Malmö University

Culture and Society

Urban Studies

Master Programme Leadership for Sustainability (SALSU)

Public Entrepreneurship

Developing Classification for Public Entrepreneurial Initiatives

Name and Code of the course

OL645E – Social Entrepreneurship, Social

Innovation and Sustainability

Name and Code of the Examination:

1201 – Individual Essay

Type and Date of Examination:

Regular Examination

04/03/2015

Students’ names:

Evgeny CHAVANIN, 25/10/87

Responsible Teacher

Fredrik BJORK

Contents

1. Introduction .............................................................................................................................................. 3

2. Literature review ....................................................................................................................................... 4

3. Research Methods and Methodology....................................................................................................... 9

4. Analysis ................................................................................................................................................... 10

5. Public Policies Typology for Entrepreneurship ....................................................................................... 13

5.1. Creating typology ............................................................................................................................. 13

5.2. Applying typology ............................................................................................................................ 14

5.3. Attuning MAXIMIZATION scenario of typology ............................................................................... 17

6. Conclusions and recommendations ........................................................................................................ 20

References .................................................................................................................................................. 21

1. Introduction

The numerous discussions on the nature and essence of entrepreneurship have been on research

agenda for the last few decades. As suffering from financial frugality national economies are

searching for additional drivers of economic growth, these discussions are getting even more

intensive. Both the supply-side (neoclassical economics) and demand-side (Keynesian)

alternatives have been explored and taken into consideration. However, some researchers believe

that it is only the Schumpeterian economics that could drastically transform our consumer

economies and lead to a more innovation-centered approach. The question arises if

entrepreneurship-focused government policies can improve stagnating economies, and, at the

same time, make them more resilient and sustainable.

Public entrepreneurship (PE), as used in this article, applies to the creative process within public

entities that facilitates organizational change and leads to innovation. This process is driven by

both endogenous and exogenous factors in which public agency operates, as well as psycho-

dynamic features of its leadership. This paper is trying to contextualize the term public

entrepreneurship in relation to organizational, institutional and economic theory, and at the same

time connect it to the latest research in social entrepreneurship.

In doing so I first conduct a literature review of the most recent articles in public

entrepreneurship and formulate hypotheses that are later tested via statistical analysis. Then

theoretical framework is built to typify the entrepreneurship-focused policies depending on

assessment of civil society and governmental entrepreneurial capabilities. Next the main clusters

of public entrepreneurship capacities are identified within the typology. And, finally, I utilize

McKague capability model to draw some practical recommendations from international

development experience on how to manage entrepreneurial capacities under one of the proposed

scenarios.

2. Literature review

The research on public entrepreneurship that goes in hand with the pre-identified definition of

this paper is rare and quite hard to find. That is why I seek to identify more public

entrepreneurship research on the intersection between social entrepreneurship, strategic

entrepreneurship, institutional entrepreneurship on the one hand and public policy on the other.

The triangulation point combines the organizational, institutional, economic, political and

psychological dimensions of the research, which is summarized in Table 1 below.

Table 1: Categorization of Public Entrepreneurship Literature

Research Methods Underlying fields of knowledge

Organizational / Institutional theories

Psychological theories Economic and Political theories

Empirical Quantitative (case analysis)

Smith (2012);

Ozcan & Reichstein (2009);

Empirical Qualitative (case analysis)

Irani & Elliman (2008) Gawell (2014)

Empirical Quantitative (survey)

Delabbio & Zeemering (2013);

Delabbio & Zeemering (2013)

Conceptual / Theoretical

Klein et al. (2013) Audretsch & Link (2011);

Public sector organizations form an important part of our society: in the OECD countries they

provide 14% of all the jobs, with the total governmental expenditures ranging from 30% to 55%

of GDP (Diefenbach, 2011). In the 1970’s Weberian bureaucratic government structures,

traditionally characterized by strict hierarchies and adherence to rules, had to evolve under the

pressure of intensifying criticism from the public. This led to the introduction of New Public

Management (NPM) practices in public administration characterized by implementation of

private sector management principles and an accentuated focus on the quality of service delivery.

