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VOL. 22 NO. 1

Special Issue:Exploring Entrepreneurship Beyond the Boundaries

INSIDEThe Ethics of Exploring Entrepreneurship Beyondthe BoundariesGerard McElwee iiiThe Hidden Enterprise of Bootlegging Cigarettes Out ofGreece: Two Schemes of Illegal EntrepreneurshipGeorgios A. Antonopoulos and Jay Mitra 1Story-branding by Empire Entrepreneurs: Nike, ChildLabour, and Pakistan’s Soccer Ball IndustryDavid M. Boje and Farzad R. Khan 9Growers and Facilitators: Probing the Role ofEntrepreneurs in the Development of the CannabisCultivation IndustryMartin Bouchard and Claude B. Dion 25Value-adding and Value-extracting Entrepreneurship atthe MarginsKirk Firth and Gerard McElwee 39Beyond Legitimate Entrepreneurship: The Prevalenceof Off-the-Books Entrepreneurs in UkraineColin C. Williams 55Extracting Value from Their Environment: Some Observationson Pimping and Prostitution as EntrepreneurshipRobert Smith and Maria L. Christou 69

JOURNAL OF SMALL BUSINESS & ENTREPRENEURSHIP

•VOL. 22

NO. 1

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cover December2009.qxp 1/16/2009 8:37 AM Page 325

The Journal of Small Business and Entrepreneurship is covered by the following abstracting andindexing services: Journal of Economic Literature (on-line and CD), EconLit, Cabells Directory,ProQuest, and CBCA Business. The articles can also be found on EBSCO Publishing bibliographicand research databases.

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frontpages-22-1.qxp 9/12/2008 3:07 PM Page ii

The Ethics of Exploring Entrepreneurship Beyond

the Boundaries

Gerard McElwee, University of Lincoln, Lincoln, United Kingdom

Much of the mainstream academic literature in the entrepreneurship literature does notexplore those areas of enterprising activity which lie outside of the “conventional”—thosetopic areas of “business life cycle,” “entrepreneurial motivation,” “networking,” and soforth. There are however, some interesting exceptions as the authors in this special issuedemonstrate as they explore the “other,” the “non-conventional” and entrepreneurialOutsiders. Significantly, other academic discipline areas, notably within the social sci-ences: Sociology, Criminology and Economics have a history of engaging with marginalentrepreneurs or what Smith (2007) has named entrepreneurship at the margins. However,these marginal entrepreneurs have not been studied as entrepreneurs and of course hereinlays an interesting paradox. If we study marginal entrepreneurs as entrepreneurs we givethem legitimacy. Writing about such actors does not necessarily create legitimacy to theiracts or consequences of their acts. What it does is develop nuanced understandings ofalternative forms of entrepreneurship. Indeed Mark Casson as long ago as 1982 wrote ofcriminality, war and revolution as alternative entrepreneurships.

Legitimacy, as we will see, is a culturally assigned activity. Thus what is legitimate forsome is not for others.

Frith and McElwee in this issue suggest that it is not for them to comment on what isethical or moral and nor is it their task to make value judgements about the entrepreneurfor as Weber says

No ethics in the world can dodge the fact that in numerous instances theattainment of “good” ends is bound to the fact that one must be willingto pay the prices of using morally dubious means or at least dangerousones—and facing the possibility or even the probability of evil ramifi-cations. From no ethics in the world can it be concluded when and towhat extent the ethically good purpose “justifies” the ethically danger-ous means and ramifications. (Gerth et al., 1958: 121)

Thus we let the reader decide if the marginalized social actors featured in this special edi-tion are entrepreneurs or not.

Clearly, all entrepreneurs have competing ideals and as Giddens, following Webersuggests, there is no such thing as universal ethics or of course a monopoly on truth.

The consequences of an entrepreneur’s actions may or may not concern the entrepre-neur herself. Indeed in some of the examples described in this issue the actions of theentrepreneur and the consequences of her actions are very different to the original or stat-ed intentions of the entrepreneur, McElwee (2008). This is what Weber (1968) calls the“paradox of consequences” and elsewhere, Swedberg and Agevall (2005) the “doubleethic” whereby some communities have an “in group” morality for their own membersand an “out group” ethic for members of other communities.

Journal of Small Business and Entrepreneurship 22, no. 1 (2009): pp. iii–iv iii

Introduction.qxp 9/12/2008 3:08 PM Page iii

The papers in the issue, to a greater or lesser extent, deal with a group of relativelyambiguous concepts such as morality, value judgements and legitimacy. A problem withthe concept of legitimacy is that it assumes that there is evidence to support the view thatthere is a common value system or widespread legitimacy. As we will see in this collec-tion there are a good number of forces which combine, either formally or informally tofacilitate the development of a modern economy and society.

I would like to thank all of the contributors and anonymous reviewers for their workin compiling this special issue and to Bob Anderson for the opportunity and support. It isnot an easy task to broker such “Special Editions” and therefore Bob Anderson’s enlight-ened encouragement has proven to be more than welcome.

I hope the reader enjoys reading this issue as much as I have enjoyed compiling it.

Further Reading

Casson, M.C. 1982. The Entrepreneur: An Economic Theory. Oxford: Robertson.Gerth, H.H. and C. Wright Mills. 1958. From Max Weber: Essays in Sociology. Oxford: Oxford University

Press.Giddens, A. 1982. Capitalism and Modern Social Theory: An Analysis of the Writings of Marx, Durkheim and

Max Weber. Cambridge: Cambridge University Press.McElwee, G. 2008. “In Search of Montsalvatch: Making Sense of Interviewing,” Tamara Journal 7, no. 2:

134–48.Smith, R. 2007. “Editorial,” International Journal of Entrepreneurship and Innovation 8, no. 4: 245–50.Swedberg, R. and O. Agevall. 2005. The Max Weber Dictionary: Key Words and Central Concepts. Stanford:

Stanford University Press.Weber, M. 1968. Economy and Society: An Outline of Interpretive Sociology. New York: n.p.

Gerard McElweeUniversity of Lincoln, UK

iv MCELWEE

Introduction.qxp 9/12/2008 3:08 PM Page iv

The Hidden Enterprise of Bootlegging Cigarettes

Out of Greece: Two Schemes of Illegal

Entrepreneurship

Georgios A. Antonopoulos, University of Teesside, Middlesbrough,

United Kingdom

Jay Mitra, University of Essex, Southend, United Kingdom

ABSTRACT. Cigarette smuggling in all its forms prevents the Greek state from collecting large amounts oftaxes. The phenomenon has been largely neglected by the academic community and this is even more the casewhen it comes to bootlegging. This article is a presentation of the available evidence on two schemes of boot-legging cigarettes out of Greece. It explores the different entrepreneurial inputs of cigarette bootleggers, and thepractices that resemble “normal” entrepreneurial activities, through two case studies. These inputs and practicesshed some light on the environment in which unproductive economic activity takes place, offering researchersand policy makers insights into their manifestation.

RÉSUMÉ. La contrebande de cigarettes sous toutes ses formes prive le gouvernement grec de vastes revenus.Ce phénomène n'a pas été d'un grand intérêt pour la communauté universitaire, et c'est encore davantage le casquand il s'agit de vente illicite. Cet article présente les données disponibles concernant deux schémas de contre-bande de cigarettes à partir de la Grèce ; il explore en deux études de cas les différents intrants entrepreneuriauxdes contrebandiers, ainsi que les pratiques qui ressemblent à des activités entrepreneuriales “normales”. Cesintrants et pratiques jettent de la lumière sur le milieu dans lequel une activité économique non productive prendplace, offrant ainsi aux chercheurs et aux stratèges un aperçu de leur manifestation.

Introduction

Cigarette smuggling is a form of smuggling that deprives the Greek state OF largeamounts of taxes. According to data obtained from the Hellenic Coast Guard (2005), theevaded taxes from cigarettes seized by the Hellenic Coast Guard from 1998 to 2004amounts to 107,948,634.42 € (US$ 139,377,991.87/ £ 73,504,975.728) (Hellenic CoastGuard, 2005). Greece is a very interesting case study when it comes to cigarette smug-gling for a variety of reasons, apart of course from the fact that research on the topic inthe country is in an embryonic state. This is due to Greece having a large smoking popu-lation, a significant black market economy and low “tax consciousness,” neighbouringcountries with large informal economies such as Albania, FYROM and Bulgaria (seeStanchev, 2005), and high (cigarette) smuggling rates (Tobacco Journal International,2000).

For Joossens (1999) and von Lampe (2005), bootlegging is one of the ways of smug-gling cigarettes, and refers to instances when an amount of cigarettes that exceeds customsregulations is bought. According to Joossens (1999), bootlegging usually involves thou-sands of cigarettes, the cigarettes are duty paid, the investment is relatively small, andbootlegging is organised by individuals and gangs and it is caused by price differentialsamong neighbouring countries. In addition, as Joossens et al. (1992) suggest, bootleggingaccounts for a relatively small share of the total cigarette-smuggling business. Numerous

Journal of Small Business and Entrepreneurship 22, no. 1 (2009): pp. 1–8 1

Antonopoulos-Mitra.qxp 9/12/2008 3:11 PM Page 1

bootlegging schemes have been identified in Europe such as at the German-Polish andGerman-Czech borders, across the English Channel (von Lampe, 2005), at the Austrian-Hungarian borders and at the Greek-Bulgarian borders (Joossens, 1999).

Cigarette smuggling in general is not a widely researched phenomenon and this is evenmore the case when it comes to bootlegging. According to von Lampe (2005) “there are nosystematic analyses available on the modus operandi and structure of bootlegging, neitherfor Germany, nor for the UK, nor for any other EU member state” (von Lampe, 2005: 14).In addition, although there have been some efforts to estimate the effect of crime in gener-al on entrepreneurship (see, for example, Ortega Alvarez, 2002), bootlegging has not beenviewed through the prism of entrepreneurship theory. This article is a presentation of theavailable evidence on two schemes of bootlegging cigarettes out of Greece; therefore,Greece in this article is treated a source country for contraband cigarettes.

In common with many other activities in the “hidden economy,” cigarette bootleggingrepresents illegal entrepreneurship, which is concerned with what Baumol (2002) refersto as the domain of the rent-seeking entrepreneurs. These entrepreneurs seek and gainentrepreneurial “rent” from the same system of enterprise that legal, entrepreneurs do.Their ability to identify opportunities, make novel combinations of different resources,use information asymmetry to derive economic outcomes, and network with “weak” and“strong” ties, is similar to their mainstream counterparts. The critical difference is perhapsin the outcomes of their operations and the conscious attempt to work outside the legalframework or the “citizen consensus” afforded to all in society. Wealth creation is possi-ble with both groups of entrepreneurs but the “citizenship consensus” offers potentialopportunities for all whereas the “hidden economy” activities are best served when thoseoutside it are its natural “victims.” Moreover, despite its potentially innovative function itis questionable whether the acquisition of monopoly profits contributes to the economy.In fact, as Baumol (2002) argues, it can constitute an effective impediment to economicproduction or productivity. Each act of rent-seeking can reinforce the unproductive func-tion as firms engaged in such practice redirect their activities down a negative spiral forthe sake of self-defence. Investigating and studying the entrepreneurial behaviour ofhidden-economy entrepreneurs is, therefore, particularly important in order to distinguishbetween forms of social acceptance and legitimacy on the one hand, and of economic andsocial exploitation on the other. Putting rent-seeking activities such as bootlegging underthe microscope helps us to understand that entrepreneurship is not synonymous with pro-ductivity and growth (Schumpeter, 1911). What matters, therefore, is the appropriate con-sideration of specific entrepreneurial inputs and practices which lead entrepreneurs tooperate at either opposite ends of the entrepreneurial spectrum (that is between the hero-ic acts of entrepreneurial genius at one end and criminal monopolization of profits) orrealising the innovative space that lies somewhere in between (see Figure 1 below). In the18th century, Adam Smith argued that competition helps to resolve the problem ofextremes, and Schumpeter (1911) stated that entrepreneurship can embrace theseextremes anyway. Implicit in both their arguments is the need for legitimization of the“hidden economy” system of entrepreneurship that underscores much of the thinking thatguides policy development today (Williams, 2006).

This article explores the different entrepreneurial inputs of cigarette bootleggers andthe practices that resemble “normal” entrepreneurial activities, through two case studies.These inputs and practices shed some light on the environment in which unproductiveeconomic activity takes place, offering researchers and policymakers insights into theirmanifestation.

2 ANTONOPOULOS AND MITRA


Methodology

This article is the product of interviews with “actors” of the cigarette bootlegging busi-ness. Specifically:

• An interview with an individual who as a student in the former Yugoslavia in the1980s and early 1990s was smuggling cigarettes out of Greece into former Yugoslavia(Bootlegging scheme one). This interview was conducted in the city of Patras inGreece in September 2006.

• Interviews that were conducted in a town in the northeast of England in May 2006with two runners transporting cigarettes from Greece into the UK (Bootleggingscheme two). Here we adopt the term “runner” from von Lampe (2005) and will laterexplain what it means. In all interviews the participants were asked to provide infor-mation about the social organization of the particular bootlegging schemes.

Bootlegging Scheme OneThe first bootlegging scheme involves a Greek student at the University of Belgrade, whowas smuggling cigarettes bought from the duty-free shop on the Greek-Yugoslavian bor-der from 1986 to 1991. He used to buy DM (Deutsch Mark) 1,000 in merchandise (hardpacks of Marlboro and Camel), and he was transporting them in his and his friends’ lug-gage on the bus. He used to sell the cigarettes in cafés and bars in Belgrade, where theelite of what was then Yugoslavia used to hang about. Despite the fact that cigarettes inYugoslavia were much cheaper than in Greece, bootlegging was possible because: a) therewas no hard pack for Marlboro in Yugoslavia and the possession of such a pack was a signof prestige and status, and b) the quality of the Yugoslavian tobacco was much poorer thanthe Greek tobacco. The student used to transport cigarettes in January, after Easter and inSeptember when he was returning from Greece after the holidays. From every load of DM1,000 he used to have a profit of DM 2,000. In order to circumvent the strict Customssearch on the Greek-Yugoslav border, the bootlegger had established a contact with a cus-toms officer, who did not, however, receive any money in order to “turn a blind eye,” andwas, as the interviewee suggested “my customs officer” (emphasis by the interviewee).

This story highlights the lifestyle circumstances that allow for an indulgence in oppor-tunity gratification at the individual level. The reliance of the student on weak ties withthe customs officer, and the capitalisation of opportunities based on both greed and socialenhancement, is typical of small-scale entrepreneurship that satisfies a limited marketplace. Small quantities of goods are exchanged in a market which could ill afford statusor quality. There being no market for legitimate business activity, bootlegging offersrestricted opportunity for economic gain.

HIDDEN ENTERPRISE OF BOOTLEGGING CIGARETTES OUT OF GREECE 3

LegitimateEntrepreneurship

Legitimisation Process

Rent-seekingEntrepreneurship

HeroicEntrepreneurship

Figure 1. The Entrepreneurship Spectrum


Bootlegging Scheme TwoThe second bootlegging scheme involves the manager of a café that is a meeting place forstudents in a northern English town, who gives money to a number of students who fre-quent his café for bringing him specific brands of cigarettes (that are consumed inBritain), especially at periods when students return home (Christmas, Easter and sum-mer). Each student “imports” 16 cartons (3,200 cigarettes) to Britain, and receives about£30 (US$ 55/ 44€) as an “importation fee.” The cigarettes are brought into Britain by airand occasionally through the Channel Tunnel, and distributed to customers in a chain ofbars and clubs in the town. There are basically two different sets of “actors” in bootleg-ging scheme two:

• The Pusher, who has “recruited” the runners, and who has the responsibility of intro-ducing the contraband cigarettes into the market through a network of acquaintancesand customers. The pusher has, therefore, a “managerial” position in the whole busi-ness. He could be characterised as a “line manager” for the other actors of the business.

• Runners: the runners are individuals who transport smaller quantities of EU duty-paidcigarettes for cigarette-smuggling networks (House of Commons, 2005, cited in vonLampe, 2005: 15). They usually transport cigarettes in their cars and/or luggage. In ourcase they are the two individuals interviewed (see Figure 2).Runners one, two and three conduct regular business with the pusher, whereas runners

four and five conduct business only occasionally. The reason why this is the case is notknown. All runners are personally linked to each other, either as couples (runners one amdtwo, and four and five), housemates (two and three) or friends. Runners two and threewere recruited (as runners) through being employed in the legitimate business managedby the pusher, whereas runners one, four and five, who were regular customers of the law-ful business, started bootlegging cigarettes for the pusher after runners two and threeintroduced them to the pusher. Runner two was the first to be recruited for the bootleg-ging scheme and the person having the closest relationship with the pusher since runner


Figure 2. Bootlegging scheme two (note that the typographical error was embedded in the original copy of thefigure and could not be corrected).


three stopped working for the legitimate business (but not the illegal business) a fewmonths later. Essentially, the pusher exhibits some of his entrepreneurial qualities byinvesting in runner two only, and thus having indirect access to the rest of the runners(one, three, four and five) (see Morselli, 2003). The second bootlegging scheme is morecomplex than the first presented in this article, because it involves a larger number ofindividuals/“actors.” Contraband cigarettes in this bootlegging scheme are introduced toa network of customers (known to the pusher) in the café and a bar chain in the town. Theselling of cigarettes is conducted in special areas within the café, the bars or the clubs.Bootlegging scheme two represents a “higher order” of entrepreneurship characterised bya stronger organisation enabling opportunity identification and realisation, stated andexplicit networks of operation, the use of both “strong” and “weak” ties, complexity ofactivities, cross-investment opportunities, and defined customer groups across dispersedborders.

Discussion—Conclusion—Recommendations

Initially, it should be mentioned that the data obtained and presented in this article referto two successful schemes since the bootlegger in the first case was never apprehended,nor has the second scheme been intercepted so far. We therefore consider this article to beimportant because it is based on typical bootleggers, the successful illegal entrepreneurs,and not on “captive populations” (Gigengack and van Gelder, 2000: 11). Further to thatthere are a number of issues, interesting both in terms of criminological and entrepre-neurship research, that need to be discussed. Firstly, in relation to “structures” involved incigarette smuggling, the Greek media very often attribute any form of smuggling, includ-ing cigarette smuggling, and/or “organised” criminal activities to Mafias and Cartels. Thisis not surprising since these are terms which are highly sensational, attractive and benefi-cial (to the public, the police and the politicians) (von Lample, 2001). The implication ofthis representation, however, is huge. The public are fed up with the idea that cigarettesmuggling (among other illegal markets) is conducted by hierarchical, rigid and powerfulorganizations, which is of course false. In a similar vein, governmental organizations andagencies have been suggesting that “because of the high profit potential, organized crimehas become heavily involved in bootlegging” (Advisory Commission onIntergovernmental Relations, 1977: 1). As it is shown in this article, cigarette smugglingin the form of bootlegging can be quite (dis)organized and this is why Joossens et al.(2000) characterize it as a “low-tech type of cigarette smuggling.” The cases presented inthis article support the enterprise paradigm, putting emphasis on a process of exchangebetween the bootlegger and the customers, and on “how participants are organizing theircrime-trade and adapt to and survive in illegal markets” (von Lampe, 2002: 193).According to this paradigm, what we loosely term “organised crime” and illegal marketsare a jigsaw of flexible “entities” that establish themselves when opportunities for profitappear (see Block and Chambliss, 1981; Hobbs, 1988; van Duyne, 1993, 1997; Zaitch,2002). These entities are adaptive to the new social, political, and—most importantly—economic environments, and see themselves as “service providers” (Ruggiero, 1997: 27).

