Entrepreneurship flourishes globally – its just not the right type

Business people in the United States love to proclaim that the country has the most entrepreneurial citizens in the world. This popular myth has traveled the globe where it is widely held in Europe. Here, politicians often debate how to bring struggling economies out of recession and how to promote entrepreneurship. Yet, what if I said entrepreneurship is flourishing in these countries, indeed in every country in the world at more or less the same rate? Crazy, right?  

In 1990, economist William Baumol published a seminal article outlining three distinct types of entrepreneurship – productive, unproductive, and destructive. Productive entrepreneurship are individuals working in the open to create value in an economy by offering some new product or service that someone else would like. “Value” here does not have to mean a strictly economic value, profit and jobs, it can also mean helping to solve complex environmental and social problems that all of us value. When we speak of entrepreneurship in academia or in the public, its this kind of entrepreneurship that receives praise. A thriving private sector, made up of a healthy balance of small and medium enterprises and large enterprises is widely viewed as discouraging monopolies, lowering prices, and benefiting everyone. 

Baumol argues that unproductive entrepreneurship, on the other hand, adds no value to the economy or society. People who seek to maximize their own material wealth by exploiting or creating loopholes in laws and regulations, take enormous fees for questionable services, and demand bribes for basic services do not add value to a society. Instead, this form of entrepreneurship takes value out of an economy by removing finances that could have gone to more productive resources. Multinational corporations, for instance, often hire lawyers to act as entrepreneurs to identify global tax loopholes, which has been the subject of considerable debate recently.

Lastly, destructive entrepreneurship can be associated with black market opportunism, the mob, and the like. In this case, individuals not only seek to maximize their wealth but they do so by selling social disastrous products and services. A case in point are the drug cartels competing for market share in Mexico. Entrepreneurs in these cases employ others to protect supply chains, subvert international law and order, and offer products that are addictive and socially destructive.

Notice, though, that all three types of entrepreneurship are entrepreneurship.  They have passionate, creative, visionary people who identify some opportunity to meet the ‘needs’ and ‘wants’ of a community. The social entrepreneur who founds an NGO that supply fresh water technologies to impoverished communities, the lawyer who charges an extraordinary fee to creatively reduce taxes for its multinational client, and the human trafficker who manipulates and terrifies women into the sex industry all have something extraordinary in common – their ability to critically think, find opportunities, and leverage others for resources. 

What Baumol teaches us, those interested in entrepreneurship as an engine of social change, is that what is important in entrepreneurship is not so much the individual and their mental capabilities, but the institutions – political, economic, cultural – that they are embedded in. Here a ‘cultural turn’ in entrepreneurship research can help focus outwardly towards understanding the history of a trade in a particular place, the political organization, laws and regulations, economic incentives, and cultural habits that direct individuals towards productive, unproductive, and destructive forms of entrepreneurship. Surprisingly, the academic field of entrepreneurship is dominated by psychologists and economists who aim to understand entrepreneurship by removing her from her institutional context.

Taking an outward, cultural approach helps to glean situations where the state and big business collude, as is the case in much of the Middle East, promotes unproductive or destructive entrepreneurship. The intertwining of politicians and big business men working within (un)democratic political institutions are entrepreneurs, exploiting the game to their own ends. Unsurprisingly, the marginalization of communities via the stripping of culture, unequal economics, and weak political institutions directs more people into destructive forms of entrepreneurship to make ends meet. 

Entrepreneurship is alive and well across the globe – its just the type of entrepreneurship that varies.