While NPM-model did favor the entrepreneurship and saw it as a mean to economic

transformation, its primary concern with efficient service delivery and customer satisfaction did

not allow this model to integrate a value creation perspective that could go beyond output

performance measures (Diefenbach, 2011). This mismatch resulted in introduction a new term

Public Value Management (PVM) in the research field. In short, PVM is driven by maximization

of public value, where public value is broadly defined as value for the public and value from the

public. On a more broad scale, PVM practices are aimed at tackling the problems that the public

most cares about, as well as public system maintenance, a rolling a continuous process of

democratic exchange (Diefenbach, 2011).

But development of the public administration models cannot and should not be studied in the

contextual vacuum. It is extremely important to connect these processes of public administration

(PA) evolution to underlying theoretical assumptions. Audretsch and Link (2011) attempt to do

so by looking into how entrepreneurial innovation outputs are valued under different schools of

economic thought. The authors introduce three main economic doctrines: neoclassical

economics, Keynesian economics, and Schumpeterian economics. They further argue that these

concepts vary in a number of fundamental ways: primary economic focus, mechanisms that

influence the primary focus, role and the stance for public policy. But, most importantly,

Audretsch and Link trace the role and the place of innovative and entrepreneurial activity. The

authors claim that unlike other theories, only Schumpeterian economics views entrepreneurial

innovation and creative destruction as the main driving force of progress and development. This

progress and development is mainly attributed to the main mechanism behind creative

destruction – an entrepreneur.

Next Audretsch and Link (2011) investigate Schumpeterian evolving views on organizational

forms and industry structures that are most conductive of innovation (from small enterprise to

big corporations). This leads them to a more thorough analysis of the influence of enterprise size

on innovative capacity. Audretsch and Link (2011) utilize the term “knowledge filter” to

exemplify how it impedes knowledge spillover effect and negates the transformation of

economic investment into innovation. More important for this particular paper is the notion that

public policy within Schumpeterian parameters should “facilitate investment in knowledge-

creating activities, such as research and education, and to encourage agents of change, or

entrepreneurs, to innovate” (Audretsch and Link, 2010, p. 15). According to authors, the absence

of Schumpeterian view in public policy discourse, which is occupied by Keynesianism and

neoclassicism, lowers our chances to respond to challenges of globalization and generate

economic growth.

Elin Smith (2012) looks into four determinants of public entrepreneurship (external environment,

managerial characteristics, strategy, and internal environment) in two different organizational

forms: local government administration (LGA) and local government corporation (LGC). The

author then develops 7 hypotheses and tests them on the data from Swedish waste and water

management sector. The sample included responses from 290 municipalities and 312

organizations (231 of LGA, and 81 of LGC). The results are provided in Figure 1 below:

Figure 1: Summary of the Findings in Relation to Hypotheses (Smith, 2012)

The main practical implication of the research is that entrepreneurship can be stimulated in both

LGCs and LGAs. The strategy of simulation varies depending on the type. For instance, while

organizational culture and public service objective may influence LGCs, they produce no effect

of LGAs. Whereas, managerial experience and strategy influence LGAs in a powerful and

lasting manner, fail to alter LGCs PE propensity.

Ozcan and Reichstein (2009) investigate the reasons behind the low rate of entrepreneurship in

public sector. They employ an econometric event history design analysis and US PSID survey

data on the sample of 4800 US households. The authors highlight the following findings:

Predisposition for public employment decrease the hazard of entrepreneurial exit. The

low rate of entrepreneurship observed in the public sector therefore may be explained at

least partly by labor market matching in which non-entrepreneurial individuals (Ozcan &

Reichstein, 2009, p. 614).

“The context of the public sector increases the hazard of entrepreneurial exit” (Ozcan &

Reichstein, 2009, p. 614)

“Individuals with longer tenure in public employment are significantly less likely to

become entrepreneurs” (Ozcan & Reichstein, 2009, p. 614)

“Public sector context effect inhibits transitions to entrepreneurship, indicating that

individuals find the private sector more inviting and fulfilling in terms of their

professional requirements (Ozcan & Reichstein, 2009, p. 614)

“The share of entrepreneurs is higher among individuals with higher education” (Ozcan

& Reichstein, 2009, p. 614)

Ethnicity (black) and gender (female) has a negative impact on entrepreneurial exit

Ozcan and Reichstein (2009) identify four main determinants of entrepreneurial exit: labor

market mismatch (predisposition of risk-averse people to choose a more secure job in a public

sector), context effects (characteristics of motivation and satisfaction potential within a job), and

tenure effect (the influence of prolonged period of time working in the industry).