Second, “criminogenic asymmetries” (Passas, 1999) such as the huge price disparitiesthat exist between Greece and neighbouring countries are not always the reason for thebootlegging of cigarettes. Indeed, in our general research on cigarette smuggling we cameacross Greeks travelling to Bulgaria, and specifically Petritsi and Sandanski, to buy ciga-rettes among other commodities (see, for instance, Terzenidis, 2004). The reason for thisis the huge price disparities that exist between Greece and Bulgaria. In particular, in 2002



a pack of Marlboro was sold 45% cheaper in Bulgaria than in Greece (Mackay andEriksen, 2002: 102–09). We have also come across a beach bar owner in a Greek islandbringing cigars from Cuba and selling them to interested customers at a much higherprice, and airplane crew smuggling quantities of cigarettes from countries of the Arabpeninsula in order to sell them to ground staff of the airline they were employed by. Pricedifferences are indeed an important factor of bootlegging but surely there are other factorstoo: prestige for the smoker of bootlegged cigarettes or the bad quality of the tobacco usedby the local manufacturers, as was shown in bootlegging scheme one. We did not comeacross any bootlegging into Greece from Turkey, Romania, Serbia, FYROM in the Greekmedia, and we have collected absolutely no anecdotal accounts of such a case despite thehuge differences in cigarette prices, which are in some cases (for example Romania andSerbia) even bigger than the difference between Greece and Bulgaria (see Mackay andEriksen, 2002: 102–09). There is something more than simply price differential thatfavours the smuggling of cigarettes from the context in which cigarettes are sold cheaperto the one in which cigarettes are more expensive. The assertion made by the AdvisoryCommission on Intergovernmental Relations (1977: 3) and indeed other state-relatedorganisations, as well as the tobacco industry (see Joossens and Raw, 1995) that “cigarettebootlegging will continue unabated and will increase if tax differentials increase further,”is too simplistic.

Third, bootlegging of cigarettes does not only occur among neighbouring countries orcountries that are relatively close geographically. As was shown in bootlegging schemetwo, bootlegging can also occur among countries that are geographically distant(Greece–United Kingdom). The presence of a bootlegging scheme operating with suchgeographic scope in our opinion strengthens the position of the network and/or “crimi-nally exploitable ties” (von Lampe, 2003a) in the study of “organised crime” and illegaltrades.

Fourth, corruption is not an essential feature of bootlegging out of Greece since thetransportation of quantities that exceed those suggested by regulations are not alwaysknown to law enforcement and other relevant state agencies. In addition, the quantities arerelatively small, and the circle of distribution is small and closed, which reduces the pos-sibility of public authorities getting to know of this activity.

Fifth, similar to the research on cigarette smuggling in Germany conducted by vonLampe (2003b), and which has greatly inspired the current article, the “actors” of thebootlegging schemes presented were not involved in other criminal activities or illegalmarkets.

Sixth, legal businesses, the cafés and bars in Belgrade in bootlegging scheme one andthe café, bars and clubs in the northern English town in bootlegging scheme two, play animportant and functional role in the social organizations of the bootlegging business infour ways:

• by simply acting as an outlet in which contraband cigarettes are sold (bootleggingschemes one and two);

• by acting as a venue in which legal entrepreneur-customer relationships are trans-formed into illegal entrepreneur-customer relationships (bootlegging scheme two);

• by acting as a venue in which legal business relationships between the employers andthe employees are transformed in illegal business relationships (bootlegging schemetwo) (see von Lampe and Johansen, 2004);



• by acting as a venue facilitating the illegal entrepreneurial relationship between thebootlegger and his customers (bootlegging scheme one).Based on this study we recommend further research on the reasons conducive to the

bootlegging of cigarettes other than the price disparities among different contexts. In addi-tion, explanations are needed as to why bootlegging occurs among specific jurisdictionsand not others. Finally, we recommend further research on the social organization of boot-legging schemes in Greece and out of Greece as well as further investigation into the per-sonal and social characteristics of the participants in bootlegging schemes.

Central to the proposed research and/or policy agenda is the need to identify normsand patterns of criminal entrepreneurship that both resemble and are differentiated fromtheir legal counterparts. As this article shows, not all forms of bootlegging follow prac-tices which have stereotypical associations such as “mafia control” or price differentials.In their “commonness” can be found much of the explanation for their possible legit-imization and the prospect for a productive turnaround. Furthermore, the processes ofindividual effort, opportunity identification, networking, and the use of weak and strongties, we find possible resolutions to the problem of operating at the extreme or outside theline of the “citizenship consensus.” For the researcher the social-psychological and eco-nomic explanations of deviation from the “norm” are crucial for the dispassionate studyof entrepreneurship in all its forms. For the policymaker, understanding the normativeprocesses of the hidden economy, their link with the environment and institutions thatunderpin mainstream economic activity, and the potential of particular manifestation inspecific environments, offers real prospects for their legitimization and return to produc-tive economic endeavour.

Contact Information

For further information on this article contact:

Georgios Antonopoulos,School of Social Sciences & Law, University of Teesside, Middlesbrough,TS1 3BA, United Kingdom

Tel.: +44 (0)1642 342392 (office)E-mail: [email protected]

or

Jay Mitra, School of Entrepreneurship and Business, University of Essex, Southend Campus, 10Elmer Approach, Southend-on-Sea, Essex SS1 1LW, United Kingdom

Tel.: +44 (0)1702 328390 (office)E-mail: [email protected]

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Story-Branding by Empire Entrepreneurs: Nike,

Child Labour, and Pakistan’s Soccer Ball Industry

David M. Boje, College of Business, New Mexico State University, Las

Cruces, New Mexico

Farzad R. Khan, Suleman Dawood School of Business, Lahore

University of Management Sciences, Lahore, Pakistan

ABSTRACT. Our study identifies and calls for an answerability-ethic of storytelling where entrepreneurs areheld responsible and accountable for the harmful ways in which they story the Third World. We study aCorporate Social Responsibility (CSR) initiative involving Nike in the Third World. Our study draws upon inter-views and textual study of the Sialkot Child Labour Elimination Project that was signed in Atlanta, Georgia inFebruary 1997. We find that Nike’s CSR stories not only brand products but they also brand Third World labour.Our study’s main contribution is to show that entrepreneurs’ branding through storytelling their “benign” CSRinitiatives in the Third World, an activity we term “story-branding,” has an imperial face requiring the use ofpower to turn workers voiceless (make them into subalterns).

RÉSUMÉ. Notre étude identifie et préconise une éthique de responsabilité en matière de contes, dans laquelleles entrepreneurs deviennent responsables de la façon nocive dont ils peignent le Tiers-Monde. Elle porte surune initiative de responsabilité sociale d’entreprise (RSE) concernant Nike dans le Tiers-Monde. Cet article estbasé sur des entrevues et sur une étude textuelle du Projet Sialkot pour l’élimination de la main-d’oeuvreenfantine, signé à Atlanta (Georgia) en février 1997. Nous constatons que chez Nike les contes de RSE imposentla marque non seulement sur les produits, mais encore sur la main-d’oeuvre du Tiers-Monde. Notre contributionprincipale est de montrer que les entrepreneurs qui par l’entremise de leurs contes mettent leur marque sur leursinitiatives “bienveillantes” de RSE au Tiers-Monde—une activité que nous appelons “marquage par contes”—présentent un visage impérialiste, et doivent donc user de force pour faire taire les travailleurs et les subordonnerà leur pouvoir.

Introduction

Storytelling is a primary way entrepreneurs maintain the currency of their reputation.While marketing and corporate reputation literatures recognize that Corporate SocialResponsibility (CSR) is a vital component of a company’s brand strategy (Chun, 2005),the role of story is not being addressed by them. Entrepreneurs strengthen their brandsthrough telling stories about their CSR initiatives. Such CSR stories improve the image ofentrepreneurs with consumers, help them gain legitimacy for their labour practices, andassist them in attracting other resources required for their continued success (Lounsburyand Glynn, 2001; Zott and Huy, 2007). However, this literature on entrepreneurship andbranding is limited in that it ignores the effects of entrepreneurs and their legitimatingstory work on the poor and powerless in the Third World where many entrepreneurs basetheir supply chains and where they situate their CSR initiatives.

We address this limitation by connecting entrepreneurship and branding literature topostcolonialism, a field that looks at the effects of colonization on societies and cultures,particularly in the Third World (Westwood, 2006). We bring the great postcolonial theo-rist Edward Said’s (1978, 1993, 1994) concern about the plight of the Third World to thecentre of entrepreneurship studies and direct it to what is most marginalized in branding


Boje-Khan.qxp 9/12/2008 3:11 PM Page 9

and entrepreneurship studies: Third World worker voices. Creating space for these voicesleads us to a more critical reading of the literature on entrepreneurs and branding. Throughthis reading, we articulate a new term called ‘story-branding’ that helps surface the impe-rial face of the branding process.

Story-branding, our paper’s main contribution, is defined as entrepreneurs strengthen-ing their brands by putting into play a characterization of events relating to a CSR initia-tive in the Third World that ends up branding one set of actors (entrepreneurs and theirorganizations) as heroes who rescue other characters. The focus of this form of storytelling is on the entrepreneur as hero in an adventurous story saga. Just as with imperial-ism and its heroic “civilizing” mission (Ahmad, 2000; Blaut, 1993), the consequences ofthat adventure for people in the Third World are simply left out of the narrative. In termsof the study we present, Nike, the heroic entrepreneur, rescues Third World families fromchild labour in Pakistan’s soccer ball industry. The remedy Nike, other global brands, andvarious agencies, implemented to remove child labour did not include the voices of thechildren, or their parents, who, in our study, had an entirely different characterization oftheir work experience. Neither in Nike’s story-branding was any mention made of theharmful effects that ensued from its heroic rescue mission. What our analysis of the impe-rial face of branding suggests is a disturbing dark side to this entrepreneurial activitywhich is overlooked in previous studies that otherwise treat the phenomenon as heroic orromantic adventure storytelling.

Through our study of story-branding regarding a CSR initiative in the Third World, wefind that the literature on entrepreneurship and branding fails to notice that in CSR story-telling done to brand products, Third World labour is being branded as well. In the classi-cal definition of branding, it is being burned, like prisoners or cattle, with identifyingmarks (e.g., grateful for CSR when opposite is the case) that are injurious to it and whichfacilitate its exploitation. Branding has thus an imperial face of imposing identifyingmarks to permit injury and disgrace for the people in the Third World who make the prod-ucts of First World entrepreneurs.

A related contribution is to identify an additional ethical dimension in entrepreneur-ship revealed by story-branding: the ethical inquiry into corporate ‘answerability’ for thestories of Third World workers being branded in story characterizations. Entrepreneursneed to be held answerable for the consequences of the highly compelling stories they tell,if indeed, as we argue, such branding-stories do contribute to late capitalism’s ongoingimperial project that otherwise is crushing to a worker’s dignity in the Third World.

Our article is organized as follows. First, we explore postcolonialism and its concernwith the inhabitants of the Third World made voiceless. Second, we briefly lay out ourmethods for our case study of the CSR initiative “The Sialkot Child Labour EliminationProject” involving Nike and other global soccer ball brands. We then present our casestudy where we do our best to open spaces for subaltern voices, women soccer ball stitch-ers, regarding this initiative. After this, we reflect upon Nike’s imperial face and discusshow these subalternized voices problematize our understandings on branding throughCSR initiatives situated in the Third World. This leads to ethics, and we argue that thereneeds to be storytelling answerability. Entrepreneurs need to be held answerable for thestories they tell, for they brand not just products but also people. We conclude with ourpaper’s contributions and future research directions opened up by our inquiry that treatsentrepreneurship’s branding activities through postcolonial sensitivities.

10 BOJE AND KHAN


Postcolonialism and the Subaltern

Postcolonialism has advanced many insightful concepts to make sense of Europe’s post-1492 engagement with (some would say onslaught against) the Third World. One suchconcept that has generated much theoretical mileage is the term “Subaltern.”

The word subaltern, though coined by Gramsci, was popularized by a group of Indianhistorians in the 1980s (Prasad, 2003). This group came to be known as the “SubalternStudies Collective’ with Ranajit Guha being perhaps its most notable member(Chakrabarty, 2002). Subalterns meant all those weak and marginalized elements (i.e., thepoor masses) ignored in the mainstream narrative of history that focuses on elites and theirmotives and actions to explain historical events. The collective sought to rewrite Indianhistory from the perspective of these groups, to write a people’s history of India. Theresearch that ensued contested several claims of mainstream Indian history. In contrast tothe then prevailing view of Indians being united in a common cause against the British,the Subaltern Studies research pointed out that there were severe class-based conflictsbetween the leadership elements of Indian nationalism and their grassroots who often hada different vision of India than their leaders (e.g., one that preserves their local, rural cul-ture as opposed to a high-modern industrialized vision of India held by such Indiannationalist leaders as Nehru [Chakrabarty, 2002; Roy, 1999]; for a concise history on theSubaltern Studies collective, see Chakrabarty, 2002 and Ludden, 2001a; for an outstand-ing example of subaltern research looking at workplace and organizational dynamics, seeChakrabarty, 1983).

In the 1990s the term subaltern came to take on a more specific meaning as it came tobe appropriated by postcolonial studies (Prasad, 2003). From being used as a term to referto the subordinated masses in general, it began to be used to depict specifically thoseclasses or individuals within them who are spoken about but never heard (Ludden, 2001a,2001b; Prasad, 2003) in contrast to other subordinated groups (e.g., tribals in India) thatdo not even make it to the realm of public discussion (Roy, 1999).

Sensitivity to subalterns should alert us to their possibilities in other domains charac-terized by massive imbalances of power. CSR initiatives in the Third World could well besuch domains where the multi-billion-dollar global transnational corporation is engagedwith penniless workers. They become subalterns or peripheral centres of the CSR initia-tive: they are central to the initiative but in terms of having their voice heard and theirinterests fairly represented and realized, they become ignored.

This seems to have happened in our study of a CSR initiative undertaken by Nike andother brands to eradicate child labour from soccer ball production. Before we present ourstudy, we would like to make a brief note on methods.

Methods

The majority of the world’s soccer balls have, for decades, been produced in Sialkot,Pakistan, with leading international brands (e.g. Nike and Adidas) sourcing almost exclu-sively from Sialkot (Khan, Munir and Wilmott, 2007). Estimates of the number of stitch-ers employed in Sialkot’s soccer ball manufacturing cluster varied from a low of just over30,000 (International Monitoring Association for Child Labour [IMAC] 2003) to a high of65,000 (Awan, 1996: 5). The great majority of children helped their parents at home, whowere in turn paid for the number of soccer balls rather than hours worked—an ILO esti-mate placing the number of children at approximately 15,000 (Husselbee, 2001: 133; ILO1999). Most of these balls were stitched in homes (mostly in the 1,600 odd villages sur-rounding Sialkot). Balls reached these homes through an elaborate chain of subcontractors.

NIKE, CHILD LABOUR, AND PAKISTAN’S SOCCER BALL INDUSTRY 11


In this study, we chose a qualitative storytelling inquiry research design. This was inkeeping with standard research practice of storytelling studies (Boje, 1991, 1995, 2001;Czarniawska, 2004; Gabriel, 2000). The focus of the study was to ascertain the stories ofthe most subjugated segment of Pakistani society, involved in the soccer ball industry:women soccer ball stitchers.

Main sources of data were interviews and documents. Between November 2000 andOctober 2003, the second author (hereafter SA) made three extended field trips to Sialkot,Pakistan. Interviews were conducted with Pakistani soccer ball factory owners, staff ofNGOs working on the project to eliminate child labour, male and female soccer ball stitch-ers as well as children affected by the project. Each interview was semi-structured andlasted on average about 80 minutes. The longest was about three hours. A total of 110respondents participated in the interviews, with 50 of them being women stitchers. At theclose of each interview, stitchers were asked questions about exercising agency (voice)and any constraints experienced in doing so. NGO personnel were asked about the visibleabsence of stitchers’ voices in the design and implementation of the project.

Apart from interviews, several other sources of information were used, includingnewspaper stories, internal organizational documents (emails, faxes, memos, letters, proj-ect evaluation reports, meeting minutes), US Department of Labor (DOL) hearings, legalarchives, public fact-finding reports, internet documents, and surveys published by thechild labour project organizations. In total, this comprised 10,000 text pages. It was sup-plemented by video documentaries about Sialkot child labour issues, and a quantitativedatabase of an NGO with basic demographic information on 2,000 stitching families.

The aim of our data analysis was to contrast the perspectives of Nike, other global soc-cer brands, and their trade associations with the accounts told by members of stitching fam-ilies. The intertextuality of documents and interviews allowed for corroboration of threads(or themes) across storied accounts among multiple sources. This was done in an iterativefashion, comparing what stitchers were saying against the other accounts. Next we exam-ine the basic findings of the study as they relate to branding and entrepreneurship.

Nike’s CSR and Sialkot Child Labour

Nike is a recognized entrepreneurial organization, and Phil Knight, the founder, is knownas an entrepreneur who changed the sports apparel industry. As the mass media broughtchild labour in soccer ball making to the attention of the world, the heroic entrepreneurstory was in jeopardy. Nike’s branding of itself as heroic adventurer needed a facelift.Nike, and its apologists, therefore branded its CSR initiative as a form of Third Worldmother and child emancipation. This served to return the romantically heroic entrepre-neurial face to Nike and Phil Knight. We will review, briefly, how the controversyemerged, and then trace the responses of various parties involved.

The Child Labour CrisisOn April 6, 1995, CBS aired at prime time a short documentary on the soccer ball indus-try in Sialkot, “Children at work” (CBS transcripts, 1995). The CBS story forcefullybrought to the fore the unsettling irony of poor children at work so rich American kidscould play. The CBS story was picked up by the other mass media both in the US andabroad. The result was an international media firestorm, doling out a blitz of moral penal-ties to the global soccer ball industry for being found in bed with child labour.

Our next point is controversial. We believe that, from the villagers’ point of view, (andstudies conducted within Pakistan), the stories being framed about widespread child

12 BOJE AND KHAN


labour exploitation were grossly exaggerated. Specifically, in 1995, the Human RightsCommission of Pakistan published a comprehensive report challenging the veracity ofallegations being made about the soccer ball industry. Such reports agreed that wageswere exploitative, but refuted the main charges leveled by the media: the prevalence ofbonded child labour, workplace beatings of children, children working predominately inunsafe workshops for long hours, and differential wages for children and adults. Childrenwere actually working part-time, earning the same rates as adults, in the comfort of theirhomes with their families who were all jointly stitching the soccer balls.1

The problem, from a narrative perspective, is that once a story (even one with inaccu-rate or exaggerated claims) is treated as gospel, it is very difficult to reverse the effect ofa media firestorm. The media did not consult the village workers, letting them voice theirside of the story, nor did the media wait for more rigorous and systematic study beforedemanding change. Momentum builds legitimacy to just go with the more popularizedversion of the story (without counterstory consideration). A snowball effect ensued. Forexample, on June 28, 1996, with official endorsement of the US Department of Labor andprominent politicians (e.g., Joseph P. Kennedy II), a campaign was launched to bring animmediate end to child labour in Sialkot’s soccer ball industry. The campaign came to beknown as the “Foul Ball Campaign” coordinated by the International Labor Rights Fund(ILRF) (a Washington-based labour advocacy group) in cooperation with a network oflabour, consumer, religious, sports, and child advocacy groups (US Department of Labor,2003).

