Entrepreneurship and Local Economic Development

A Comparative Perspective on Entrepreneurs, Universities and Governments

Bruno Dallago, Ermanno Tortia

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9780367586188
• eBook ISBN: 9781351256025
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book focuses on the nature and role of entrepreneurship in modern developed and emerging economies and societies, its relation to governments and universities, and its role in the often-forgotten informal economy. The aim is to position entrepreneurship in the post-crisis context and explore how its relation to universities and governments contributes to explain the countries' and territories' growth performance and resilience or vulnerability to the crisis. The accent is particularly on processes and patterns at local level and in small and medium-sized enterprises in local economic systems and districts, local systems of innovation, and the types and configurations of innovation these give origin to.

With globalization, entrepreneurship has become fundamental for the competitiveness of territories and countries, for policy management and for development. The local dimension is fundamental because of agglomeration economies and effects, the advantages of proximity and the nature of knowledge and information. Furthermore, territories carry to the centre-stage tacit knowledge, localized social capital, embeddedness and interpersonal relations as fundamental components of their endogenous socio-economic development and competitiveness. When local systems are connected in a horizontal network, they contribute to the strength of national and international systems. To play a constructive role from this perspective, entrepreneurship must avoid local entrenchment and support the local economy to upgrade and be competitive. To do this, the entrepreneurs' interaction and alliance with universities and governments is a must for those countries and localities wanting to emerge. This requires that enterprises, universities and governments create synergies and spill-overs to their mutual advantage.

PART I

Entrepreneurship and its frames

1 Entrepreneurship, the entrepreneur and the territory

An introduction

Bruno Dallago¹

1 Introduction

During recent decades entrepreneurship has acquired growing importance in government policies, academic research and debate, and in the business community and the strategy of international organizations. New ideas and interpretations have been advanced to define and explain entrepreneurship and the entrepreneur’s nature and motivations. Plans and laws have been elaborated and set up to foster and assist entrepreneurship; special funds and ad hoc structures such as incubators and business centres have been established and financed to support start-ups and enterprise growth. Research centres, publications and data bases complemented the instruments worked out and implemented in order to facilitate access to entrepreneurial activities.

The social effort in support of and the reliance on entrepreneurship had stronger momentum in critical times, notably during transformation in Central and Eastern European countries (CEECs) (Sauka and Chepurenko 2017) and the international crisis of the last decade (Rüdiger et al. 2014). In critical periods entrepreneurship appeared, at times, as a deus ex machina, as something that could solve economic problems when policies proved ineffective. Motivations behind these hopes were not always clear or apparently logical, as when programs and funds were directed to convert the unemployed into entrepreneurs in CEECs, in the first years of post-1989 transformation.

New approaches were advanced and took hold in making actions in favour of entrepreneurship more effective. While, traditionally, entrepreneurship was a matter of business life, it came to be increasingly understood and pursued as an undertaking at the crossroads of different social actors: the business community, the governments of nation-states – increasingly so at local and international level – and within the academic community.

This burgeoning interest and activity requires explanation. It is easy to observe that the fashion of entrepreneurship undergoes a recurrent cyclical pattern and it is not the first time we have witnessed it. The last time it took place was during the years preceding World War I, the years of the first globalization (the rapidly increasing openness and integration of economies), when it found its masterpiece in Schumpeter’s The Theory of Economic Development, first published in 1911. For most of the post-World War I period the accent was placed more on the management of large public companies (Berle and Means 1932) and this perspective also dominated the post-World War II decades (Chandler 1977), in spite of the fact that extensive comparative research shows it was not managerial companies that dominated the world of large firms’, but the family firm headed by the owner–entrepreneur (La Porta et al. 1999). In more recent years, particularly since the late 1980s, attention to and debate on the importance of entrepreneurship and the entrepreneur has come to the forefront. In the second period of globalization, which covers the period since the 1980s, partially overlapping similar attention was addressed to corporate governance.

Such an apparently strange evolution asks for an explanation. In the next section the general scene for entrepreneurship is introduced: the present attention given to entrepreneurship is the outcome of globalization and is aimed at fostering innovation and the competitiveness of economies. Section 3 deals more directly with entrepreneurship and considers definitions and explanations found in the economic literature. Section 4 considers human agency in entrepreneurship, the entrepreneur and how it is treated in the economic literature. Section 5 considers entrepreneurship as an increasingly collective effort of actors having different features and playing different roles. Along with this, as explored in Section 6, the territory as social space represents a fundamental aspect of entrepreneurship, particularly at local level. Section 7 concludes.

2 The stage

It is not by chance that the attention and support for entrepreneurship coincides with globalization. With globalization, the macroeconomic management of the world’s economies loses its centrality. This is for both structural and contingent reasons. In an open and integrated economic context macroeconomic policies cannot be easily used to gain competitiveness vis á vis other economies. Macro policies have to be coordinated at international level and used primarily to give order and stability to the international economic arena. This takes place by establishing common rules and international fora for economic and policy management, such as the World Trade Organization (WTO) in the case of international trade; the coordinated management of monetary and fiscal policies, for which the International Monetary Fund (IMF) is the main reference; and directly among national governments.²

While globalization opens important advantages for countries and their enterprises and international coordination is important for giving order, stability and predictability to international economic relations, it also has disadvantages. Greater danger of financial and monetary contagion apart, the conditions that go with globalization deprive countries of the most powerful and fastest solution to their economic and financial difficulties: macroeconomic policies. The need for strengthening and balancing an economy is no less important presently than it was in previous times, but it has to be reached through different instruments and ways.