Delabbio and Zeemering (2013) study public entrepreneurship and interlocal cooperation in

county government. The authors argue that theories of public entrepreneurship “can help us

better understand when county government leaders pursue new interlocal agreements or shared

service delivery projects” (Delabbio & Zeemering, 2013, p. 255). The research outlines 2 main

and 7 supplementary hypotheses that are later tested on the data acquired through the survey of

top county leaders from five different states (USA). Three regression models investigate the

associations between survey statements and three main factors that the authors believe play an

important role in interlocal cooperation: internal preparation, outreach to other local

governments, public explanation and personal risk. Delabbio and Zeemering (2013, p. 262) come

to the conclusion that a) “county officials may do more to foster thinking about interlocal

cooperation within their governments when confronting high levels of community need”; b)

officials that are new to interlocal cooperation tend to more actively outreach to other

governments; c) appointed public manager have higher career-related risk when communicating

with the public about interlocal cooperation; d) “county officials may need to engage in more

public outreach in communities with older residents and established households” (Delabbio and

Zeemering, 2013, p. 263).

Irani and Elliman (2008) employ institutional theory to construct an e-Innovations model in local

government as infrastructure that could promote social entrepreneurship. This trifold model of

ideas factory includes three following steps (creating, developing, and selecting) on the way

from to public funding of entrepreneurial projects. The model also incorporates mechanisms like

online ideas forums, innovation seminars, local authority sign-ups, project planning, e-innovation

mediator, approval and adjudication. Overall, Irani and Ellimand (2008, p. 341) “develop a

process to support local authorities in their quest to become more entrepreneurial and thus

supportive of innovation through a structured process”.

Ladeira and Machado (2013) employ an exploratory inference in social entrepreneurship (SE)

and provide the readers with an overview of the most recent definitions of SE. The authors also

bring the descriptive statistics on the most common portrait of a social entrepreneur, and review

most common SE-inducing public policies in developed countries. The article by Ladeira and

Machado (2013) culminates in the analysis of contemporary public policies in Brazil and

recommendations that could make these policies more successful and attuned to the context.

Another study by Gawell (2014) tries to connect social entrepreneurship theories to Swedish

social welfare theories in order to analyze five SE initiatives (Fryshuset, CRIS, Vagen ut!,

Kuling, Attac Sweden). In his analysis, Gawell (2014) comes to understanding that social

enterprises are moving away from a dependency on public grants and become more vulnerable to

market conditions. It is these market conditions that the government should try to target in order

to foster SE.

Klein, Mahoney, McGahan, and Pitelis (2013) investigate strategic entrepreneurship capabilities

in public organizations. In doing so the authors look at how public entities try to create and

capture value by entrepreneurially managing bundle of capabilities and subsequently shape

entrepreneurial action. In other words Klein et al. (2013, p. 70) “explain the nature and evolution

of public organizations and <…> apply this approach to a series of cases on the growth and

diversification of public organizations, the private provision of public goods, and related issues”.

Klein et al. (2013) develop a matrix that could help understand potential outcomes in the

deployment of public capabilities. The matrix has two axes (alignment of minority private

interests with the public interest; efficiency of public organizations in capability deployment) and

four probable scenarios: a) private capture of non-optimized public value; b) destruction of value

through the creation of public ‘bads’; c) bureaucratic capture of non-optimized public value; d)

public capture of public goods. The matrix can be found below on Figure 2.

Figure 2: Potential outcomes in the deployment of public capabilities (copied from Klein et al., 2013)

3. Research Methods and Methodology

This study dwells on epistemological / ontological empiricism, “which holds that experiments

and observation are superior to reasoning and reflection” (Mathison, 2005) and that “social

phenomena can be studied scientifically when modeled along the objective, experimental,

verifiable, and generalizable methods of the natural sciences” (Given, 2008). At the same time,

the author realizes the shortcomings of empiricism as applied to governance frameworks

(limitation of observable and quantifiable, separation of the knower and the known,

objectiveness of proper methods).