Nike Responds?Nike’s initial response to the crisis is difficult to trace given contradictory statementsissued by it on this matter, at various points in time. For example, from a written deposi-tion to the US Department of Labor hearings held on June 28, 1996, Nike seems to havebegun sourcing production of soccer balls in Sialkot in 1995 (US Department of Labor,1996). The deposition states that after they began soccer ball production in Sialkot (i.e.,perhaps in the Fall of 1995), Nike “implemented more steps to protect worker rights thancompanies that have operated in the country for decades” (cited in ibid.). The depositiongoes on to state that at Nike’s insistence its supplier (Saga Sports) began to ensure child-free production by establishing stitching centres that could be easily monitored, unlikehomes in disparate villages, to ensure that no children were involved in the production.

The story given by Phil Knight, the founder of Nike, gives a different version. Knight,speaking to the National Press Club on April 12, 1998, said:

In 1994 Jack Beecraft of our Singapore office flew into Sialkot,Pakistan to check out the first ever Nike soccer ball order. What hefound was conditions that were not acceptable. What he found was theconditions that did not meet Nike’s code of conduct, and were not con-trollable, because essentially for 50 years the Pakistan soccer ball indus-try had been made up of a process in which the ball uppers were sentout into a cottage industry into—with very little controls on who theupper were sewn by, and they in fact, were sewn by children, old


_________________________1. The validity of the Human Rights Commission of Pakistan’s report was corroborated by evidence on Sialkot’s

soccer industry published prior to the crisis (e.g., Weiss, 1991) as well as later by numerous studies and sur-veys done by other independent organizations such as international NGOs (e.g., Save the Children and ILO),international trade unions and their Pakistani affiliates (e.g., International Confederation of Free Trade Unionsand All Pakistan Federation of Labour) and local organizations (e.g., Raasta Development Consultants).


people, blind people, under all kinds of bad conditions. Basically seeingthis he said that is not acceptable under the way we do business, and heand Mr. Sufi got together in Beverton, Oregon three months later tohack out a different way of making soccer balls in Pakistan. (Cited inFederal Document Clearing House, 1998)

Phil Knight’s version would tend to indicate that the response began as early as 1994.However, on another occasion, at roughly the same time he gave the above speech, PhilKnight seems to have shown little concern over work-age issues. In the documentary filmThe Big One, the following conversation occurred between Michael Moore, the film-maker, and Phil Knight:

Moore: “Twelve-year-olds working in factories? That’s okay withyou?”

Knight: “They’re not 12-year-olds. The minimum age is 14.”

Moore: “How about 14, then? Doesn’t that bother you?”

Knight: “No.” (Cited in Miller, 1998)

Traces of the attitude displayed in the above interview can be found as far back as1996 in Nike, suggesting that Knight was not making a once-off statement but articulat-ing a long-held attitude in Nike. For example, when confronted in 1996 with evidence thatchildren were involved in the making of Nike soccer balls, Nike spokeswoman, DonnaGibbs, defended the company, saying, “it’s an ages old practice [and] the process ofchange is going to take time. Too often, well-intentioned human rights groups can causedramatic negative effects if they scare companies into stopping production and the kidsare thrown out on the street” (cited in Schanberg, 1996: 42). In that same interview, shehad acknowledged that her company had not implemented, till that point, its stated goalof child labour free soccer ball production. Given that Nike did not contest this account oftheir corporate behaviour by Schanberg, this seems to suggest that such views were indeedarticulated and the quotes were not taken out of context. Also, in other places Gibbsexpressed Nike’s gradual approach to the child labour issue by stating that the problem isa large one—in her words, “Child labour is really an epidemic in Pakistan” (Denby,1997)—which by implication would mean that a substantial expense of time would beneeded to address it, reflecting a position that was already expressed explicitly inSchanberg’s interview.

We tend to get three different stories from these Nike sources, suggesting that if wewere to find additional accounts of Nike’s own response to the child labour crisis, wewould perhaps also find more different stories of Nike’s response to this crisis. Based onthe texts, at hand, dating Nike’s response seems to result in a range of anywhere from1994, predating the media crisis, to around fall 1995, a few months after its outbreak.Also, as can be seen, accounts differ on the urgency felt by Nike in tackling this matter,with Phil Knight’s and Department of Labor versions indicating that when the companybecame aware, it changed course immediately, while the Gibbs version indicates that thecourse reversal was a gradual one.

All the accounts do agree, however, on one count. None of them contain any evidenceto suggest that Nike provided any material assistance to its supplier, Saga Sports, as thelatter went through the costly process of building child-free stitching centres with healthdispensaries and other such worker facilities.

14 BOJE AND KHAN


The Sialkot Child Labour ProjectNike moved through its industry associations (e.g., World Federation of Sporting GoodsIndustry [WFSGI]) to stave off consumer pressure by enacting an industry-wide solutionto the child labour problem. On February 14, 1997 at the SuperShow (one of the two annu-al international trade fairs of the sporting goods industry) in Atlanta, Georgia, the globalsoccer ball industry unveiled at a press conference its “final solution” to the child labourcrisis that had been plaguing it for almost two years. The industry announced “The AtlantaAgreement,” which stated that a project, the Sialkot Child Labour Elimination Project,would be jointly established by the Sialkot Chamber of Commerce and Industry (SCCI),the United Nations Children’s Fund (UNICEF), and the International Labour Organization(ILO) to phase out children from Pakistan’s soccer ball industry in the next 18 months.The US Department of Labor would be its main donor.

At that press conference, Nike’s industry association representatives claimed the highmoral ground, stating that this CSR initiative reflected industry’s own unswerving com-mitment to ethical business practices. Stephen Rubin, WFSGI President, in his speech,made the following remarks:

The soccer community has asked for reassurance that child labour hasno place in producing the soccer balls used in neighbourhood sandlotsor national stadiums. This new partnership is an unprecedentedresponse to that concern. For the first time ever—in any industry, in anypart of the world—local manufacturers, global brands and internation-ally respected children’s organizations have agreed to work together toaddress child labour in a responsible manner. (Cited in PR Newswire,1997)

The Sialkot Child Labour Elimination Project announced at that press conference beganto be implemented in October 1997 (ILO, 1997). Child labour was to be phased out byshifting the stitching of balls, the activity in which children were involved, to monitor-ablestitching centres (ibid.). The stitching centres are factories or workshops that, unlike vil-lage homes, could be more readily accessed by ILO monitors in order to verify that nochildren were involved in stitching soccer balls. The project also incorporated a socialprotection program. Its purpose was to take care of the displaced child stitchers and theiraffected families by creating alternative income opportunities, largely through micro-credit schemes and vocational training (e.g., tailoring) (Crawford, 2001). Education ofchildren was to be provided either by enrolling them in government schools or setting upone- to three-room education centres where they would be educated up to Grade 5 on afew-hours-a-day basis (Save the Children, 2000; ILO-IPEC, 1999; Bunyad LiteracyCommunity Council, 1998).

Two years later, Nike and the soccer ball industry announced mission accomplishedwhen US President Bill Clinton gave it the following ringing endorsement:

Let me cite just one example of the success being achieved, the workbeing done to eliminate child labor from the soccer ball industry inPakistan. Two years ago, thousands of children under the age of 14worked for 50 companies stitching soccer balls full-time. The industry,the ILO and UNICEF joined together to remove children from the pro-duction of soccer balls and give them a chance to go to school, and tomonitor the results.



Today, the work has been taken up by women in 80 poor villages inPakistan, giving them new employment and their families new stabili-ties. Meanwhile, the children have started to go to school, so that they[when] come of age, they will be able to do better jobs raising the stan-dard of living of their families, their villages and their nation. I thank allwho were involved in this endeavour and ask others to follow their lead.(Clinton, 1999)

Clinton’s speech sums up the CSR storytelling spun by Nike and its industry associa-tions. Child labour was identified by the media and industry took action to remove it.Others should “follow their lead.”

In sum, Nike Corporation (and the Atlanta Program organizations) came off as caringand responsible entrepreneurs providing schooling to Third World children and jobs fortheir mothers. Nike’s CSR initiative was to spin the controversy, branding themselves asmother and child emancipators. This rescued the romanticized and heroic entrepreneurialface of Nike’s branding from the media firestorm. Next, we reanalyze the sides of thestory presented, from a postcolonial perspective. We turn next to our analysis of the imple-mentation of the Sialkot Child Labour Elimination Project.

Telling the Postcolonial Side of Nike Story-branding

In Nike’s CSR story-branding, the focus was on doing something beneficial for the moth-ers, fathers, and children stitching soccer balls in their homes. A postcolonial questionneeds to be asked: what became of them? We contend the families are the subalterns ofthe storytelling. President Clinton mentions them in passing, but no voice is given themin his or the other accounts reviewed thus far.

Reviewers and readers may be wondering about our intent here. We are not arguingthat child labour is a good thing, nor are we making the case that the Pakistan soccer ballindustry must do away with stitching centres and go back to the old way of production,village families stitching soccer balls in the privacy of their homes. Rather, we are mak-ing the case that corporations, agencies, and anti-child labour activists and exposé jour-nalists did not adequately investigate or provide a forum for villager families to tell theirside of the story.

Therefore, we next attempt to reclaim the voices of the families by talking to them,and to NGO personnel who were on the ground doing the work of the Atlanta Program.What we learn from their reflexivity is that the story-branding and the Atlanta Programhad destructive consequences for the stitching families.

The authors’ move is to claim an “answerability ethic” (Bakhtin, 1990, 1991). Thereis a question of being answerable for the story told, for how it brands (characterizes)workers, leaves them voiceless in program design, and fails to examine how corporate(and apologist) storytelling has dire consequences for the voiceless workers. Corporationsand their apologists, as well as the media, are in a powerful position, being able to tell anddisseminate highly compelling stories that bring with them demands for action (interven-tions into lives of the Other, i.e., the poor and powerless in the Third World).

The project turned out to be largely a top-down affair. Most of NGO personnel inter-viewed were of the opinion that there was effectively no participation of the local stitch-ing communities in the project. To illustrate this point, an NGO worker stated:

Not consult them in design, just in implementation… Guess involve-ment highly restricted to just your choice whether you want to go to the

16 BOJE AND KHAN


doctor or you would like the doctor to come to you. That is the extentof their participation. Some [NGOs] do not even ask them these ques-tions but just give them directives.

Internal minutes of Project coordination committee (PCC) meetings referred to stitch-ers as “targets,” things to be acted upon, never as persons who should be directly partici-pating in the PCC deliberations, which were, after all, what everyone says they were con-cerned about. In the internal records reviewed, when stakeholders were mentioned, the“stitchers” were conspicuously absent from all their lists. An internal project communica-tion strategy draft, for example, lists the following stakeholders to whom informationabout the project should be constantly communicated: “Firstly the media, both nationaland international, who in turn, serve the public. Secondly, the various interested NGOs,such as human rights groups, employers’ organizations, trade unions, etcetera”(Husselbee, 1997).

Not only in internal documents were stitchers absent, but also often in public docu-ments. For example, in Save the Children’s public report, stitchers were noticeably absentfrom a listing of relevant project stakeholders: “The findings have been shared with all thestakeholders including international brands, trade unions, the media, human rights groups,NGOs, and government agencies” (2000: 13). Given that stitchers, in the mental frame-works of the policymakers, were either inanimate “targets” or simply absent referents, theconclusion of Save the Children’s project evaluation report concerning stitcher participa-tion need not unduly surprise us: “In Sialkot, a number of stakeholders did not play strongroles within the partnership. These are: the community (including working children andtheir families), Trade Unions and Government” (Crawford, 2001: 12–13).

There is a major answerability issue here: stitchers had been kept largely cluelessabout all that was taking place in their name. When the second author would ask them todescribe the project, the stitchers answered with blank stares. Their alienation from theproject sometimes took on surreal proportions. For example, parents and children sittingin a project-established Non-Formal Education Centre (NFE) (1–3 room affairs wherechildren were imparted basic education up to Grade 5 on a part-time basis) did not knowthat the centre was established as part of the child labour project, much to the embarrass-ment of the NGO field worker that had helped to establish the NFE and had impressedupon the second author prior to arrival at the NFE how much work his NGO had done inimparting to stitcher families information about the project. Similarly, the stitchersbelonging to a microcredit community organization could not for the life of them provideany information about the project, especially its origin and scope.

While the project was imposed from above, it did produce the results that Western con-sumer sentiment had bayed for. The project had by 2003 been successful in phasing outchildren from 95% of all soccer ball production (IMAC, 2003). It had effectively madethe industry child labour-free and in that process won international acclaim (Clinton,1999). But the victory ball came at the expense of the stitching families, particularlywomen.

Project Consequences on the StitchersTo assess the impact of the project on women stitchers, it is important to first depict theirsocio-economic condition, which is intricately tied to their profession: soccer ball stitch-ing. This profession is at the lowest rung of the soccer ball production supply chain lad-der in terms of wages. Even if two parents were stitching soccer balls, satisfying basicneeds is an ever elusive prospect. As a Save the Children report, based on a survey of 100



villages, stated, “Both adults and children pointed out that most adults were working ashard as they could but still could not make ends meet” (1997: 2).

Women stitchers thus live an impoverished existence even though the balls they stitchgenerate riches for their Sialkot manufacturers and their international brands. To this eco-nomic plight is added the burden of the sheer disdain with which stitching work is lookedupon by village culture. Surveys from various reports attest to this fact. For example, aPunjab Rural Support Programme report states as one of its findings that “stitching is con-sidered an inferior source of income” (Punjab Rural Support Programme, 2002: 5). Butagain, how is this cryptic statement digested in the existence of those who endure it? Thewomen stitchers that were interviewed felt visibly ashamed at being soccer ball stitchers.This was apparent in groups that contained more affluent women who in the group settingwould boast that no members of their family stitched soccer balls.

The lot of women stitchers, and stitching families in general, is quite impressively cap-tured in the following words of a widow of a leading Sialkot soccer ball baron, who afterconducting a door-to-door survey of 403 stitchers comprising one-third of her stitchingworkforce, the majority of whom were women (56.4%), said in a speech to her familyfirm’s international buyer:

The stitching families frequently took advance payment from the con-tractor as they received no social security cover, no provident fund, nopension fund provision, no bonus payment, no profit sharing… Theincome from football stitching was simply too little to cater for anymedical emergency. With great difficulty could they maintain all theirchildren in school and pay for books and uniforms. Almost all haddebts. I was informed that help with educational expenditure and med-ical care was the most pressing need, followed by others such as: repairwork to their homes damaged during the rainy season, dowry for thegirls when they get married, toilets, a pump, fans, electricity meter.(Khawaja, 2002: 2)

The world of women stitchers is, thus, one of necessity and desperation. Not surpris-ingly, the burning issue for women stitchers is a living-wage. Surveys conducted on stitch-ers, both men and women, from 1997 onwards attest to this statement. Important work-place issues, such as living-wage, were kept off the agenda. The only focus was to getchildren out of the industry.

As a remedy, a trickle-down approach was deployed using microcredit, school enrol-ment drives and informal education centres. The problem, however, is that such solutionsended up missing the vast majority of the women stitchers and their families (Crawford,2001). Moreover, it seems that none of these social protection programs could be madesustainable; the education centres have begun to be wound up, so their impact, while ben-eficial for the few families who came into their safety nets, are transient at best for the restof the women stitching population. With the income generation and education programshaving largely missed the bulk of stitching families that were affected by the project, thelot of the women stitchers seems not to have improved in any substantive way by all theproject work carried out in their name to benefit them. Most importantly, the project, byestablishing monitorable stitching centres, in which the International Labour Organization(ILO) could check to see whether children were stitching, actually worsened their plight.

One has to ask if the Atlanta Project is answerable for the current situation. The newmonitorable centre regime exposed women stitchers to verbal abuse. Working at home

18 BOJE AND KHAN


gave them privacy and provided them with the convenience of not exposing themselvesas soccer ball stitchers, thereby avoiding the slurs and the derogatory comments of theirfellow villagers. Now having to commute to work, it was difficult for them to hide thatthey belonged to the lowly soccer ball-stitcher class. One woman stitcher, nostalgic abouthome-based stitching, sighed, “Before you could earn with respect at home.” Respect isimportant for women and the visible daily commute to centres opened up their self-respectto scathing verbal assaults by villagers, particularly men. One woman stitcher, despite herprecarious economic situation, left working in centres because she could no longer toler-ate such abuse. She recollects her centre stitching experience as follows:

If we go to factories, people say nasty things about us. [They say]Putting red lipstick, going out, what do you have in mind. [We] do it[stitching] out of necessity. Common feeling [in villages] is that if onecannot do anything [one is useless] then stitch. No respect in village.

Home-based stitching thus saved women from verbal abuse. At times, it also provid-ed them protection from physical and sexual abuse. One former Save the Children officer,a Sialkot village resident himself, points out that sexual harassment, including rape, wasas an important factor that made women overwhelmingly refuse work at centres, even atthe pain of severe economic deprivation:

[A] big stitching centre of [organization name concealed] that providedpick and drop facilities. We told women why not go there. But womenwere being exploited there, sexually. [The centre] had all male staff.Had middle woman would act as middle person. [She would] get girlsto agree and then [the girls] taken to head office. This information wentback to villages. Women not want to work. They reacted by stopping tocome.

The women stitchers who made the hard migration to stitching centres, whether intheir own villages or in remote locations, form at best maybe 20% of the pre-projectwomen stitching workforce. The remainder refused to make such a migration out of avariety of predispositions, the three most prominent being self-respect, obligations at thehome, or due to permission not being given by their men folk to commute to work.Regardless, their stance has come at a vicious material cost to them. A woman stitcher ather home angrily said:

Wages are poor. We have children. Work hard to earn bread. We getmoney on times [from subcontractor] sometimes. Ten years [I havebeen] stitching. If I protest, there are 1000 people willing to stitch.[Subcontractor will] say fine. You do not want to work, [I will] give itto others.

Another woman stitcher described the drastic drop in orders coming to the village in thefollowing way: “Before we used to get 2 balls, now get 1 ball. If before we get 1 ball, nowmake half.”

Though wage rates initially increased for male stitchers at centres, they were notenough to compensate for the loss of income suffered by women and children now unableto stitch. Overall, household incomes fell in absolute terms. All this happened while theproject received international accolades for its humanitarian concerns and the US presi-dential seal of approval. The women stitchers would have truly wondered if they indeedwere the ones being described by Bill Clinton in his ringing endorsement. This is brand-ing’s imperial face.