Thus, with globalization the management of competitiveness has to move from the macroeocnomic level, and in particular from monetary and fiscal policies and sometimes the management of currencies, to the microeconomy. In fact, in an open and internationally integrated context macroeconomic policies and macroeconomic decisions have to be concerted and coordinated at international level, in order to avoid market disruption and unfair competition, hence the danger of retaliatory policies by the damaged countries. To be sure, long-term development policies could also be important, but the prevailing short-term perspective of most Western countries prevented a bold use of these policies and reforms, although emerging economies such as China’s were different.

Three management instruments have particular importance in open economies: reforms, corporate governance and entrepreneurship. These descend in part from different approaches and interests, but also have different goals and perspectives.

Reforms, both of economic and social structures – such as of property rights and privatization, labour markets, pension and welfare systems and public administration – are supported mostly by policy makers and scholars critical of state intervention and worried by fiscal imbalances. While it would be advisable to implement reforms having concern for development and structural problems, it is often the case that reforms are pursued to balance public budgets.³ From this perspective, the centrepiece of reforms in the 1980s and 1990s in most countries was privatization.

Following the international crisis, reforms again gained a prominent position in governments’ agenda, this time in a novel way. In particular, the so-called structural reforms wereat the forefront. While reforms are generally implemented to improve the efficiency and competitiveness of an economy, this can be done in different ways. Structural reforms aim at directly decreasing costs and in particular wages and the rights of workers, welfare expenses, and pensions in order to directly decrease labour costs and public expenditure, thus improving price competitiveness and strengthen the sustainability of public finance, without having to go necessarily through investment (Canton et al. 2014, EC 2015). More promising are institutional reforms, which usually aim at making the economic system more efficient and effective. Prominent institutional reforms are the liberalization of markets to increase competition; the modification of the fiscal system to make the collection of fiscal revenues more effective or the fiscal system more equitable or more effective in promoting growth; the improvement of public expenditure to make it more economically effective and efficient; and the promotion of a better match between labour demand and supply. Although often slow and difficult to implement, institutional reforms have the advantage of transforming the nature and working of the economy. When successful, their effect is permanent and may bring the economy to heightened international competitiveness and on to a higher growth path.

Corporate governance reform primarily addresses large managerial firms and is directed to make existing large companies more effective and efficient. This it does by better defining the rights of shareholders and stakeholders, improving the allocation of decision-making power, and promoting mergers and acquisitions. Corporate governance was the hit of the 1990s. It led to improved short-run performance of enterprises. However, once all competitors reformed their corporate governance and followed the same “best practices,” albeit with different results, corporate governance reform progressively lost its strength in supporting competitiveness gains. Moreover, the prevailing shareholder value paradigm and the dramatic increase of the remuneration of managers, which is primarily anchored to the short-run performance of their companies, promote the dominance of short-terminism in most companies and contribute signficantly to the financialization of the economy and the dramatic increase of inequality. All these factors were among the main causes of the international crisis.

Fostering and supporting entrepreneurship is the third management instrument that was and is privileged in open and integrated economies. Entrepreneurship mainly relates to small and medium enterprises (SMEs) and addresses the need to upgrade innovation. It is often and nearly naturally linked to local development. Entrepreneurship acquires a particularly broad meaning and role that cut across the economy and foster its development. While corporate governance aims at making the relation among the different economic players more effective and at strengthening incentives through the modification of their decision-making power, entrepreneurship policies aim at activating one particular, strategic player: the entrepreneur. A further important difference with corporate governance is that entrepreneurship has a direct relation to innovation. Thus, while corporate governance may improve the performance of enterprises even without improving their competitiveness (for example through decreasing costs without increasing sales or improving profits at the expense of wages), entrepreneurship leads to better performance typically through making the enterprise more competitive and often more innovative. Thus entrepreneurship is an effective engine of change and innovation.

Is such a perspective justified by the nature of entrepreneurship and the reality of entrepreneurs? This is the fundamental question asked by this book. This question is treated in its various dimensions and from a comparative perspective, dealing with entrepreneurship in different contexts and from different angles. It is useful to notice that entrepreneurship cuts across reforms and corporate governance and may determine their success or failure. Indeed, reforms in a market economy gain economic success if they promote the initiative of economic actors – the very essence of entrepreneurship. Similarly, the success of corporate governance reform critically depends on the possibility to push management to take initiative in the market, thus making the company more competitive and successful. This introduces entrepreneurial spirit and behavior in the management of companies. Although it is not equivalent to economic reforms and to corporate governance, entrepreneurship has much to do with both and can be more effective in contributing to economic development.

3 On entrepreneurship

Entrepreneurship is important on its own merits and particularly so in open and internationally integrated economies, yet it is an elusive concept. It is principally a qualitative concept, meaning both that the quality of entrepreneurship matters and that it is difficult to foster its emergence, development and success with the supply of quantitative resou...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of contributors
• Preface
• Introduction Entrepreneurs, universities and governments
• Part I: Entrepreneurship and its frames
• Part II: Entrepreneurship, universities and governments
• Conclusion The triple helix, social impacts and beyond
• Index