On the other hand, the research design follows the predispositions of analytical induction (Vogt,

2005) and formulates generalizations by finding similarities within the research on public

entrepreneurship presented in reviewed articles, which are then utilized to formulate the initial

hypotheses. The limitation of this approach is that generalizations derived in this way may be

probabilistic and that developed hypotheses should be further tested through case examination.

While this study only goes through one inductive iteration (review – hypothesis formulation –

hypotheses testing – classification development – classification application – classification

refinement) further iterations would certainly help limit the probabilistic bias, as well as help

refine and reformulate the initial hypotheses to account for the observed shortcomings of the

initial iteration.

The survey data collected for this essay was acquired through online platform (Google forms).

The survey consisted of 12 questions, of which 2 required simple text input (age and country of

origin), 5 were multiple choice questions (which investigated if the person was previously

employed in the public sector, as well as his/her degree of political activism, difference of

interests in political news by scale), 5 were Likert-scale questions (measuring perception of

governmental aspects like democracy of regime, likeliness to innovate, responsiveness to

criticism, as well as civil society activeness in the country of residence, and the familiarization of

the respondent with the term “social entrepreneurship”). The link to the survey was shared via

social networks and was open for responses for 96 hours. The total of 52 respondents from 25

different countries participated in the survey, 1 response had to be taken out of analysis since the

data that were provided within a form were incomplete.

The following hypotheses were proposed to be tested for connections between the variables:

H1: Previous work in the public sector is not associated with the views on who should

support entrepreneurs (Government / businesses / Government and businesses).

H2: Governments that are assessed as more democratic tend to be more creative /

innovative.

H3: Governments that are assessed more receptive (to criticism) tend to be more creative

/ innovative.

H4: Governments that are believed to have high civil society engagement tend to be more

creative / innovative.

4. Analysis

Cronbach alpha test was conducted to measure internal consistency of the sample in the

questions that utilized Likert-scale. Internal consistency would indicate that all of the items vary

in the same direction and have a statistically meaningful level of correlation with each other

(Trobia, 2008). The results indicate that four out of five ordinal variables have very good internal

reliability > 0,80 and one has an adequate internal consistency of 0.79 (Multon & Coleman,

2010). The results of the alpha-test can be found below.

Figure 3: Cronbach's Alpha Test

To test for H1 I conducted a Chi-square test to see if there is any association between the

previous exposure to public sector and respondents’ opinion on entrepreneurial support. The

indicated Chi-square coefficient (0,103) and the p-value (0,950) support out hypothesis, therefore

we conclude that previous experience in public sector is not associated with a specific preference

for governmental support mechanisms. The result point to A) a few flaws in the design of the

survey (more self-exclusive categories should have been offered), B) small sample size (<100).

Due to the fact that the categories within a question measuring preferences for entrepreneurship

support were not self-exclusive, Chi-square test could have been conducted with a selected

sample of responses with answers indicating either “Government” or “Businesses”. However,

such a filtering would have limited the number of cases significantly and would not allow the

reliable Chi-square analysis.

Figure 4: Chi-Squre Test Results

Multiple linear regression analysis was utilized to test H2, H3, and H4 on associations between

perception of entrepreneurial governmental capacity (dependent variable) and the following

independent variables:

1. Age

2. Income per capita by the country of origin

3. Previous public experience

4. Participation in elections / referendums

5. Active political membership in political organizations

6. Familiarity with the term social entrepreneurship

7. Active civil society in the country of origin

8. Democratic government in the country of origin

9. The degree to which the government is receptive of criticism from opposition

The R2 is quite high (at 0,671), which indicates that 67,1% of the variation within our dependent

variable can be explained by the combination of our independent variables. The F-ratio (9,279)

and the p-value (< 0,01) imply that the model is a good fit for the data. But not all of the 9

predictors turned out to be statistically significant: only variable 1, 2, 3, and 9 (highlighted in

bold) are statistically discernible. This leads us to the following assumptions:

- Elder respondents tend to assess their government as more entrepreneurial (this fact may

be attributed to increasing risk-averse tendencies in the character as individuals mature).