Discussion

Our case study shows that while Nike and other global concerns branded themselvesthrough their story-branding as socially responsible actors, they were simultaneouslybranding Third World workers (i.e., soccer ball stitchers, particularly women) in a man-ner that was distorting their reality and denigrating their concerns (e.g., of a living-wage)as superfluous and irrelevant, not even fit for mentioning. This is what we call the impe-rial face of branding. Like branding cattle, the poor soccer ball stitching families werebranded with identification markers hurtful and injurious to them, but serviceable to their“masters.” They were branded as recipients of a “civilizing mission” with women goingto work and children going to school. They were branded as being rescued from thescourge of child labour. This branding was required so that Nike could parade its brand asa responsible corporate citizen celebrating freedom for women and children. That thebrand was the proverbial emperor not wearing any clothes has gone without commentaryduring the past decade, for the voices that could shatter this ongoing illusion had beenplaced at the margins and subalternalized.

This seemingly imperial face of branding requires subalternization (women-stitchervoicelessness) to perpetuate the image-management strategy. It requires a high imbalanceof resources between the limited voices of workers and the well-funded voices of corpo-rate entrepreneurs. The stitchers also lack access to legal/political, cultural and economicresources; and, to our knowledge, no attempt was made by NGOs, for example, to atten-uate this situation. The “foreigners” could fly into Sialkot but representatives of the stitch-ers could not readily travel to the ILO offices in Geneva to convey their concerns andgrievances. Communications regarding the design and implementation of the project wereconducted in English and little or no effort was made to inform the stitchers of the inter-national controversy and the nature of the response being prepared. Lacking any kind ofcapital, symbolic or material, the largely illiterate stitchers were handicapped in gainingaccess to, let alone becoming involved in, agenda-setting processes and negotiations overtheir fate.

Readers may be interested in recent developments in Sialkot’s soccer industry. OnNovember 20, 2006, Nike announced it ended production with Saga Sports, its Pakistanisoccer ball supplier.2 Two child workers were found to be making soccer balls: “Nike dis-covered widespread unauthorized outsourcing of its products from Saga facilities, result-ing in the production of Nike soccer balls inside homes in the Sialkot area” (ibid.). OnMay 24, 2007, Nike announced it had resumed production in Pakistan.3 The new subcon-tractor factory, Silver Star Group, made an agreement to not use any part-time workers (orhome-based producers) in its soccer ball manufacture. We point out that, once again, thevillage families (workers) did not have a voice in working out the arrangements.

There is another more invisible form of power at work. The post-1492 encounter ofEurope with the Third World, over half a millennium into its running, has established cer-tain scripts and certain ways of relating to the Third World that are taken for granted inthe dominant Western culture as normal (Blaut, 1993). One such script is that it is normal

20 BOJE AND KHAN

_________________________2. See Nike Press release dated November 20, 2006:

http://www.nike.com/nikebiz/news/pressrelease.jhtml?year=2006&month=11&letter= [Retrieved on August9, 2007].

3. Nike Press Release dated May 24, 2007:http://www.nike.com/nikebiz/news/pressrelease.jhtml?year=2007&month=05&letter=h [Retrieved onAugust 9, 2007].


for Third World matters to be decided in Western centres (Said, 1978, 1993). The OttomanEmpire was severed in meetings in Paris. The Sialkot village family economy was rippedapart in decisions taken in Geneva, Zurich, London, Atlanta, and Munich, to name a fewof the cities where the blueprint of the project was articulated. The agreement that usheredin the project was called the “Atlanta Agreement,” not the “Sialkot Agreement,” eventhough the agreement was primarily about Sialkot’s poor soccer ball stitchers. Imaginehow odd it would look if an equally intrusive project that would disrupt something so pri-vate as the household division of labour in a major North American or European city wascalled the “Sialkot Agreement,” where all the key decisions were made by individuals nei-ther from Europe nor North America. That the Atlanta Agreement does not sound odd tous only testifies to the hold the culture of imperialism has over our common sense. As longas that imperial common sense holds, so too will subalternization of Third World voices.Decisions will continue to be made as a matter of routine and normalcy, far away from thereach of “natives.” The imperial face of branding will continue to be enacted without hav-ing to worry about overcoming insurgent voices from below. They simply will not makeit to the gate.

This link of imperialism and entrepreneurship has, to our knowledge, not been madeor explored in any explicit fashion in the literature that discusses entrepreneurship andbranding. Our analysis leads us to propose that branding CSR stories that subalternizeThird World voices are crucially dependent on imperial motifs. Without the imperial his-tory that socialized us into a Eurocentric perspective with Old and New Europe (NorthAmerica) as the key decision-making centre for the rest of the world (Blaut, 1993), wefind it difficult to imagine that the “Atlanta Agreement” pronouncing on Sialkot couldhave been conceived with so little awkwardness and so little participation from the peo-ple of Sialkot. Without the cultural residue of imperialism, it would appear as nonsensicalas our hypothetical Sialkot Agreement.

While we suffer distress on account of the CSR subalternizing stories told by Nike andothers propping themselves on the culture of empire, we are horrified when we contem-plate that doing so helps reproduce and circulate the culture of empire. To the extent thatNike’s stories embody imperial attitudes (e.g., treating as unremarkable the absence of“natives” from decision-making arenas which are kept far from the Third World), theycontribute towards what we call, slightly paraphrasing Hannah Arendt, “the banality ofempire.” Such attitudes find a new lease being circulated and presented not just by gov-ernment discourse but by the powerful image machineries of Nike and other globalbrands. The constant repetition and ubiquitous presence of these stories churned out bycorporate image machines make imperial attitudes found in them so commonplace andbanal that they are taken for granted. In this fashion, we feel that the Third World brand-ing in CSR stories may well be contributing to making the Third World vulnerable toWestern aggression by normalizing and making self-evident the “right” of the West tointervene and speak for the Third World—a right that is rarely questioned in respectablecircles of policy and debate. If Atlanta can decide on Sialkot, can not Washington decideon Iraq? The question is not “if” we can intervene but “when.”

Moreover, such storytelling is flawed when the voices of the workers are ignored. Wepropose a more productive direction for concerns of ethics regarding Nike and its prac-tices (production and branding). Our study identifies an additional dimension in entrepre-neurship revealed through story-branding: the ethical inquiry into corporate answerabili-ty for the stories of Third World workers being branded. Entrepreneurs need to be held



answerable for the highly compelling stories they tell, if indeed as we argue, suchbranding-stories do contribute to the imperial project through branding the people in theThird World to make them voiceless and permit their exploitation. Our study prompts thatkey moment of reflexivity: “I am the only one who can act, and if I don’t act, no one willact. I am therefore complicit with what will happen next to the Other.” In short, when Nikeand the members of the Atlanta Program are the ones who can act, and if they don’t act,to ascertain the voice of the villagers in their own view of work, then those organizationsare complicit in what has happened to the Other. We therefore charge that the AtlantaAgreement changed the labour practices, but not in ways that have benefited villagelabour. The Atlanta Agreement is therefore accountable, and responsible, for the conse-quences of its manner of storying-for-the-Other while the Other remained voiceless, andthere needs to a redress.

Conclusion

Our paper brings into conversation two hitherto unconnected literatures: postcolonialismand branding in entrepreneurship studies. We examined from a postcolonial subaltern per-spective a particular case of a CSR initiative in the Third World undertaken by Nike aspart of its branding efforts. Doing so, we feel we have made the following contributions.

First, we have expanded the margins of our knowledge on entrepreneurship and brand-ing by making it more inclusive. We have opened it to the stories of Third World voices,in ways that will make the literature more emancipatory than the current situation. Wehope this research effort will reduce the parochialism found in entrepreneurship studiesthat has largely ignored the Third World, especially the poor situated there.

Incorporating Third World voices has given us some new insights into entrepreneur-ship and branding. Story-branding helps us realize that entrepreneurship studies seem tobe situated in a branding tunnel fixated on branding products and entrepreneurs, forget-ting the world outside the tunnel. The CSR initiatives, undertaken as part of a brandingstrategy by corporate entrepreneurial concerns, do not just help brand products, they endup branding a whole lot more (e.g., Third World workers). Examining story-brandingreveals another face to branding activity other than the face of freedom (i.e., positive asso-ciations of helping Third World workers) commonly given to it. We begin to see a darkerand more menacing aspect to entrepreneurial branding, forged through stories aboutbenign and constructive CSR initiatives in the Third World, when we refract them throughthe stories of voiceless Third World workers (the subalterns). From the subalterns, we seethat CSR stories brand Third World labour, give them identifying marks that distort theirrealities and deceive Western consumer sentiment by branding Third World workers ashappy and thankful for CSR’s civilizing mission. Sweatshops thus appear as workshopsand the entrepreneur is seen as a liberator and not a jailer of Third World labour. A hege-monic order is created and the exploitation of the Third World continues. We bring to sur-face this imperial face of corporate entrepreneurial branding hitherto neglected and under-theorized in the literature.

Reflecting on branding’s imperial face leads to other contributions in the paper. We seethat this imperial face is dependent on subalternizing Third World workers whose voicescan contest its representations. This subalternization requires power not just material(asymmetrical distribution of resources) but also cultural. And the cultural power it seemsto draw upon is the culture of imperialism. The culture provides the scripts by which it isnormal to ignore the “natives” and to make decisions about them in the West. We feel thatthis connection and the relationship between imperialism’s attitudes and branding in terms

22 BOJE AND KHAN


of how each depends upon and reproduces the other has not been articulated in an explic-it fashion.

This connection is an exciting one for it leads to another contribution of our paperwhich is to identify an additional dimension in entrepreneurship story-branding: the ethi-cal inquiry into corporate answerability for the stories of Third World workers beingbranded. To the extent that entrepreneurs brand the Other (Third World workers) in theirfor-the-Other stories in a manner that the Other remains voiceless while her realities aredistorted, her priorities are ignored, and her dignity is injured, these entrepreneurs areaccountable and responsible for these consequences produced by their storying. And thereneeds to be a redress.

In terms of future directions, the crucial question for story-telling answerability is: howcan voiceless workers gain voice? How can the subaltern speak? The real heroines are theworking women in the apparel, footwear, and sports equipment factories. Can No Sweatand Blackspot provide real alternatives to branding where Third World workers have nar-rative control and are not passive commodities fabricated for enhancing brand equity? Canthe imperial face of branding be replaced by a new one based on solidarity and compas-sion? These are the questions to explore to bring about a new face to entrepreneurship andbranding. A face that does not hide the horrors of a young woman worker in the ThirdWorld, but reveals a face in which all of us can see our most decent impulses.

Acknowledgements

Canadian International Development Agency (CIDA) and the Social Sciences and HumanitiesResearch Council of Canada (SSHRC) funded research for this study. We gratefully acknowledgethe helpful comments of this journal’s editors and reviewers.

Contact Information

For further information on this article, contact:

David M. Boje, Endowed Bank of America Professor, College of Business, New Mexico StateUniversity-Grants, Grants, New Mexico, USA.

Tel.: 505-532-1693/Fax: 505-646-1372E-mail: [email protected]

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24 BOJE AND KHAN


Growers and Facilitators: Probing the Role of

Entrepreneurs in the Development of the Cannabis

Cultivation Industry

Martin Bouchard, School of Criminology, Simon Fraser University,

British Columbia

Claude B. Dion, University of Montreal, Montreal, Quebec

ABSTRACT. Hydroponics is one the fastest rising sectors in the horticultural industry. It is, however, a con-tested one. The problem with the industry is that the products sold by hydroponics entrepreneurs are not onlybeing used to grow tomatoes or cucumbers, but also potentially illegal produce, such as cannabis. In this paper,we explore the extent to which cannabis and hydroponics entrepreneurs have a symbiotic relationship. We firsttake a comparative look at the size and the development of the cannabis cultivation and the hydroponic retailindustries over a 30-year period (1977–2006). Findings show that both industries followed a similar growthcurve which started in the early 1990s, and slowed down in early 2000. A second set of findings shows that themutual relationship between both industries does not necessarily translate into deviant management practices forthe hydroponics entrepreneurs.

RÉSUMÉ. La culture hydroponique est l’un des secteurs les plus dynamiques de l’industrie horticole, mais c’estaussi un secteur contesté. Le problème est que les produits vendus par les entrepreneurs hydroponiques sontutilisés pour cultiver non seulement des tomates et des concombres, mais aussi des substances qui peuvents’avérer illégales, telles que le cannabis. Cet article examine dans quelle mesure les entrepreneurs en cannabiset en culture hydroponique opèrent en symbiose. Nous jetons d’abord un regard comparatif sur l’ampleur et ledéveloppement des industries de la culture du cannabis et des marchés hydroponiques de détail sur une périodede trente ans (1977–2006). Les résultats montrent que dans les deux cas une courbe de croissance similaire acommencé au début des années 1990, pour diminuer en même temps au début des années 2000. Un secondensemble de résultats révèle que la relation mutuelle des deux industries ne se traduit pas nécessairement enprocédures de gestion déviantes pour ce qui est des entrepreneurs hydroponiques.

Introduction

Hydroponics is one the fastest rising sectors in the horticultural industry. It is, however,a contested one. The main controversy does not revolve around the entrepreneurs involvedor the nature of the products they sell. It is, after all, a widespread mode of agricultureused by farmers to grow flowers and vegetables, as well as a perfectly legitimate hobbyfor a significant proportion of home gardeners. The problem with hydroponics entrepre-neurs is that the products they sell are not only being used to grow tomatoes or cucum-bers, but also potentially illegal produce, such as cannabis.

Cannabis is a plant and, in many ways, the techniques required for its cultivation aresimilar to those used for growing other plants or vegetables. Hydroponics is an intensiveform of agriculture that brings essential nutrients directly into contact with the growingplant in a water solution (Roberto, 2005). Hydroponics has many advantages over soil-based techniques, including higher yields per plant, the potential for top-quality produceand the possibility of growing year-round in a controlled environment. Cannabis growersin industrialized countries recognized these advantages, and adopted hydroponics in


Bouchard-Dion.qxp 9/12/2008 3:13 PM Page 25

increasing numbers in recent years. Recent research in the province of Quebec, Canada,showed that close to 30% (or about 15,000) of cannabis growers used hydroponics andthat, as a group, they accounted for more than 50% of cannabis production in the province(which represents more than 150 metric tons per year; see Bouchard, 2007a).

Cannabis growers are clients of hydroponics shops, but the importance of their busi-ness for these stores is unknown. The nature of the link between cannabis entrepreneursand hydroponics entrepreneurs is also subject to debate. For law enforcement representa-tives, the cannabis and the hydroponics industries are one and the same (Review Panel,2002). Alternatively, hydroponics industry representatives insist on the legitimacy of theirbusinesses, making special efforts to distinguish themselves from the cannabis industry(Hassall and Associates, 2001; National Competition Policy Review, 2002; Paul, 2003).But even legitimate hydroponics industry representatives acknowledge that certain storeowners maintain ties to the cannabis industry: “Hydroponics retailers are shop fronts tothe (cannabis) industry, and they need to change their language and some of their businesspractices if they want to attract genuine home gardeners” (Paul, 2003).

The matter is complicated because both the cannabis and the hydroponics entrepre-neurs benefit from one another. An argument can be made that the swift and widespreaddevelopment of the cannabis cultivation industry would have been difficult, if not impos-sible, without the presence of hydroponics shops. These shops act as legal facilitators forcannabis entrepreneurs, providing them with an easy access to the necessary equipmentand supplies, but also with advice on how to use them. The term “facilitator” is used inthe criminological literature to describe a participant (legitimate or not) who provides spe-cific operational services to entrepreneurs of the irregular economy (Morselli andGiguere, 2006). The difference with the current study is that hydroponics entrepreneursand their employees are not necessarily knowingly assisting cannabis growers. As forlegitimate hydroponics entrepreneurs, the cannabis clientele represent a business oppor-tunity to be (legitimately) exploited. It is therefore in the economic interest of both typesof enterprises that the other is alive, and well.

The Current Study

The extent to which cannabis and hydroponics entrepreneurs have a symbiotic relation-ship (Aldrich, 1990) can be tested empirically. How important is the cannabis industry tohydroponics entrepreneurs? In this paper, we explore the issue in two different ways. First,we take a comparative look at the development of the cannabis cultivation and the hydro-ponics retail industries. The setting is a mature cannabis industry situated in the provinceof Quebec, Canada. The data gathered for the purpose of this study allow us to follow thenumber of hydroponics retailers from 1969 to 2006. In order to differentiate between moregeneral garden centres and true “facilitators,” we limit our examination to specialist storeswhose major activity is the sale of hydroponics equipment and supplies (NationalCompetition Policy Legislation Review, 2002). Illegality renders data on the size of thecannabis industry much more difficult to obtain. Official crime data for cannabis cultiva-tion offenses are used as a proxy for the development of that particular industry.

If the link between cannabis growers and facilitators is as close as it appears to be, itis possible that a proportion of hydroponics entrepreneurs are involved, or were involved,in illegal activities. Such entrepreneurs could use hydroponics shops to legally sell theirexpertise and exploit their contacts in the cannabis industry, thereby profiting from theirunique position to reach an important clientele. For example, cases of hydroponics shopemployees involved in cannabis cultivation ventures have been recently publicized in

26 BOUCHARD AND DION


Canada (Mitchell, 2002; Le Quotidien, 2002). The case in Quebec involved a storeemployee who was involved in a classic “buy and bust” case, typical of low level polic-ing of illegal drug markets. He supplied cannabis cuttings (baby plants) and equipment for$ 10,000 CAN to an undercover police agent (Le Quotidien, 2002).

Determining the extent to which some hydroponics entrepreneurs are also illegitimateentrepreneurs is a delicate, complicated issue, and it is not part of our objectives. Instead,we are interested in exploring whether hydroponics entrepreneurs’ natural connectionwith an illegal industry has an impact on the way they manage their business. Importantethnographic studies such as Adler’s (1993) and Bourgois’s (1995) showed that talentedillegal entrepreneurs do not necessarily make successful legitimate businessmen. In short,they tend to struggle with the formal requirements of legal enterprises. The current studyis interested in whether hydroponics entrepreneurs are generally good managers of theirbusiness. Though it is limited, available information suggests that many may not be. Forexample, a recent decrease in the number of specialist hydroponics stores in Australia(from 400 to 200 in less than five years) has been attributed by representatives of thehydroponics industry to bad retail management practices and a change in cannabis-relat-ed legislation (Paul, 2003).

Our dataset allows us to explore the issue from two angles. We will first be concernedwith the failure rates of hydroponics shops, an indication of entrepreneurs’ capacity to sus-tain their business. Second, we will examine hydroponics entrepreneurs’ compliance witha formal requirement of legal businesses in Quebec—producing an annual declaration ofactivity to the government. Findings on both issues will be compared with similar infor-mation obtained from flower shop retailers, a comparable industry that is not as directlylinked to an illegal market.

Methodology

Official Crime DataOfficial crime data is gathered from every police agency in Canada by the Canadian Centrefor Justice Statistics and published annually by Statistics Canada (2007). In this study, weused the number of cannabis cultivation cases officially recorded by police agencies in theprovince of Quebec, Canada for 1977–2005 (earliest and most recent years available). A“case” is defined as the number of times police agencies discovered a cannabis cultivationsite for a given year. Therefore, such data do not represent an official count of the numberof persons arrested for cannabis cultivation. More than one offender may be arrested percultivation case, and some cases involve no arrests at all. Past research has shown that 95%of hydroponics cannabis cultivation cases lead to at least one arrest (mean = 1.3 offendersper case), but only 14% of outdoor cultivation cases (Bouchard, 2007b).

