, and neither can be proven right or wrong in advance. This relies on tacit, personal, intuitive judgement—soft knowledge that cannot be coded. AI can handle calculable risk, but it lacks imagination. It cannot »see« what does not exist. That is the irreplaceable core of the entrepreneurial personality.

You emphasize that entrepreneurs are not motivated by profit alone, but also by the desire to create something new and to prove what they are capable of achieving. Why is this understanding of entrepreneurship particularly important at a time when success is often measured primarily through financial metrics?

Textbook economics simplifies business motivation to profit maximization. This assumption is convenient for mathematical modelling, yet it misleads our understanding of real-world entrepreneurship. As Schumpeter pointed out more than a hundred years ago, powerful entrepreneurial drives extend far beyond monetary gain: the ambition to build an enduring commercial kingdom, the urge to compete and prove one’s ability, and the intrinsic satisfaction of creation itself. Werner von Siemens, the great German entrepreneur, expressed this very succinctly: »I certainly pursued profit and wealth, but not primarily for the enjoyment of them, but to obtain funds to implement other plans and activities, to recognize the correctness of my actions and the usefulness of my work through success. Only secondly, I think money is a goal of doing business. For me, it is more of a kingdom I have created, and I want to leave it intact to my descendants so that they can continue to create in this kingdom.«

Profit has a vital role, of course. Profit is a feedback signal. It tells an entrepreneur whether the resources they mobilize generate greater value than they consume. Persistent losses indicate that a project wastes scarce resources. But profit is best understood as a necessary condition for sustainability, not the ultimate purpose.

When society judges entrepreneurial success solely by short-term financial indicators, we create severe distortions. Investors and founders chase quick financial returns, prioritizing speculative arbitrage over long-term innovative creation. Truly transformative innovation often requires many years of sustained investment with no immediate payoff. If every initiative is assessed quarterly by financial metrics, radical innovation will be crowded out.

Recognizing non-pecuniary motivations also helps us distinguish productive entrepreneurs from pure speculators. Speculators chase financial windfalls; productive entrepreneurs aim to create new value for consumers. Societies that respect this broader set of motives foster deeper innovation. If policy, capital markets, and public opinion reduce entrepreneurship to nothing more than money-making, we risk losing the boldest creators—the very people who drive long-term material progress.

You make a distinction between risk, which can be calculated, and uncertainty, which entrepreneurs must navigate. As companies increasingly rely on data, forecasts, and AI, how can leaders find the right balance between analytical decision-making and entrepreneurial imagination?

We must first hold fast to a critical distinction: risk describes events with identifiable probability distributions, repeatable scenarios that we can model, insure against, and compute. Uncertainty refers to unique, non-repeatable »possible« futures where no objective probability exists. This is the terrain of entrepreneurship. This distinction was actually pointed out by the American economist Frank Knight a very long time ago. However, mainstream economics reduced uncertainty to risk in its mathematical models. Too many businesses today mistakenly treat uncertainty as merely complicated risk, believing that more data will make the future predictable. This is a dangerous illusion.

Data, forecasting tools, and AI are extraordinarily powerful for managerial work: streamlining supply chains, optimizing marketing, improving operational efficiency—all activities within existing business frameworks. Business leaders should deploy analytical tools to handle calculable risks and routine optimization, freeing cognitive bandwidth for genuine entrepreneurial judgement.

But analysis must never substitute for imagination. Analytical frameworks extrapolate from the past; innovation breaks away from past patterns. A balanced approach means separating two kinds of corporate decisions. Most daily operational choices can and should be data-informed. The few pivotal, direction-setting decisions—the launch of a new product line, entry into an entirely new market, adoption of a disruptive technology—are entrepreneurial decisions. Here, data can illuminate constraints, but it cannot deliver the vision itself.

Leaders should treat data as a check against reckless ignorance, not as a blueprint for the unknown. Data can show what failed previously; it cannot prove what will succeed in an untested field. The ideal balance is to use analytics to eliminate avoidable mistakes while preserving space for entrepreneurial imagination to explore possibilities that no dataset can reveal. An organization that obeys algorithms on every major choice will never pioneer anything transformative.

Your central message is that economic success depends above all on freedom, property rights, and trust. What should Germany and Europe learn from China's economic development – and what should they be careful not to imitate?

China’s economic transformation over the past four decades offers clear lessons, yet it also carries important warnings. We must separate the sustainable, universal lessons from context-specific transitional arrangements that cannot and should not be copied.

First, what Europe and Germany can learn. The core driver of China’s growth was opening up and liberalizing bottom-up initiative. Before reform, individual economic initiative was heavily suppressed. Once ordinary people were permitted to start small businesses, trade freely, and reap the rewards of their efforts, an enormous reservoir of entrepreneurial energy was unleashed. This demonstrates a universal truth: economic prosperity emerges when institutions allow ordinary individuals to pursue opportunities they themselves discover.

Second, China illustrates how rapidly manufacturing and supply chains can develop when markets are open to competition and global trade. Integration into the world market enables the division of labour, knowledge transfer, and scale effects that no nation can achieve in isolation. Europe should take this as a reminder to resist inward-looking protectionism, which stifles entrepreneurial experimentation.

Now, what Europe must firmly avoid imitating. China’s reform path was a transitional process marked by gradual experimentation, dual-track pricing, and selective administrative guidance. Such transitional arrangements come with trade-offs. The most important risk to avoid is overreliance on administrative intervention and industrial planning. Governments can never possess the dispersed, subjective knowledge held by millions of entrepreneurs. Innovations are unpredictable. Top-down industrial policies inevitably misallocate resources, distort price signals, and crowd out spontaneous innovation.

The foundations of lasting prosperity are secure property rights, predictable rule of law, personal economic freedom, and market trust. These are not temporary policy tools; they are institutional fundamentals. Europe already possesses relatively strong legal protections for property and contract. Its challenge lies in removing rigid regulations that suppress entrepreneurial entry, risk-taking, and new business formation. In most cases, regulation violates the rule of law. Europe needs deregulation, not more regulation.

China’s growth shows how powerful entrepreneurship becomes once it is unshackled. But sustained long-run success requires further institutional consolidation of property rights and freedom from arbitrary state interference. Europe does not need to adopt transitional administrative methods. Instead, it should absorb the essential lesson: trust individual entrepreneurs, open markets, and remove barriers that prevent creative individuals from turning ideas into value.