- Respondents from countries with higher income per capita assess their governments as

more entrepreneurial (high income per capita is usually observed in the developed

countries that tend to have more governmental funding to engage in entrepreneurial

activities).

- People that had a prior experience of working in a public government assess their

governments lower on entrepreneurial scale.

- Governments that are more receptive of criticism tend to be assessed as more

entrepreneurial.

Thereby, we reject H2 and H4 and accept H3.

Figure 5: Regression Analysis Results

5. Public Policies Typology for Entrepreneurship

In this chapter I develop a classification framework for PE based on the results of the survey that was

conducted for this paper. This typology proposes a 4 categories / scenarios based on governmental

entrepreneurial capacities and the potency of civil society. The framework is further applied to create a

picture of variation between the countries. The chapter concludes with remarks on how one of the

scenarios can be managed to maximize entrepreneurial outputs.

5.1. Creating typology

How can public agencies foster the civil participation to maximize entrepreneurial capacities of the

agencies and at the same time bring about a positive societal change? While the answer to this question is

yet to be found and will largely depend on the socio-economic and cultural context of the change, the

following typology can be used to provide a preliminary approximation of possible public policy

scenarios.

1) MAXIMIZING public entrepreneurial capacity. This policy scenario implies maximizing the

agency capacity to innovate and fostering the endogenous organizational environment in order to

facilitate creativity among its employees. This scenario is more suitable for countries that are

characterized by high governmental entrepreneurial potency and active civil society. The

initiatives in this policy are created and developed within a public entity. The bureaucratic

capacity of the public agency increases by extending the services to a new sphere of public

domain - entrepreneurial activity. The most probable outcome of this policy is the establishment

of a new department staffed with both public and private consultants capable of developing and

implementing new economic policies.

2) LEADING public entrepreneurial capacity. This policy scenario implies maximizing the

agency capacity to mobilize civil society to lead societal entrepreneurial change. This approach is

more suitable for countries with high civil society engagement and with more rigid and deep-

seated governments that are not willing to innovate with its formal structures and bureaucracies.

The proposed policy is most likely to result in extra staffing across multiple departments, as well

as establishment of an inter-departmental committee to lead the change and facilitate the dialogue

between the main stakeholders.

3) OUTSOURCING public entrepreneurial capacity. This policy scenario implies outsourcing

public entrepreneurial capacity to the third-party organization in order to independently push the

entrepreneurial agenda in country’s economic policy. This policy is prescribed for countries with

low political and economic potency for change, but with high civil society involvement.

Outsourcing the right to provide the service to NGOs could help minimize opportunity costs for

change, and attract external expertise.

4) FOREGOING public entrepreneurial capacity. This policy implies inability and / or

unwillingness of the government to engage in entrepreneurial initiatives and is typical for poor

developing states whose administrations are understaffed, undertrained and underfinanced. The

situation in which the government’s capacity can only be extended to the provision of basic

human needs, such as policing, transportation, education and healthcare, and is lacking

technological expertise to transform societal capital into economic capital by the means of social

and technological innovation.

The typology matrix is presented below in Figure 6.

Figure 6: Public Entrepreneurship Capacity Typology Matrix

5.2. Applying typology

The survey data was utilized to apply typology in practice. The bubble chart was created to

illustrate the classification of countries based on the assessed entrepreneurial governmental

capacity and assessed state of activeness / passiveness of the civil society. The results are

provided below in Figure 7.

Figure 7: Public Entrepreneurship Typology by Country and Income

As we can see, majority of the countries seems to be concentrated in either higher right quadrant

or the lower left quadrant, rendering “MAXIMIMZING public entrepreneurial capacity”

scenario and “FOREGOING public entrepreneurial capacity” scenario the most common within

the classification. Another interesting observation is that such countries like South Africa,

Thailand and India with low income per capita appeared within the top performers.

It worth noting that while there were 51 respondents from 25 different countries in the sample,

19 were represented by the assessment of only 1 person (except for Germany, Russia, Italy,

USA, Brazil, and Mexico). This could have skewed the classification layout. More representative

independent samples are necessary to counterbalance this data collection flaw. Furthermore,

many 1-person responses were concentrated around the middle-line separators of the matrix,

which made it rather difficult to classify them (France, Jordan, Ukraine). Please consult Figure 8

for further analysis.