Official crime data is useful to uncover longer trends, but a major limitation is that itdoes not distinguish between cultivation cases involving hydroponics, and cases in whichcannabis entrepreneurs used other techniques. Another limitation of official crime data forthe purpose of the present study is that it may or may not reflect actual trends in terms ofthe number of individuals, entrepreneurs or employees active in cannabis cultivation.Research has shown, however, that such data is a very good proxy for analyzing drugcrime trends in most cases (Warner and Coomer, 2003), but it should be triangulated withalternative indicators, when possible. Here, we use capture-recapture estimates of thenumber of active hydroponics cannabis growers for 1998–2002, as well as data on thenumber of hydroponics shops as alternative indicators upon which we can evaluate offi-cial crime data.

ROLE OF ENTREPRENEURS IN THE CANNABIS CULTIVATION INDUSTRY 27


Hydroponics Shop DataThe data on the number and general characteristics of specialized hydroponics shops weretaken from Quebec’s Enterprise Register database now available online on the Registrairedes enterprises du Québec’s (REQ) website (available from: http://www.req.gouv.qc.ca/default_eng.htm). The REQ is a government organization that maintains a public registerto record identification data on enterprises operating in Quebec. Every profit-based busi-ness in Quebec is legally obligated to register with the REQ, with the exception of indi-viduals operating a sole proprietorship business and using a business name that includestheir first and last names. The REQ database replaced the former Central enterprise data-base (FCE), after the law governing registration (Act Respecting the Legal Publicity ofSole Proprietorships, Partnerships and Legal Persons [RSQ c. P-45]) was modified andcame into effect January 1, 1994. The complementary FCE database is still available andhas also been used to create the time series of hydroponics shops in Quebec.

Our sample contains information on 160 enterprises that were active between July1969 and June 30, 2006. A keyword search was needed to retrieve all enterprises thatdeclared one of their main activities was the specialized sale of hydroponics equipmentand supplies. The word “hydroponics” yielded 62 valid entries in the REQ database.Stores with no mention of “hydroponics” (of its French version “hydroponique”) in theirbusiness name or in their declared domain of activity were missing from this search.Another 77 new enterprises were found on the Yellow Pages website (http://www.yellow-pages.ca/) under the category of “hydroponics equipment and supplies.” We retrievedtheir information from the register by using their name. Finally, 21 other enterprises werefound on the complementary FCE database using the keyword “hydroponics.” Overall, itis possible that the sample underestimates the number of hydroponics stores by a smallmargin, but there is no reason to believe that it qualitatively modifies any of our findings.Stores that would not be included in the sample include: a) Stores that were active ashydroponics shops but that did not declare as such, and b) stores that were not active in2006 or in Montreal. We manually checked all annual yellow page books for Montrealbetween 1970 and 2006 and discovered very few enterprises that were not already includ-ed in the sample.

Business CharacteristicsOnly a few business characteristics are publicly available in the REQ database: businesslocation, start and end date of activity, number of employees, legal form (incorporatedcompany/sole proprietor/partnerships), and the presence of a notice of default in therecord. The last three variables are missing for most of the enterprises retrieved from theFCE database (N = 21).

The descriptive data indicates that the industry is widely represented in every regionin Quebec, and not particularly concentrated in Montreal. The city represents more than25% of the Quebec population and 21.9% of hydroponics shops were located in Montreal.Most of the shops are very small: 29% of owners declared having no employee, 59% hadbetween 1 and 5 employees, and 12% had six or more. At least 10 out of 17 of these larg-er enterprises (6+ employees) appeared to be general garden centres, rather than special-ist shops. They were preserved in the analysis because they officially presented theirenterprises as hydroponics equipment suppliers. Finally, more than 70% of enterpriseswere owned by an incorporated company, as opposed to being identified to a sole propri-etor (24%) or a partnership (6%).



Compliance RateEnterprises registered with the REQ must update their registration information every yearby producing an annual declaration of activity. An enterprise that fails to produce the dec-laration is liable for a fine ranging from $200 to $2,000, which may double in the eventof a repeat offence. Failure to produce an annual declaration generates a “notice ofdefault” in an enterprise’s record. A compliance rate for the industry was calculated byrecording the instances in which an enterprise received a notice of default and then com-plied by producing a late declaration. Enterprises that received a notice of default becausethey were already inactive were thus excluded from the analysis.

Survival TimeThe survival time of each individual shop could be calculated by using the start and enddate specified in the REQ database. A start and end date (if any) was systematicallyrecorded for each enterprise, but not necessarily under the same heading. In a typical firstregistration for a company or a partnership, entrepreneurs will start by registering a datefor the start of the company, and then a few days or weeks later, a business name. In thecases where entrepreneurs already have a registered company, they will update theirrecord with a new name and a new start date (for that name). As for sole proprietors, theytypically register a start date for their business name, and not for a company. The businessname more realistically identified the point of entry and thus we preferred it when it wasfound in the file (N = 121). The date for the start of the company was chosen for files notupdated with a different business name (N = 39).

A total of 67 enterprises exited the industry during the period under study. Very few ofthem notify the REQ and update their status once they become inactive. When the REQdoes not receive an enterprise’s annual declaration of activity for two consecutive years,the enterprise is struck off ex-officio and an end date is recorded. Using this date wouldoverestimate the survival of individual enterprises. In these cases, we used the date forwhich the enterprise received their last notice of default as the closing date. Rather than aprecise count of the number of days an enterprise was opened for business, the survivaltime of individual enterprises should be considered as a slight overestimation of the actu-al figure. The survival time was used to calculate failure rates that could be compared toour flower shop sample.

The Flower Shop SampleOne of the objectives of the current study is to compare compliance and survival time ofhydroponics shops with a comparable industry: flower shop retailers. Because the numberof flower shops is too large (more than 1200 in Quebec, Réseau de Développement del’Industrie Florale [RIDF] 2006), we retrieved from the REQ database only the flowershops which had the key words “flower + boutique” in their business name. One advantageof the sampling procedure is that it led to an acceptable sample size (N = 127) which cov-ered a time period similar (1972–2006) to the one found in the hydroponics shop industry.

The hydroponics and flower shop samples differ slightly on the general business char-acteristics available in the REQ files. The proportion of sole proprietors is larger (46 %vs. 24%) and the proportion of incorporated companies smaller (39% vs. 70%) in theflorist sample. Not unexpectedly, this leads to a higher proportion of flower shops with noemployees (41% vs. 29%), and a smaller proportion of larger 6+ enterprises (3% vs. 12%).A comparable proportion of hydroponics (22%) and flower shops (19%) were located inMontreal.



Results

Figure 1 compares the evolution in the number of hydroponics shops and in the numberof cannabis cultivation offences recorded by police agencies between 1977 and 2005 inQuebec, Canada. Starting with the cannabis curve, it suggests that a major changeoccurred in the cannabis cultivation industry in recent years. The change also took placein a very short period of time. Police data prior to 1990 included very few cultivationoffences (about 100 recorded offences per year). Subsequent to 1990, recorded offencesincreased almost without interruption to close to 3000 in less than 15 years—the mostrapid growth occurring between 1993 and 1997. As would be expected from the symbiot-ic relationship hypothesis, the curve for hydroponics shops is very similar. Between 1993and 2003, both the number of cannabis cultivation offences and the number of hydropon-ics shops have been increasing at a very fast pace. Both curves also show signs of stabi-lizing in recent years.

Figure 1, however, shows that the hydroponics industry existed for quite a while beforecannabis growers took notice and adopted the technique in large numbers. As early as 1986,more than 20 hydroponics shops were dispersed around the province. Meanwhile, the num-ber of cannabis cultivation cases had reached its lowest point in the series. The initial risein the number of hydroponics shops from 1977 to 1988 was followed by a decline from1989 to 1993, before the industry took off in 1994. Interestingly, the revival of the hydro-ponics industry seems to correspond to the emergence of hydroponics in the cannabisindustry. Bouchard (2007b) showed that hydroponics appeared in arrest data in significantproportions only in the mid-1990s. In fact, as late as 1997, only a little over 100 arrests forhydroponics cannabis cultivation cases were made by police agencies in Quebec.


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Figure 1. The number of cannabis cultivation offences and the number of hydroponics shops in Quebec, Canada,1977–2005.


The recent expansion in both the legitimate and illegitimate industries deserves a moredetailed examination. Between 1993 and 2003, the number of hydroponics shops rosefrom 15 to 90, at a pace of close to seven new shops annually. A similar trend was exposedin a recent report from South Australia, which indicated that the number of hydroponicsshops went from 10 in 1992, to more than 90 in 2000 (Review Panel, 2002). The signifi-cance of the growth is further illustrated when we examine entry and exit patterns (Figure2). From 1997 to 2003, a total of 93 shops entered the industry. Apparently, this wave ofentries was supported by a high volume of customers: only 31 businesses exited duringthe same period. We are not aware of any sudden enthusiasm by home gardeners for grow-ing vegetables hydroponically that would justify the entry of 62 new shops in seven years.In fact, trends do not appear to match, as far as commercial hydroponics production ofvegetables and flowers is concerned. Carrier (1999) reported that the Quebec industrypeaked between 1988 and 1991, and that it was in a consolidation phase at the end of1990s.

The most plausible hypothesis for these additional shops was that the majority of theirclients were cannabis growers. The evolution in the number of hydroponics shops andBouchard’s (2007b) estimates of the number of hydroponics growers in Quebec between1998 and 2002 were combined into Figure 3 in order to further illustrate this possibility.Estimates were only available for five years, but were sufficient enough to provide someobservations. The five-year period appeared to be one of transition in the hydroponicscannabis industry, illustrating the end of a rapid growth period and the transition to a sta-bilization phase. Bouchard’s (2007b) study was inconclusive as to whether the importantjump from 8,100 to 13,900 growers between 1998 and 1999 should be treated as realisticor as a measurement artefact. Examining the evolution in the number of hydroponicsshops made this jump more plausible: it occurred in the middle of the steepest increase inthe number of hydroponics shops in Quebec (1997–2000).

Figure 3 also adds to the interpretation of the stabilization phase apparent in bothindustries in recent years. For three consecutive years, from 2004 to the first half of 2006,


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Figure 2. The number of entries and exits in the hydroponics shops industry, Quebec, 1969–2006.


the number of hydroponics shops was stable in Quebec. In the last three years, 22 firmsentered and 19 exited the industry (Figure 2). The stabilization phase also paralleled asimilar trend observed in the hydroponics cannabis industry in 2001–2002 when the pop-ulation of growers stopped increasing and stabilized at 15,000 growers.

If we extrapolate (using Figure 1), and predict that the population of cannabis grow-ers remained stable thereafter,1 we could expect the competition to intensify in the hydro-ponics industry, leading to more exits. The increasing exit to entry ratios found between2003 and 2006 were consistent with these expectations (Figure 2). More than a quarter ofall exits in the history of the industry occurred in 2003 and 2004 only. In 2004, for the firsttime in twelve years, there were more shops exiting (11) than entering (8) the industry.The intensification of competition is particularly noticeable in large city like Montreal,where more than 37% of the city’s industry exits occurred in 2003 and 2004.

Failure RatesThe 1990s were a good time to start a hydroponics shop. Based on the number of cannabisgrowers in Quebec, the demand for hydroponics was increasing rapidly, especially in thesecond half of the decade. If cannabis cultivation followed a classic diffusion curve, thesteepest increase in growers should have occurred between 1996 and 1999. Using thesymbiotic relationship hypothesis, we would expect the failure rates of hydroponics shopsto be at their lowest during that time period.

To find out if the failure rates of hydroponics shops differed along the curve, we divid-ed the 1994–2003 period in three, distinguishing between shops that were part of the firstwave of entries (1994–96), those that were in the rapid growth period (1997–2000), andthose that entered in the last growth wave when the number of cannabis growersapparently stabilized (2001–03). The other two periods correspond to the beginnings of


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Figure 3. The number of hydroponics shops (1969–2006) and estimated number of hydroponic cannabis grow-ers (1998–2002, from Bouchard, 2007b) in Quebec.

_________________________1. An indication of the intensification of competition in the cannabis cultivation industry is a decreasing whole-

sale price trend reported by various police reports (GRC, 2002) and confirmed by local growers interviewedby the first author for a different study.


the industry (1969–79), and its first growth cycle (1980–93). For each period, we calcu-lated the failure rates of hydroponics shops after one to six years in activity. Findings areshown in Figure 4.

Overall, the failure rates resembled what is usually observed in industries with similargrowth patterns (Utterback, 1994). The hydroponics shops that first entered the industryshowed the most durability. Only one out of the eight enterprises that entered before the1980s lasted less than five years, and four of them were still in operation in 2006. The mostimportant finding, based on Figure 4, was that shops entering the industry in the middle ofits fast expansion phase (1997–2000) were more durable than others. These stores couldexpect double the lifetime of shops that entered in the periods immediately preceding orfollowing the fast expansion phase. Many of the shops that entered the industry in the firstgrowth wave (1994–96) could not sustain themselves until the hydroponics cannabis indus-try gained its momentum, in 1996–97. Shops that entered the industry in the latter period(2001–03) were vulnerable as a result of an increasingly competitive industry.

Are these failure rates particularly high, or low? We compared hydroponics shops’general failure rates to those found in a sample of florists (N = 127). As Figure 5 shows,early exit rates for both industries were almost undistinguishable. About 22% of hydro-ponics and 27% of flower shops did not survive two years. However, after that point, thecurves divide in two. Close to 37% of flower shops had failed before getting to three yearsof business activity, whereas the proportion remained at 25% for hydroponics shops. Morethan 50% of flower shops left the market before reaching five years. This proportion wasonly reached after 10 years in the hydroponics shop industry.

Our flower shop sample could not be used to compare general trends in the industry.However, we knew from a recent report that flower and hydroponics shops were notevolving in the same market context: the number of flower shops decreased in the last 15years, from 1,400 in 1991 to 1,200 in 2005 (RIDF, 2006). During the same period, thenumber of hydroponics shops increased from 16 to 91 (Figure 1). The different market


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Figure 4. Failure rates of hydroponics shops in five time periods, Quebec, 1969–2003.


context could thus explain the durability of hydroponics shops, or the slightly larger size,on average, of hydroponics shops compared to florists. However, the important result forthis paper was that failure rates did not appear to be abnormally low. The median survivaltime of four years found for hydroponics shops (or less than 2.5 years for shops thatalready exited the industry) was much higher than it was, for example, for “commercialprostitution” establishments in Montreal in the 1980s (massage studios, escort services,strip clubs, etc.), which lasted an average of 6 to 18 months (Leguerrier, 1989).

Complying with the RulesManaging a legal enterprise involves responsibilities and formal rules that strictly illegalentrepreneurs may not be accustomed to. One of these formal rules is the registration andannual production of a declaration of activity to the Registre des Entreprises du Quebec(REQ). When businesses fail to produce a declaration, they are cited with a notice ofdefault by the REQ. Failure to produce a declaration two years in a row leads to an auto-matic revocation of their rights to operate their business.

We examined the extent to which owners of hydroponics shops were complying withthis formal rule. We identified enterprises that received a notice of default and that subse-quently produced a late annual declaration of activity (excluded were the enterprisesreceiving a notice of default because there were already inactive). Only enterprises thatstarted in 2003 or earlier were used in the analysis (N = 119). Findings indicated that32.8% of hydroponics shops had a notice of default in their record. In order to determineif this was a good or bad score, we examined the compliance rate in our sample of flowershops. Results showed that flower shops were just as likely to be reminded of their obli-gations: 28.4% of florists in our sample failed to produce their annual declaration withinthe prescribed deadline. The difference in compliance rates between flower and hydro-ponics shops was too small to be interpreted as differential management practices, andcould be explained by the higher failure rate found in the flower shop sample (Figure 4).


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Figure 5. General failure rates of hydroponics shops and a sample of flower shops in Quebec, 1969–2003.


Finally, we examined whether non-compliant enterprises were different from otherenterprises. Our data was limited to a comparison of three variables: business size basedon number of employees (0, 1-5, 6+), location (Montreal/others), and legal form (incor-porated company/sole proprietor/partnership). We found that no variable significantly pre-dicted storeowners’ non compliance with their obligations. A logistic regression analysis(not shown) also confirmed this finding.2 To summarize, non compliance did not appearto be a particular trait that could be attributed to a broadly defined type of enterprise, orto an industry.

Discussion and Conclusions

The hydroponics industry is a fast-growing sector of the horticultural industry. For exam-ple, the current paper shows that the number of specialized stores selling hydroponics-related products increased sevenfold in a matter of ten years (1993–2003) in Quebec,reaching 93 stores in 2006. What has caused the industry to develop so rapidly is, how-ever, subject to controversy. The most plausible hypothesis, the one explored in this paper,is that much of this growth could be attributed to the development of the cannabis culti-vation industry. This paper aims to answer the following research question: how impor-tant is the business of cannabis clients for legitimate hydroponics shops?

Analyzing links between illegal and legal enterprises is a delicate issue, reserved forpolice rather than empirical investigations. In this paper, we take advantage of two macro-level data series to compare the evolution of the cannabis and hydroponics industries.First, we find that cannabis and hydroponics data agree on the general trend: as policeservices discovered an increasing number of cultivation sites in the 1990s, a similar trendwas developing in the hydroponics shop industry. Analyzing hydroponics shops’ datahelps us specify the timing of adoption of hydroponics in the cannabis cultivation indus-try. The findings indicate that the number of hydroponics shops increased very rapidly inthe latter part of 1990s, a finding that is consistent with previous research on the size ofthe hydroponics cannabis industry in Quebec. Second, we shed light on how potentiallyimportant is the business of the cannabis growers for hydroponics entrepreneurs. Thegreatest increase in the number of hydroponics cannabis growers was followed by themost rapid wave of entries in the facilitator industry (1997–2000). In addition, shops thatentered in that particular period proved to be more durable than shops that entered in theperiod immediately before, or immediately after. Finally, increased industry competitionand stabilization in the number of hydroponics shops in 2004 occurred soon after the num-ber of cannabis growers stabilized in 2001–02.

This link between the cannabis and facilitator industries does not translate into partic-ularly “deviant” management practices on the part of legal entrepreneurs. First, survivalrates of hydroponics shops compare favourably to those we find in the flower shop indus-try or to rates that we would expect from industries closely connected to illegal activities(Leguerrier, 1989). Second, compliance rates in producing an annual declaration of activ-ity are similar in both industries. Overall, we find no evidence of irregular business prac-tices in the hydroponics industry with the data available for the purpose of this study.


_________________________2. Findings for flower and hydroponics shops go in opposite directions, further reinforcing the random charac-

ter of non compliance behaviour in this sample. Non compliance is more likely for small, Montreal-based, andsole proprietor hydroponics shops. Conversely, flower shops’ non compliance is more likely for incorporatedcompanies. Size or location do not appear to be important factors. Again, none of these differences were foundto be statistically significant.


The close connection between the hydroponics and cannabis industries does not meanthat hydroponics entrepreneurs are guilty of anything other than, perhaps, turning a blindeye to the illegal activities of their clients. Willingly or not, however, hydroponics entre-preneurs acted as important facilitators to the development and establishment of an illegalindustry. Industrialized countries could not be the setting for the development of a large-scale illegal drug production industry unless local cannabis entrepreneurs were able toobtain easy access to: 1) The equipment and supplies necessary to grow cannabis in indoorsettings, which reduces their vulnerability to detection (Bouchard, 2007b); 2) Advice onhow to use the equipment, and how to solve problems when they arise—for example,bugs, fungus, odour control (Weisheit, 1992). Hydroponics shops could, and have, pro-vided both to cannabis growers in Quebec.

Entrepreneurship is about seeking and exploiting new business opportunities, and the1990s were a good time to start a hydroponics shop in Quebec. Future research should tryto disentangle the role of legitimate home gardeners in the growth of the hydroponicsretail industry. Data on the size and activity level of associations of hydroponics homegardeners should be collected, and compared to the development of the industry.Surveying hydroponics entrepreneurs, their background, and their reasons for entering theindustry would also be a good place to start investigating important questions, such aswhat the hydroponics industry would look like without the cannabis clientele.

Acknowledgements

The authors wish to thank Therese Brown, Maïa Leduc, Daniel Morency, and Dr. Rob Smith fortheir helpful comments and their assistance at various stages of this research.

Contact Information

Martin Bouchard, School of Criminology, Simon Fraser University, 8888 University Drive,Burnaby, BC, Canada V5A 1S6

Phone: 778-782-8135/Fax: [email protected]

References

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Aldrich, H. 1990. “Using an Ecological Perspective to Study Organizational Founding Rates,” EntrepreneurshipTheory and Practice (Spring): 7–24.

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Bouchard, M. 2007a. “A Capture-Recapture Derived Method to Estimate Cannabis Production in IndustrializedCountries.” Paper presented at the First Annual Conference of the International Society for the Study ofDrug Policy, Oslo, March 2007.

——. 2007b. “A Capture-Recapture Model to Estimate the Size of Criminal Populations and the Risks ofDetection in a Cannabis Cultivation Industry,” Journal of Quantitative Criminology 23: 221–41.

Bourgois, P. 1995. In Search of Respect: Selling Crack in El Barrio. Cambridge, Cambridge University Press.Carrier, A. 1999. “Status of the Greenhouse Industry in Quebec, Canada,” Acta Horticulturae 481: 743–48.

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l’analyse antidrogue, Sous-direction des analyses criminelles, Direction des renseignements criminels,Gendarmerie Royale du Canada.

Hassall and Associates. 2001. Hydroponics as an Agricultural Production System. Rural Industries Research andDevelopment Corporation Publication 01-141.Available from: http://www.rirdc.gov.au/reports/Ras/01-141.pdf



Le Quotidien. 2002. “Sagamie Hydroponique” (March 29): 14.Leguerrier, Y. 1989. “Les Entreprises de Prostitution Commerciales: Les Commerces Ephémères des Marches

Illicites,” Criminologie 22: 35–63.Mitchell, B. 2002. “Cannabis Set Up Operation Busted,” Toronto Star (March 29): B02. Morselli, C. and C. Giguere. 2006. “Legitimate Strengths in Criminal Networks,” Crime, Law, and Social

Change 45: 201–26.National Competition Policy Legislation Review. 2002. “Licensing of Hydroponics Retailers,” Practical

Hydroponics and Greenhouses. Available from: http://www.hydroponics.com.au/legislation.html#fivePaul, C. 2003. “Retail Industry Reforms,” Practical Hydroponics and Greenhouses 73. Available from:

http://www.hydroponics.com.au/back_issues/issue73.htmlRéseau de Développement de l’Industrie Florale. 2006. Bulletin d’Information du Réseau de Développement de

l’Industrie Florale 1, no. 5: 1–2. Available from : http://www.fihoq.qc.ca/infolettre-rdij-jan-2006.pdfReview Panel. 2002. Proposal to Licence Hydroponics Equipment Retailers: Report of the Review Panel.

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Roberto, K. 2005. How-To Hydroponics, 4th ed. Farmingdale, NY: Futuregarden.Statistic Canada. 2007. Crime Statistics, by Detailed Offences, Annual (Number), 1977 to 2005. Ottawa:

Statistics Canada.Utterback, J.M. 1994. Mastering the Dynamics of Innovation. Boston, Harvard Business School Press.Warner, B.D. and B.W. Coomer. 2003. “Neighborhood Drug Arrest Rates: Are they a Meaningful Indicator of

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Value-adding and Value-extracting

Entrepreneurship at the Margins

Kirk Frith, University of Lincoln, Lincoln, United Kingdom

Gerard McElwee, University of Lincoln, Lincoln, United Kingdom

ABSTRACT. Empirical data is reported from two case studies on the methods used to establish and grow thebusinesses of two entrepreneurs operating in very different environments: one legitimate, the other illegitimate.Both utilize strong social skills to legitimize their behaviours but neither can be considered as mainstream orconventional entrepreneurial actors. The findings suggest that, despite the very different outcomes associatedwith their actions, both entrepreneurs exhibit similar enterprising skills and managerial capabilities as found inentrepreneurs engaged in non-marginal activities.

RÉSUMÉ. On rapporte ici des données empiriques, provenant de deux études de cas, sur les méthodes utiliséespour mettre en place et exploiter deux entreprises opérant en milieux fort différents—l’un légitime et l’autre non.Les deux entrepreneurs se servent de solides aptitudes sociales pour légitimer leurs comportements, mais ni l’unni l’autre ne peuvent être tenus pour des acteurs entrepreneuriaux conventionnels ou de type majoritaire. Nosconclusions démontrent qu’en dépit des résultats très différents découlant de leurs actions, ces deux entrepre-neurs possèdent des capacités d’initiative et des compétences de gestion similaires à celles des entrepreneursengagés dans des activités non marginales.

Introduction

Entrepreneurship is widely regarded as a driver of economic development and growth(Harper, 2003). Williams (2008) argues there appears to be a clear distinction between“necessity-driven” entrepreneurs pushed into entrepreneurship because other options forwork are absent or unsatisfactory, and “opportunity-driven” entrepreneurs who engage inentrepreneurship out of choice. In this paper, however, we utilize a different bifurcationof entrepreneurs operating at the margins: “value-adding” and “value-extracting” entre-preneurs. To do this, empirical evidence will be presented from interviews with twoentrepreneurs.

This paper will first define what is meant by entrepreneurship at the margins. It willthen comment on the bifurcation of entrepreneurs at the margin as “value-adding” or“value-extracting” and the extent to which the activity of these entrepreneurs can becomeaccepted and/or tolerated by external actors particularly if an ethical code is adopted andfollowed. This will be illustrated and explored by two case studies; one of a “social entre-preneur,” and one of a drug dealer. Both entrepreneurs, as will be seen, exhibit character-istics, for example, strategic awareness, opportunity spotting and networking, usuallyassociated with more traditional notions of entrepreneurship. The final section will bringtogether some conclusions about the relevance and insights that can be drawn by deliber-ately dichotomizing “value-adding” and “value-extracting” entrepreneurship as a mecha-nism for understanding the challenges and constraints faced by entrepreneurs who oper-ate at the margins.

The first task is to define what is meant by “entrepreneurship at the margins,” “value-adding,” and “value-extracting.” Clearly, entrepreneurship at the margins can be located


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within what Williams (2006) refers to as the informal economy but, and as will be seen,this is not necessarily a specific characteristic.

Entrepreneurship at the Margins

The promotion of enterprise and entrepreneurship has tended to focus on business start-up in the formal sector and, as a consequence, has paid little attention to the nature andtypes of entrepreneurship that occur at the margins. Research into entrepreneurship at themargins has sought to explore why certain groups and individuals, despite not fitting theconventional description of the entrepreneur, have managed to engage in enterprise andentrepreneurship. As an academic discipline, entrepreneurship has always been concernedwith understanding how entrepreneurs work at and beyond the boundaries of what isknown and, occasionally, of what is accepted in the pursuit of profits. However, the major-ity of research exploring entrepreneurship at the margins has tended to focus on the mar-ginalized entrepreneur rather than on entrepreneurship at the margins per se. Cases ofentrepreneurship involving minority entrepreneurs (Galloway, 2007), illegal enterprises(Rehn and Taalas, 2004; Smith, 2007; Williams, 2008), drug dealers (Frith and McElwee,2008a, 2008b) and other such marginal activities (Storr and Butkevich, 2007) have beenthe most common instantiations of this type of research to date. The individuals involvedin these enterprises have been commonly portrayed as deviant and often as social outcastswho operate at the margins of society. This type of research has, by and large, document-ed cases of entrepreneurship that mainstream, and hence more widely accepted, entrepre-neurship research has tended to ignore.

The activities pursued in this type of research have generally been small in scale andto have had relatively little impact upon the wider community in which they have beensituated. Frith and McElwee (2008b) argue, however, that these actors have both an eco-nomic and a social function, both of which offer critical but in themselves insufficientinsights into entrepreneurship at the margins. Nevertheless, as Galloway (2007: 271) sug-gests, research exploring entrepreneurship at the margins has helped to challenge “currentstereotype-based knowledge” and draw attention to the heterogeneity or diversity of entre-preneurial activities and individuals which, according to Schindutte et al. (2005: 27–28),has furthered the “development of … theory regarding the larger population.”

In much of the recent literature on entrepreneurs’ motives, there has been a tendencyto differentiate between necessity- and opportunity-driven entrepreneurs (Harding et al.,2006; Maritz, 2004; Minniti et al., 2006; Perunovic, 2005). This paper argues, however,that squeezing entrepreneurs into one side or the other of this either/or dichotomy over-simplifies entrepreneurs’ motives and obfuscates how they change over time. This neces-sity/opportunity dualism is not only too simplistic to explain entrepreneurs’ motivessince both necessity and opportunity factors are commonly involved, but there is often atemporal fluidity in their motives, usually from necessity-oriented to opportunity-orient-ed factors. The lived practice is therefore more integrative and dynamic than captured bythis static either/or dualism. Furthermore, concentrating exclusively on the motives thatunderlie entrepreneurial action necessarily avoids discussion of the social consequencesof their activities. As such, we turn to another important, though frequently overlookeddualism within the entrepreneurship literature, that of value-adding and value-extractingentrepreneurship.

“Value-adding” and “Value-extracting” Entrepreneurship

For Kirzner, a substantial proportion of entrepreneurial activity does not occur at the

40 FRITH AND MCELWEE


margins, does not enrich or expand the totality of human knowledge but, nevertheless,helps to improve market efficiency and overall economic welfare (Kirzner, 1973).Entrepreneurs who are engaged in activities of arbitrage, for example, are considered asvalue-adding entrepreneurs as they work to ensure that resources are put to their most pro-ductive or profitable use. Value-adding entrepreneurship can therefore be defined as thosetypes of entrepreneurial activities which are legitimate but which do little to change oraffect the margins within which they operate. Value-extracting entrepreneurship can bedefined as those types of entrepreneurial activities that occur within existing margins butwhich impoverish or damage the community within which they occur. Illegal enterprises,including drug-dealing and fencing (selling “hot” or stolen goods), for example, are per-haps the most common forms of this type of activity and tend to follow or mimic veryclosely legitimate forms of entrepreneurship. Indeed, removing or ignoring the moral orethical issues associated with such activities renders them almost imperceptible from tra-ditional forms of entrepreneurship.

Smith (2007: 245) argues that entrepreneurship at the margins should move away frommainstream or typical cases of entrepreneurship and instead focus on cases of entrepre-neurship that are at the “edge of the known and accepted” as there are “many areas ofentrepreneurship that exist at the boundaries of our knowledge and that are worthy of fur-ther study.” Although this definition focuses attention upon entrepreneurship at the mar-gins as opposed to entrepreneurship on the margins, it makes it clear that there is an aspectof entrepreneurship (level of acceptance) that is very important to the growth and survivalof such endeavors. As argued above, there are entrepreneurs working within the marginsof what is known and accepted; however, there are also entrepreneurs whose activitieshelp to influence and shape the margins themselves. As such, we take the view thatresearch should be concerned with all types of entrepreneurial activities at the marginswhich themselves are in the process of being challenged, reconsidered, redefined, and, incertain circumstances, redrawn altogether. This paper explores, with specific reference,the processes and mechanisms used to achieve and leverage degrees of acceptance.

Entrepreneurship at the margins poses ethical and moral issues for both the entrepre-neurs themselves and the actors with whom they interact. For some commentators, entre-preneurship and ethics appear as conflicting forces. Wempe (2005), for example, arguesthat, until very recently, entrepreneurship and ethics were regarded as naturally opposed:

There is the view that ethics (together with the law) limits entrepre-neurship. Ethics (and laws) formulates standards that give entrepre-neurship some space. Ethics and entrepreneurship are seen as twoentirely separate areas. Entrepreneurship is viewed as amoral, or per-haps even as immoral. Entrepreneurs need to exploit opportunities andconsider all options. This should occur within the boundaries set by thelaw, and complemented by ethics. (Wempe, 2005: 215)

Atherton (2004) argues that as a result of this dynamic, the majority of entrepreneur-ship research has deliberately overlooked or simply not considered the ethical dimension.A reason for this, according to Wempe, is that entrepreneurship has traditionally beenunderstood as an economic pursuit in which self-interest or the interests of small groupsof individuals predominate—especially in situations where the future of a business is atstake and the investment and future well-being of the owner is in jeopardy (Schramm,2006). As a consequence, entrepreneurship and ethics have tended to be kept as separateacademic disciplines (Hannafey, 2003). Given that entrepreneurship involves exploiting

ENTREPRENEURSHIP AT THE MARGINS 41


better or superior information than is possessed by trading counterparts (Kirzner, 1973),ethical considerations appear particularly intractable. As a consequence, the entrepreneurhas been most commonly presented as a lone individual, a maverick hero whose skills andexpertise in opportunity-spotting are singularly concerned with profit maximisation(Nodoushani, and Nodoushani, 2000).

However, depictions of the entrepreneur as a dispassionate and efficient calculator ofeconomic costs and benefits neglects that fact that entrepreneurs are socially active indi-viduals whose actions and behaviours alter, both positively and negatively, the environ-ment within which they and others both work and live. Furthermore, such characterisa-tions do not resonate with real-world accounts and experiences in which entrepreneurs areoften seen to be at the forefront of social change. To illustrate this dynamic, two very dif-ferent case studies are presented in order to explore in more detail the challenges facingentrepreneurial individuals who are prepared to initiate ventures that are on or transgressthe boundaries of what is known and/or accepted.

The first case study used in this paper charts the developmental history of a socialenterprise based in the East Midlands of the UK, while the second case study charts thedevelopmental history of a drug-dealing circle also based in the East Midlands of the UK.This theoretical approach is in keeping with the suggestion of Etzioni (1987: 175), whoargued that the activities of entrepreneurs help to change obsolescent and ossified socie-tal patterns:

entrepreneurship is studied here as the force that promotes societal real-ity testing. Societal patterns (institutions, organizations, rules, etc.) tendto ossify, lagging ever more behind constantly changing environments.Entrepreneurs, by promoting new patterns, help bring society and itscomponent units in touch with reality … the focus here is on the con-tribution of entrepreneurship to the society at large and the economyembedded within it.

The two cases presented seek to explore in more detail the assertion made by Etzioni andto explore the notion of societal reality testing in greater depth.

Methodology

The entrepreneurs in both of these cases were interviewed over a number of months in2006 by one of the authors using what has been termed the “phenomenological interview”as initially proposed by Thompson et al. (1989) and discussed by Cope, where: “the aimof the interview is to gain a first person description of some specified domain of experi-ence” (2003: 15).

Unstructured interviews were used to allow the respondents a choice in what accountthey gave, thereby avoiding imposing too much form on the nature of the response. Usingrelatively unstructured techniques allowed the interviewees to feel free to describe theirexperiences in some detail without putting them either under any pressure to respond in aparticular way, as much as is practicable, or indeed to push them in any particular direc-tion. Interviewing and visiting both interviewees on a number of occasions over a periodof several months also helped to develop a strong rapport between the interviewer andinterviewee which, in turn, improved the interview responses both in terms of opennessand honesty.



Case Study: Hill Holt Wood

HistoryHill Holt Wood, a 34-acre ancient woodland in Lincolnshire, was purchased by Karen andNigel Lowthrop in 1995. The purchase capital of £30,000 was raised through the sale ofthe Lowthrops’ fencing company which they had owned and managed for the previous 10years. Hill Holt Wood was in very poor condition when Karen and Nigel first took own-ership; invasive rhododendron had taken hold of large tracts of land, the drainage systemhad been severely damaged leaving much of the surface area of the woodland waterloggedand inaccessible, and the vast majority of the quality timber had been removed and sold.However, Karen and Nigel felt that they had the knowledge and the motivation requiredto restore Hill Holt Wood to its original or natural condition.

In 1996, Karen and Nigel sold their house and used the proceeds to purchase a 30-footAmerican Winnebago. Within weeks, Karen and Nigel had moved into the Winnebagoand onto the woodland so as to save the morning/evening commute time to and from thewood as well as to demonstrate to their neighbours and the local community their com-mitment to the development of the site. Nigel felt strongly that the interest and support ofthe local community would prove essential if the project was going to succeed:

When we first arrived there was a lot of suspicion with regards to whatwe were doing and why we were doing it. I think people thought thatwe were radical environmentalists and that the wood was going to befilled with “tree-huggers” and other such types. We had to work reallyhard to demonstrate to our neighbours that we were genuinely interest-ed in making a difference so we decided to try and include them inevery step of the project.

In the first instance, involvement with the community took the form of simple meas-ures such as attending local events, meeting and speaking with their neighbours and invit-ing as many people to come and visit them in the woodland as possible. This, Karen andNigel felt, helped to break down some of the suspicions that they had picked up on whenthey first arrived, before they had time to take root.

Two years after the purchase of Hill Holt Wood, Karen and Nigel established the HillHolt Wood Management Committee as a permanent link between themselves and the localcommunity. The committee was designed to act in an advisory role and included repre-sentatives from a number of local organizations as well as a number of influential locals.There were many reasons given for establishing the committee, the most significant beingthe need to increase the input from the local community, improve the overall transparen-cy of the project, and create a greater sense of shared ownership:

I use those words [transparency, openness, trust, inclusiveness] inreports that I write, and use them to explain how we developed the trustof the local community and how to get community support and that’swhy I’m always telling people everything about the business andinvolving as many people as possible, you know, I’m sticking to myprinciples, I’m saying that we are open and transparent and we will tellpeople how much the site is worth, how much we earn, how much thebusiness turns over, everything!

However, despite the very obvious success enjoyed by Karen and Nigel and all thoseinvolved in and associated with Hill Holt Wood, the key challenge, convincing external



stakeholders and organizations of the benefits of Hill Holt Wood’s approach to woodlandmanagement, was still very difficult:

the farmers’ union still don’t see it and they still don’t understand it andthey still don’t listen to it, they still dismiss it as a one-off, you know,they don’t see how it could impact on other sites. They always say thatyou might do one per county, that’s always been the argument, now, ifI can get a mirror project set up two miles to the east of us and anotherone two miles to the west of us, one of which is bigger than Hill Holt,and, erm, if, if they work to the level that I think they can work, then inthree years’ time the total jobs employed on those three sites could be80, possibly 90, with a turnover of £3,500,000, maybe £4,000,000 …now if we can do that, then they can’t argue with it, they can’t argue thatthere is an approach that they can’t apply to an awful lot of farmland, toa lot of sites around the country.