Figure 8: Public Entrepreneurship Typology Analysis

5.3. Attuning MAXIMIZATION scenario of typology

The higher right quadrant represents high activity within civil society and high PE governmental

capacity, which usually leads to establishment of a new public agency. I further argue, in line

with McKague (2011) research, that this scenario requires effective management of two key

organizational capabilities within institutional entrepreneurship: legitimacy management and

process management.

Gaining and maintaining legitimacy is extremely important, especially if the organization / entity

is operating as PPP and needs to conform to specific rules, norms and ideologies of public

environment (old stakeholders) within which it operates, as well as businesses (new

stakeholders) to which it serves. Another key organizational capability – institutional process

management – implies finding a balance between over- or under-provision of leadership and

commitment. Excessive leadership may hinder creating ownership among the organizational

partners, whereas insufficient leadership may bring about lack of focus and commitment from

major stakeholders (McKague, 2011). Figure 3 below provides an overview of the Capability

Model proposed by Mc Kague (2011).

Figure 9: Managing Key Tensions in Institutional Framework (McKague, 2011)

The model describes four scenarios which are most likely to follow the establishment of a new

international agency:

Suboptimal prescriptions (insufficient buy-in from a critical mass of stakeholders)

Business-as-usual scenario (nothing changes)

Waiting for opportunities (lack the momentum of an organized process to fully integrate

the new institutional norms and assumptions into their thinking and practice)

Hijacked by opportunistic interests (leading the process in the interest of people who are

in charge)

McKague (2011) also argues that the success of an institutional entrepreneur will largely depend

on his / her dynamic capabilities to manage the aforementioned key tension categories within the

framework. The dynamic capabilities are presented in the Figure 4 below.

Figure 10: Dynamic Capabilities of Institutional Framework

The capabilities described in McKague framework are pretty self-explanatory and incorporate

best management practices developed from the analysis of UNDP growing inclusive markets

(GIM) initiative. These capabilities should be further assessed in other socio-economic and

cultural contexts in order to provide for a better validity of results. Additionally, more analytical

material is needed in order to study various governmental entities that operate within local,

regional and national governments, and not international organizations like UNDP. Perhaps, the

initiatives are more effective, if and when the proposed organizational operations are benefiting

the weak (low-income populations) or addressing a common problem across the national

borders. If so, additional data should be collected and analyzed to better capture the differences

between various levels of cooperation.

6. Conclusions and recommendations

It is obvious that scientific community today is somewhat inconclusive when it comes to a clear

definition of public entrepreneurship. Most likely, this phenomenon has more in common with

institutional and strategic entrepreneurship, than with social entrepreneurship. As was observed,

PE manifests itself in both cumulative mean of all psychodynamic features of public employees,

as well as the cumulative mean of all the bureaucratic mechanisms within public entities.

Furthermore, public entrepreneurship and public policy should not be confused: the former is the

driver of the latter. And if the public policies vary depending on the country, as was

demonstrated in this essay, so does the PE capacity of the governments: some tend to be more

innovative and flexible in establishing governance frameworks to support innovation, while

others having no or little resources to spare, outsource the right to provide for innovation to

businesses and nonprofits.

Further research should include more thorough review and analysis of the literature focused on

strategic and institutional entrepreneurship, with more regard to organizational aspects of

governmental bureaucracies. Another classification should be developed in order to

accommodate regional variation within more heterogeneous countries. On the other hand, future

research should concentrate on a more detailed analysis of the public frameworks within

assessed countries to check what mechanisms they use or whether they have specific

departments / platforms to maximize innovation. Also, more attention should be given to survey

analysis: by increasing the number of respondents as well as adding / modifying some questions

that proved to be troublesome the researchers will be able to increase the predictability power of

the regression model utilized in this paper. Another improvement might come from utilizing

ordinal regression model. The paper would benefit a lot from employing bias-control techniques,

to test for the influence of political affiliation on the evaluation of governmental structures in the

survey.

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