In an attempt to convince outsiders of the merits of Hill Holt Wood, Nigel workedextensively and almost exclusively on promoting to others the work that was being under-taken at Hill Holt Wood. One dimension to this promotion was giving talks and presenta-tions across the UK. However, the biggest challenge was encouraging people to come andsee the woodland for themselves:

To start with it was like pulling teeth, we were just dismissed andnobody wanted to talk to us let alone to come and visit the site … it’svery difficult as a small project to get recognized, to get seen, apart fromthe fact that you’ve got no track record and the who the hell are youkind of attitudes, but there’s also the fact that if you’ve got governmentdepartments that fund projects that they can hold them up as successesand what they don’t want is some independent who’s actually doing bet-ter than their funded project.

The next important step in the development of Hill Holt Wood was to make the proj-ect economically sustainable and to demonstrate the viability of their strategy. Throughhis contacts in the local area, Nigel discovered that there was an opportunity to provideon-site courses for local young offenders who had been excluded from mainstream edu-cation. In exchange for working with these young people and teaching them basic lifeskills such as teamwork and responsibility, Hill Holt Wood would receive appropriateremuneration per student per day. Nigel realized that he could use these young people tohelp him to achieve his vision for Hill Holt Wood and so he tailored the learning coursesaround improving, managing and maintaining the learning environment (i.e. the wooditself). The first group of learners arrived at Hill Holt Wood in 1998. The new directiontaken by Hill Holt Wood as a result of pursuing this opportunity opened a number of newavenues and brought the project to the attention of a wider range of individuals and groupsthat previously would not have been interested in the project:

We’ve had visitors coming to the site from any number of differentagencies including DEFRA [The UK government Department ofEnvironment, Food and Rural Affairs], the DTI, [The UK governmentDepartment of Trade and Industry], the Office of the Deputy PrimeMinister, the Forestry Commission; we’ve even had visitors from theroyal family. That’s what’s so great about what we’re doing, it appealsto so many different organizations on so many different levels. The



more stakeholders we’ve got interested in Hill Holt Wood the easierwe’ve found it to do the thing—the difficulty was in getting them herein the first place!

In 2001, Karen and Nigel were granted planning permission for the building of an eco-house in their woodland. The planning permission for the eco-house was granted by theDistrict Council in part recognition of the business-generated income that was beginningto come from forestry and business-related activities ancillary to forestry. However, Karenand Nigel feel that the planning permission would not have been given without the hardwork and support of the local community. In keeping with this belief, Karen and Nigelelected to increase the community membership from the initial four-parish network estab-lished in 1997 to an 11-parish network by 2002, covering a total population in excess of10,000.

In late 2002, and at the insistence of Karen and Nigel, the Volunteer Board of Directors(VBD) took full control of Hill Holt Wood (buying Karen and Nigel out of the businessfor a fee well below the true market value but allowing them to proportion off a part ofthe woodland for their new house). The VBD asked Karen and Nigel to continue in theirroles as manager and director, respectively. Selling Hill Holt Wood to the community was,according to Nigel, a key factor in ensuring the long-term sustainability of the project:

People thought we were barmy when Karen and I gave up the businessand gave it to the community but we’ve actually done better out of itpersonally than if we’d stayed running it. It’s interesting that the exec-utive committee actually argued with me in favour of my salary goingup! The move into becoming a social enterprise was driven by consid-erations of sustainability; it helps to make the business more sustain-able, it helps to make the community link more stable. The real differ-ence is how the business is becoming less dependent on me; it won’t belong now until it is totally independent. I think it could survive withoutme… If Karen and I both left, it would, it would be too difficult at themoment but, I guess, in another year or so I think it would be fine, itmight even do better!

Throughout this time, the numbers of learners arriving at Hill Holt Wood grew steadi-ly as did the numbers of staff employed as rangers or as administrative assistants. In addi-tion Hill Holt Wood was awarded a number of local, regional and national awards inrecognition of their achievements both for enterprise and entrepreneurship as well as fortheir contribution in developing new approaches to helping young offenders find newmeaning in their lives and careers.

With regards to the future, Karen and Nigel both feel that they have developed a busi-ness that can be used as a template for other similar projects across the country:

It’s now taking that and saying that it can happen all over the country.It will be difficult to set up more projects like this along the same sortof lines; the element of community control, the element of environ-mental lead and the different approach to the countryside, it’s difficultto win people over in the short term but we’ve proven that if you per-sist, it can be done.

However, despite the success of the project to date, the desire to convince an everincreasing audience of the merits of their approach appears not to have diminished:



It’s the underlying idea, I’m trying to win people over to the idea, to theunderlying concept of sustainable development, and to the benefits thatcan be gained by linking the urban with the rural. It’s great to beinvolved in a whole string of meetings now about that and talking atconferences and being sought out for conferences and so on.

Discussion

As can be seen from the case study of Hill Holt Wood, the challenges facing new andinnovative businesses are often acute. Even in cases where the social benefits appear quiteobvious to outsiders familiar with the project, there tends to be strong resistance when oldpatterns and routines and established ways of working are challenged and shown to beoutmoded. Karen and Nigel attempted to overcome these challenges by taking an inclu-sive approach, by involving as many people as possible in their project. However, includ-ing local stakeholders in the project involved more than simply allowing them to walkaround the woodland; it required full and ongoing communication between both parties.This approach allowed Karen and Nigel to develop strong relationships with the keystakeholders in the area and to gain the trust that was so critical in terms of developingand expanding the site. Once the trust of the local community had been gained, it wasessential for the long-term sustainability of the business to get other, and possibly morepowerful, stakeholders involved in the business. However, the challenges of involvingmore distant stakeholders were far greater for a number of reasons. Firstly, the greater thedistance away from the site these stakeholders were, the more difficult it was to convincethem to visit the site. Secondly, the less proximate these stakeholders were, the less likestakeholders they felt and so the less interest they had in the project. Nevertheless, as faras Karen and Nigel were concerned, these individuals and organizations were stakehold-ers and were perhaps the biggest obstacle in the way of securing the future of Hill HoltWood. As such, Karen and Nigel expended a great deal of effort in trying to contact thesestakeholders and in trying to communicate to them the benefits of adopting their approachto woodland management.

Table 1. Key Achievements

Timeline Key Achievements People Employed

1995 Hill Holt Wood Purchased by Karen and Nigel Lowthrop

1997Management committee establishedFriends of Hill Holt Wood formedEducation, Environment and Financial committees established

Employs 3 staff

1998First learners arrived (New Deal)Runners up Lincolnshire Environmental Award

Employs 3 staff

1999 First straw-bale building erected Employs 3 staff

2001 Planning permission granted for eco-house Employs 3 staff

2002“Solutions 4” learners arriveSocial enterprise formedInvestor in People standard awarded (IIP)

Employs 6 staff

2003 “Employment-2-Enterprise” contract awarded Employs 8 staff

2004Royal visitIIP retained

Employs 17 staff

2005

Adult learning inspectorate passed (Grade 2)Winner Enterprising Solutions AwardWinner Entrepreneur of the Year AwardWinner Lincolnshire Environmental Award (group award)

Employs 18 staff



Gradually, over time and on the crest of the “green wave,” more and more individualsfrom across the UK began to visit and become involved in the Hill Holt Wood project, cul-minating in a visit from HRH the Earl of Wessex. The visits of such key individuals madea significant difference in terms of Hill Holt Wood’s ability to open the doors to otherstakeholders, to get them interested and to encourage them to contribute to the project.

The issues discussed here are not unique; indeed, in many ways it is the archetypalstory of the entrepreneur emerging victorious against all odds. Such stories which depicthard-working and devoted individuals in pursuit of their dreams of and for a better worldare pervasive. The promotion of entrepreneurship has been based largely on this type ofstory with the inference that individuals who are successful in their private endeavors willimprove not only their own economic well-being but also that of others. Entrepreneurship,from this perspective, is understood and [re]presented as both a private and a public good.However, the prevailing assumption that underpins such stories has come under increas-ing scrutiny in recent years; “there are a variety of roles among which the entrepreneur’sefforts can be [allocated], and some of those roles do not follow the constructive and inno-vative script that is conventionally attributed to that person” (Baumol, 1990: 894).

Case Study: Jim Smith

HistoryJim Smith studied for a business management degree at university from 2002to 2005.Prior to beginning his studies, Jim Smith worked five years for a large company as a low-level department supervisor. However, a lack of on-the-job recognition and a feeling thatthe rewards he was given were not commensurate with the efforts that he was making,meant that he made a decision to go on to further education. Jim Smith knew, however,that he would not be in receipt of any financial assistance whilst he was studying and that,as a result, he would be obliged to support himself throughout his studies. As such, JimSmith arrived at university anxious to find a suitable means for making enough money tocover his expenses.

By nature a gregarious and inquiring individual, Jim Smith made a number of newfriends and acquaintances within his first few weeks at university. It was at a campus partythat he noticed a number of students sitting around smoking marijuana. After a long andinformative conversation, Jim Smith discovered that the marijuana had been brought touniversity by one of the students but that the quantity brought was almost exhausted. Inaddition, the students had remarked that they had no way of obtaining any further supplyuntil they went home for the Christmas break (still three months away). Recognizing avery obvious level of demand and being made aware of supply shortages, Jim Smithquickly made the decision to travel home and find a marijuana supplier that he could trustand who would be prepared to make the long journey to university to deliver the product:

The way I see it there’s only two ways to make money at university,well, there’s actually three; you can go and work for a retail shop or ata bar and earn four pounds fifty an hour, you can promote nights at localpubs and clubs which is what a lot of students do or you can sell drugs.It was an easy choice for me to make given my previous experience ofthe retail trade.

Furthermore, Jim Smith expressed the opinion that if he hadn’t chosen to become adrug dealer then someone else would have taken his place and fulfilled that function:

If people take drugs, they take drugs—that’s the bottom line. If peopleare smoking marijuana before they come to university, then you can



pretty much guarantee that sooner or later they will find a new supplier.It just so happens that I noticed the opportunity before they got to meetthe incumbent suppliers and so managed to take advantage of thesituation.

It was not a difficult decision for Jim Smith to make, especially given his view thatthis situation presented a very real opportunity for him to make the money he needed topay his way through his studies:

I think it was about November, October/November, when I started sell-ing in large quantities. When I arrived at university, there were only twoguys that you could go to for that sort of thing serving the whole studentpopulation. I mean, if you look at it, when I started there, there wasmaybe eight or nine thousand students, erm, and, I mean, only two peo-ple serving that market. I mean, you think, that’s not very competitive,you know, it sounded more like a monopoly, really! I think that mostpeople stay well clear from supplying drugs, you know, they’re happyenough to consume the products, they’re just not prepared to take theassociated risks of supplying them.

Although word of mouth was the main driver in the growth and development of thebusiness, Jim Smith also worked hard in actively promoting his products; Jim Smith con-tinually asked the most popular students at the university, members of the students’ unionas well as the university’s leading promoters (of night-club events), to help expand hisbusiness by referring as many customers to him as possible. In addition, Jim Smith usedhis position as a first-year living in university-supplied accommodation to network withhis fellow students and to build his customer base as a result:

I was in a great position to exploit the fact that the first-years didn’tknow the area, didn’t know where to go to get their gear and didn’t real-ly know anyone outside the first year. This meant that almost immedi-ately I had a firm grip on my customer base. The main problem I hadwas expanding beyond that set of students, especially getting access tothe first-years that didn’t live on campus. I used the friendships that Ihad developed both in class and outside to spread the word that I wasthe man who could help and, before I knew it, my phone started to ringall hours of the day and night.

Of course, the marketing of illicit products presents a number of very significant chal-lenges. Firstly, traditional marketing channels are not available, and secondly, and perhapsmore worrying for the seller, as the business profile grows, so do the chances of being dis-covered by the authorities. However, when Jim Smith was asked whether he was con-cerned about being discovered, he replied that he was not. Indeed, during the course of theinterview, it became very obvious that, although he was aware of the legal ramificationsof being a drug dealer, he felt that what he was doing was not socially unacceptable andthat, as a result, the chances of anyone “blowing the whistle” on him were fairly remote:

I stayed away from all of the harder drugs, although I was occasionallyasked if I could get hold of them. I think that people really don’t mindif someone’s selling marijuana and making a few quid on the side. Onthe other hand, I think people really look down on you if you’re sellingthings like crack or ecstasy and try and stop you from doing it. I wasn’t



really doing anyone any harm and I think people knew that and so didn’thave a problem with me.

As word spread amongst his fellow students, Jim Smith’s customer base grew rapidlyand he soon found himself incapable of meeting demand (in terms of the time it took forhim to visit all of his customers). As a result, Jim Smith made the decision to set up a num-ber of smaller dealers and to begin working as a distributor. Again, this decision resulted ina number of distinct challenges and potential threats to the business and to Jim Smith him-self. To counter these new dangers, Jim Smith decided that the best way to conduct matterswas to bring all of his dealers together and to try and run the business as a kind of familybusiness. To this end, Jim Smith encouraged his dealers to communicate with one anotheron a regular basis to discuss any issues/problems that they were having with their clientsor with selling their products. In addition, Jim Smith organized bi-weekly meetings whereall the dealers would get together over dinner and a few pints of beer. The work spent ondeveloping these relationships was minimal in comparison to the benefits that it brought:

I asked my guys to share their products with each other so that if some-one was finding it difficult to sell their gear, the others could take overand shift it for them. This meant that I could make more orders of larg-er quantities on a more regular basis which was good for all of us. Inaddition, it was important that my guys didn’t try and take their cus-tomers from each other, you know, everyone was serving their own lit-tle niche, selling to their friends and so on, and so everyone had reallygood relationships with their clients which meant that there was a lotmore trust embedded in the process than there might have been if every-one was just out for themselves.

Building up strong networks of social trust also involved being very open with every-one and not trying to hide anything. The need to be open was particularly pressing whenJim Smith moved into shared accommodation for his second year of studies. All of JimSmith’s flatmates were aware of the fact that he was selling marijuana (though none ofthem were involved in the business directly), and all of his flatmates had to accept the con-stant stream of visitors coming to the house at all hours. To limit any sense of annoyancethat may have arisen, Jim Smith paid all the communal bills, including utilities and tele-phone and internet charges, as well as organizing frequent and all-expenses-paid nightsout (courtesy of Jim Smith’s promoter friends). In return for these payments, Jim Smith’sflatmates were happy to tolerate the various goings-on associated with living with a drugdealer as well as, on occasion, passing some marijuana on to the other dealers if Jim Smithwas unavailable:

I know I was asking a lot of my flatmates to be using their home as thebase for a drug dealing operation. I could have gone and lived on myown, but I didn’t want to lose that sense of being at university. I madesure they knew what it would entail before moving in and I reassuredthem that although I would be holding small quantities, I had arrange-ments for storing the large deliveries when they arrived so that therewas no danger for my flatmates in case of a break-in or a bust.

By the time Jim Smith’s studies were nearing completion, his activities as a drugdealer had become known by almost the entire student population. Although Jim Smithfelt that this wasn’t a problem in terms of his security (and very probably good forbusiness), the constant demands placed on him as a result were overwhelming:



I had to be on my best behaviour at all times, you know, I had to go outand show my face at all the big evening events, but I had to be carefulnot to get too drunk in case I did anything silly and upset anybody. Itwas really difficult trying to keep everyone on my good side to preventany negativity occurring, you know, it felt like being on a first date allthe time. Although all these people were my customers, I felt exposedall the time and so, in some senses, I felt like I was their customer inas-much as they held so much power over me. It got to be really hard onme and so as I was nearing the end of my time at uni I began to thinkabout packing it all in and concentrating solely on my work.

At approximately the same time as Jim Smith was contemplating cessation of trading,there was a break-in at his house. Although no one could be sure of the motives for thebreak-in, Jim Smith, in conversation with his flatmates, decided to stop all his activitiesand to make sure that everyone else knew as well:

I have to be honest, it was really scary and I think it really upset my flat-mates a lot. There was no way they would have let me continue dealingfrom the house even if I wanted to—which I didn’t. Although the break-in could have been just bad luck, the fact that it occurred really broughthome to me and my flatmates the dangers that I was exposing us all to.I think I was naïve in a lot of ways, you know, I thought I could get in,make some money and get out, but maybe the break-in was a warningagainst such complacency. I stopped selling immediately and told mydealers that if they wanted to carry on, which I advised against, thenthey would have to find their own source of supply. As it turned out, lotsof people quickly learnt of the break-in and all were supportive of mydecision to get out of the business. The thing that struck me the mostwas that whilst I was selling the drugs I had no problem with doing it,but as soon as I stopped it really made me think about the dangers I hadplaced myself and others in.

Discussion

The details of the second case study suggest that the broad promotion of enterprise andentrepreneurship may not always lead to outcomes that are consonant with the assumptionof economic and social development. Baumol (1990) argues that conceptualizations ofentrepreneurship as a purely economic pursuit are too narrow. Indeed, Baumol (1990:897–98) argues that such depictions are misleading as they do not consider the wider out-comes that often accompany entrepreneurial activities; “if entrepreneurs are defined, sim-ply, to be persons who are ingenious and creative in finding ways that add value to theirown wealth, power, and prestige, then it is to be expected that not all of them will be over-ly concerned with whether an activity that achieves these goals adds much or little to thesocial product.” Indeed, according to Schramm (2006: 279), although economic incen-tives may be at the heart of many entrepreneurial endeavors, it is important not to ignorethe social outcomes that often arise; for many entrepreneurs “the temptation to set asideethical standards is always present because the gains are so large for the individual whodecides to work outside the rules.”

This case study suggests, however, that understanding entrepreneurship as an individ-ual activity does not correspond to real-world accounts of entrepreneurship where there is



frequently a cited need, certainly if the business is to grow, to involve more and more peo-ple in a business. As such, the “temptation to set aside ethical considerations” applies notonly to the entrepreneurs themselves, but also to all those individuals who are involved inthe enterprise in some way or fashion. Referring back to Etzioni’s (1987) notion of soci-etal reality testing, this case study suggests that entrepreneurs who are able to generatesufficient social capital are able to involve people in activities that they would normallyhave left well alone.

The two case studies are almost polar extremes of what can be achieved at the mar-gins of entrepreneurship. Hill Holt Wood reads very much like a pioneer story where thevision of one family, over many years, began to influence national policy on woodlandmanagement and conservation. The case study is concerned with both the margins of whatwas known and of what was acceptable, but through hard work and perseverance, theunknown became the known and the unacceptable became the accepted. In effect, themargins were redefined in favor of Hill Holt Wood and in favor of the innovations intro-duced therein. The consequences of this newly acquired endorsement were such that newbut similar projects immediately began to spring up across the UK with the full and imme-diate support of both local and national organizations.

The second case study, on the other hand, demonstrates that entrepreneurs can takeadvantage of the uncertainty that exists at the margins to further their own levels of per-sonal gain. Furthermore, in doing so, the behaviours and ethical considerations of associ-ated and proximate individuals can be compromised. In such instances, the margins, cer-tainly at a local level, are redrawn again but this time at a cost to society rather than at again. Given such activities, it is somewhat disconcerting that the acknowledgement thatentrepreneurship is, in some cases, as extractive as it is additional is remarkably absentfrom the majority of entrepreneurship texts despite some well-founded and astute obser-vations; it is often assumed that an economy of private enterprise has an automatic biastowards [improvement], but this is not so… It has a bias only towards profit” (Hobsbawm,1969: 40).

Although a great deal of entrepreneurship research does not explore the ethical conse-quences of entrepreneurial activities, it is clear that many entrepreneurial initiatives domuch to influence and shape the behaviours and ethics of the communities within whichthey occur. The first case study demonstrated, both locally and nationally, that there wasa need to increase awareness of the importance of ancient woodlands. The second casestudy demonstrated that people are prepared to turn a blind eye to the activities of theirfriends if those activities do not cause them any discomfort or harm. Both case studiessuggest that there is still a lot of research that needs to be done to further our understand-ing of how entrepreneurs shape the social expectations or ethical frameworks withinwhich they operate (Bucar et al., 2003). The skills and capabilities used by the entrepre-neurs in the case studies were extremely similar: to further their business pursuits, bothparties needed their businesses to be sanctioned by the communities within which theywere embedded and both parties had to work very hard to include all the people aroundthem who might assist in the development and expansion of their businesses.

Entrepreneurship is not, as we have seen, limited to the economic domain and has far-reaching consequences, although these consequences are often largely hidden and not rec-ognized by the entrepreneurs themselves. In an environment in which an ever-increasingemphasis has been placed on the importance of entrepreneurship, especially within furtherand higher education institutions, there appears to be a greater need to raise awareness of



the non-economic impacts and outcomes of entrepreneurial activities and to encouragegreater levels of responsibility and accountability. Whether this should be the responsibil-ity of educators or whether the responsibility rests across society and social structuresmore broadly is not clear. However, what has become increasingly obvious in recent yearsis that the unfettered pursuit of wealth and success in the guise of entrepreneurship canhave disastrous consequences on the communities in which they are situated. On the otherhand, as suggested by Etzioni (1987), entrepreneurs can do much to break down ossifiedsocietal practices and to usher in new and improved business practices which enrich boththe entrepreneurs and the communities within which they are based.

Conclusions

The central discussion on which this paper has been based—that is, the similarities inapproach to entrepreneurship in two very different contexts—has important policy impli-cations. Until now, there has been an assumption that entrepreneurs are engaged primari-ly in value-adding activities and that value-extracting forms of entrepreneurship can beeradicated from the economic landscape by increasing the level of punishments andchance of detection (Renooy et al., 2004). This paper reveals, however, that if govern-ments adopt such an approach, they may well with one hand deter precisely the types ofentrepreneurship and enterprise that, with the other hand through their enterprise culturepolicies, they are seeking to nurture. Recognizing the integrative and dynamic nature ofentrepreneurial behaviours is, therefore, more than simply a matter of academic interest.A fuller and more nuanced understanding of value-extracting entrepreneurs’ motives andbehaviours is crucial so that appropriate public policy decisions can be taken towards thishidden enterprise culture, such as initiatives to enable these entrepreneurs to legitimisetheir business ventures rather than solely measures to eradicate these enterprises. If thispaper therefore stimulates further studies that evaluate whether there is the same co-pres-ence of opportunity factors and dynamism in entrepreneurs’ motives elsewhere, as well asencouraginggreater reflection on what should be done about the prevalence of value-extracting entrepreneurs, then the paper will have fulfilled its objectives.

Contact Information

For further information on this article contact:

Gerard McElwee, Reader in Rural Enterprise, University of Lincoln, Lincoln, LN6 7RT, UnitedKingdom.

Tel: 00 44 (0) 1522 88 6423E-mail: [email protected]

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Beyond Legitimate Entrepreneurship:

The Prevalence of Off-the-Books Entrepreneurs

in Ukraine

Colin C. Williams, University of Sheffield, United Kingdom

ABSTRACT. Although entrepreneurs are commonly represented as risk-takers, there has been little evaluationof the extent to which they might weigh up the costs of being caught and the level of punishments, and engagein off-the-books work practices. Reporting a survey conducted in Ukraine during late 2005 and early 2006 of331 entrepreneurs (defined as individuals starting-up an enterprise in the past three years), however, just 10%are found to operate on a wholly legitimate basis, while 39% have a license to trade and/or have registered theirbusiness but conduct a portion of their trade off-the-books and 51% operate wholly unregistered enterprises con-ducting all of their trade in the informal economy. The outcome is a call to move beyond the cleansed ideal-typerepresentation of entrepreneurs as legitimate and wholesome super heroes that pervades the literature andtowards a fuller understanding of the lived practice of entrepreneurship in the contemporary world.

RÉSUMÉ. Malgré que les entrepreneurs soient fréquemment décrits comme étant des preneurs de risques, il ya néanmoins peu d’études évaluant dans quelle mesure ils peuvent soupeser les coûts économiques de se faireprendre ainsi que la gravité des sanctions qu’il leur serait imposées et exercer leurs activités commerciales aunoir. Un sondage mené en Ukraine de la fin 2005 au début 2006 auprès de 331 entrepreneurs ayant démarré uneentreprise au cours des trois dernières années indique que seulement 10 % d’entre eux exploitent leur entrepriseen toute légalité. Par contre, 39 % ont un permis d’exploitation et/ou une entreprise immatriculée, mais exercentune partie de leurs activités commerciales au noir, tandis que 51 % exploitent des entreprises non immatriculéeset sans permis et exercent la totalité de leurs activités commerciales au noir. Ces résultats amènent à conclure,en premier lieu, de la nécessité de redéfinir cette représentation des entrepreneurs les décrivant comme étant devéritables superhéros à l’image saine; une représentation idéaliste de ceux-ci qui fait omission de tout traitindésirable et qui est répandue dans la littérature. En deuxième lieu, il faut faire en sorte d’avoir une meilleurecompréhension de l’entrepreneuriat tel qu’exercé dans le monde d’aujourd’hui.

Introduction

Despite the recurring depiction of entrepreneurs as risk-taking super-heroes, the literatureon entrepreneurship has seldom questioned whether this means that they always play thegame by the rulebook. Notably absent from nearly all literature on entrepreneurship, thatis, is the notion that these risk-takers might weigh up the costs of being caught and thelevel of punishments and then decide to do some or all of their business on an off-the-books basis. In this paper, therefore, the aim is to evaluate the degree to which entrepre-neurs operate in the off-the-books economy in order to question the validity of the ideal-type representations of entrepreneurs as legitimate super-heroes that permeates the entre-preneurship literature.

In the first section of this paper, therefore, the ways in which entrepreneurship hasbeen conventionally depicted in the literature will be reviewed so as to display how thewholesome, clean and pure narratives of entrepreneurship that dominate the literaturehave written out off-the-books entrepreneurs from their portrayals followed in the sec-ond section by a review of what is known about the relationship between entrepreneur-ship and off-the-books endeavor. The third section then reports one of the first surveysto evaluate the degree to which entrepreneurs start-up their businesses trading on an off-


williams.qxp 9/12/2008 3:14 PM Page 55

the-books basis conducted in Ukraine during 2005–06. Finding that the vast majority ofentrepreneurs start-up on an off-the-books basis, the concluding section calls for a movebeyond the currently dominant super-hero representation of entrepreneurs and towards afuller understanding of the lived realities of entrepreneurship.

Before commencing, however, it is necessary to define what is here meant by off-the-books work or what has been variously called “informal employment,” the “undergroundeconomy,” “shadow work” and “hidden sector” to name but a few of the nouns and adjec-tives employed. Despite the array of terms, a strong consensus exists amongst both aca-demics and policy-makers regarding how to define such work. The off-the-books econo-my is widely accepted as referring to the paid production and sale of goods and servicesthat are unregistered by, or hidden from the state for tax and/or benefit purposes but whichare legal in all other respects (European Commission, 1998; Feige, 1999; Grabiner, 2000;ILO, 2002a; Marcelli, Pastor and Joassart, 1999; OECD, 2000a, b, 2002; Portes, 1994;Thomas, 1992; Williams and Windebank, 1998). As such, only paid work that is illegalbecause of its non-declaration to the state for tax and/or social security purposes is includ-ed in the off-the-books economy. Paid work in which the good and/or service itself is ille-gal (such as drug trafficking) is excluded, as is unpaid work. This economic sphere, likeall others, nevertheless, possesses blurred edges. Some include work where gifts aregiven. Moreover, illegal services in some nations are legal in others, such as prostitution,meaning that what is included in the off-the-books economy can differ significantly acrossnations. Here, however, and reflecting the consensus, only paid transactions are included,and solely exchanges of legal goods and services in the country under consideration.

Representations of Entrepreneurship

Unlike the off-the-books economy where there is a strong consensus regarding what it is,entrepreneurship has proven far harder to pin down. This has been the case for a long time.As Cole (1969: 17) put it nearly four decades ago, “for ten years we ran a research centrein entrepreneurial history and for ten years we tried to define the entrepreneur. We neversucceeded.” Some two decades later, the literature was still no closer. As Brockhaus andHorowitz (1986: 42) concluded, “there is no generic definition of the entrepreneur” whileShaver and Scott (1991: 24) argued that “entrepreneurship is like obscenity: nobodyagrees what it is, but we all know it when we seen it.”

Today, little has changed. In a now notorious phrase, Hull, Bosley and Udell (1980)likened the search for a definition of the entrepreneur as akin to “hunting the heffalump.”An agreed definition remains as distant as ever. Why might this be the case? In one veryinsightful explanation, Jones and Spicer (2005: 235) contend:

But what if research into the entrepreneur has, in its very failure, iden-tified something critically important about the operation of the catego-ry of the entrepreneur, that is, that it is essentially indefinable, vacuous,empty? What if entrepreneurship has not failed at all, but has uncoveredsomething significant about the underlying structure of entrepreneurialdiscourse, that is, that “the entrepreneur” is an empty signifier, an openspace or “lack” whose operative function is not to “exist” in the usualsense but to structure phantasmal attachment?

This is an important insight because even if the literature has been unable to reach anyconsensus on how to define entrepreneurship, there does seem to be strong and broadagreement on two issues regarding its representation.

56 WILLIAMS


Nearly all representations in the voluminous literature, first, depict entrepreneurship ina positive and virtuous manner and second, portray it in a relatively clean and sanitizedway. Indeed, for the purposes of this paper, as well as this special issue which seeks tounderstand why many activities in morally, legally and ethically contested contexts are notusually considered as entrepreneurship, this insight is crucial. It is perhaps this overarch-ing desire of the “mainstream” entrepreneurship literature to provide a positive, virtuousand clean portrait of entrepreneurs that results in other (and “othered”) forms of entrepre-neurship being consigned to the margins or even put outside the boundaries of entrepre-neurship. As Jones and Spicer (2005: 237) explain, such a portrayal:

offers a narrative structure to the fantasy that coordinates desire. Itpoints to an unattainable and only vaguely specified object, and directsdesire towards that object… One secures identity not in ‘being’ anenterprising subject but in the gap between the subject and the object ofdesire. This lack is central to maintaining desiring … it is precisely the… mysterious nature of entrepreneurship discourse that allows it to beso effective in enlisting budding entrepreneurs and reproducing thecurrent relations of economic domination.

Viewed in this manner, it quickly becomes apparent why off-the-books entrepreneurs havebeen written out of mainstream entrepreneurship. To detail how off-the-books enterprisesand entrepreneurs are an inherent part of the lived practice of contemporary entrepre-neurship, to put it plainly, would tarnish this object of desire and curtail people’s emotiveattachment to achieving this fantasy state of being.

To see that nearly all definitions and depictions of entrepreneurship represent it as adesired object, one needs only consider how they are acclaimed as what Cannon (1991) calls“economic heroes” or Burns (2001: 1) views as “the stuff of ‘legends’… held in high esteemand held up as role models to be emulated”; they are “super heroes” (Burns, 2001: 24).

This super-heroic status is apparent whichever theoretical approach to entrepreneur-ship is adopted (see Cunningham and Lischeron, 1991: 47). Whether one adopts the “greatperson” perspective that views them as born (rather than made) and reads them as pos-sessing a “sixth sense” along with intuition, vigor, energy, persistence and self-esteem andcontrasts them with “mortals” who “lack what it takes,” or one adopts the more sociallyconstructed theoretical approaches of the classical, management, leadership or intrapre-neurship schools of thought, the assumption is that the entrepreneur is a super heroic fig-ure possessing virtuous attributes that “lesser mortals” do not. In none of these schools arenegative attributes ever attached to the entrepreneur.

What, therefore, are these positive qualities possessed by the entrepreneur? This is thesubject of much debate. Different commentators and schools of thought put forward con-trasting attributes, champion certain qualities over others, argue over whether particulartraits are applicable or not, and debate the emphasis given to different qualities, or sets ofqualities. Indeed, so much so that it feels somewhat like walking into a minefield to pro-vide here a list of the possible characteristics, traits and/or qualities of entrepreneurs. Yetthis needs to be briefly done if one is to more fully understand how the entrepreneur isbeing defined and depicted in this voluminous literature as well as how they are alwaysrepresented in heroic terms. Here, therefore, and following Burns (2001: 27), the variouscharacteristics, traits and/or qualities possessed by entrepreneurs that are being debated inthe literature are listed as: the need for independence; the need for achievement; internallocus of control; ability to live with uncertainty and take measured risks; opportunistic;

THE PREVALENCE OF OFF-THE-BOOKS ENTREPRENEURS IN UKRAINE 57


innovative; self-confident; proactive and decisive with higher energy; self-motivated; andvision and flair. Many similar lists exist, albeit with slightly different emphases (e.g., Baty.1990; Blanchflower and Meyer. 1991; Bolton and Thompson. 2000; Brockhaus andHorowitz. 1986; Carr. 2002; Chell, Haworth and Brearly. 1991; Kanter. 1983;McClelland. 1961; Schumpeter. 1996; Storey and Sykes. 1996).

The intense debates over each and every one of these characteristics need not here over-ly concern us. What is important is that all of these qualities construct a representation ofthe entrepreneur as a heroic figure. To see this, one needs only consider that if the aboveare the qualities of entrepreneurs, then the dualistic opposite, the “non-entrepreneur,” issomebody who is dependent, lacks the will to achieve, believes in destiny, cannot livewith uncertainty and avoids risks, fails to take opportunities, lacks the ability to innovate,lacks confidence, is reactive, indecisive and lacks energy, lacks the ability to motivatethemselves and has no vision or flair.

Put in more theoretical terms, the entrepreneur/non-entrepreneur dualism representswhat Derrida (1967) calls a binary hierarchy. For this apostle of post-structuralist thought,hierarchical binaries lie at the core of western thought which, first, conceptualizesobjects/identities as dualisms where each side is stable, bounded and constituted via nega-tion and second, reads the resultant binary structures hierarchically in that the first term(the superordinate) is endowed with positivity and the second term, the subordinate (orsubservient) “other,” with negativity. Viewed through this lens, it is quickly apparent thatentrepreneurship is a superordinate endowed with positivity while the unnamed non-entrepreneurship category is the subordinate “other” endowed with negativity whosemeaning is established solely in relation to its superordinate opposite.

To contest such binary hierarchical thought, Derrida (1967) argues that first, one canrevalue the subordinate term, namely the non-entrepreneur. The problem, however, and ashe points out, is that revaluing the subordinate in a binary hierarchy is difficult since italso tends to be closely associated with the subordinate terms in other binary hierarchies(e.g., non-entrepreneur is associated as shown above with dependency, an external locusof control, risk avoidance, an inability to innovate, indecision, no vision, a lack of flair,motivation and energy). A second strategy is thus to highlight the inter-dependenciesbetween the two sides of the dualism and a third strategy is to blur the boundaries betweenthe terms so as to undermine the solidity and fixity of identity/presence.

It is this latter strategy that is adopted in this paper. The intent is to show the dispari-ty between the ideal-type representation and the everyday realities of entrepreneurshipwhere participants do not always play by the rulebook in order to sully the clean, sanitizedand virtuous image of the entrepreneur as always possessing positive attributes. Toachieve this, I here focus upon unraveling the nature of entrepreneurship in Ukraine so asto bring to the fore how many entrepreneurs engage in off-the-books transactions in theirdaily practices in order to challenge the notion that these are super-heroic figures. Beforedoing so, however, it is first necessary to briefly review what is already known aboutentrepreneurs who engage in off-the-books work.

Entrepreneurship and Off-the-Books Work

Over the years, a small but steadily expanding stream of entrepreneurship thought hasexplicitly challenged this largely wholesome representation of entrepreneurship. Thestudy by Kets de Vries (1977) is one of the best known attempts to attach negative attrib-utes to entrepreneurs by arguing that they are the product of unhappy family backgrounds,

58 WILLIAMS


particularly situations in which the father is a controller and manipulator who is remoteand often seen as a deserter. The classic study of the entrepreneur as somebody who doesnot always play by the rulebook, meanwhile, is that of Collins, Moore and Unwalla(1964), partially corroborated by Bhide and Stevenson (1990). There are also more recentattempts to deconstruct the virtuous and positive image of the entrepreneur (e.g.,Armstrong, 2005; Deutschmann, 2001; Fournier, 1998; Jones and Spicer, 2005, 2006;Williams, 2007). Here, I wish to further contribute to this tarnishing of the entrepreneurby taking as a starting point the “old adage that if you scratch an entrepreneur you willfind a ‘spiv’” (Burns, 2001: 4) and studying whether entrepreneurs engage in off-the-books transactions.

In most countries, a significant proportion of economic endeavor takes place in theoff-the-books economy. This is the case whatever region of the world is considered. In thediverse array of countries that constitute the Third World, one of the most widely accept-ed estimates is that between one-half to three-quarters of non-agricultural employment islocated in the off-the-books economy and that the majority who engage in such work doso on an own account or self-employed basis. Some 48% of non-agricultural employmentin North Africa is estimated to be off-the-books, 51% in Latin America, 65% in Asia and72% in sub-Saharan Africa (ILO 2002b). Differentiating between those working off-the-books on their own account in self-employment and those in off-the-books wagedemployment (such as casual day laborers, domestic workers, temporary workers withoutsecure contracts or social protection), moreover, the finding is that the self-employedcomprise a greater share of off-the-books workers than waged employees, representing70% of informal workers in sub-Saharan Africa, 62% in North Africa, 60% in LatinAmerica and 59% in Asia (ILO, 2002b).

Indeed, in recent decades, it has been increasingly recognized that many of these self-employed operating off-the-books display entrepreneurial qualities (Browne, 2004; Cross,2000; De Soto, 1989, 2001; Franks, 1994; ILO, 2002a; Rakowski, 1994). From street-sell-ers in the Dominican Republic (Itzigsohn, 2000) and Somalia (Little, 2003), through off-the-books garment businesses in India (Das, 2003; Unni and Rani, 2003) and thePhilippines (Doane, Srikajon and Ofreneo, 2003), to home-based micro-enterprises inMexico (Staudt, 1998) and Martinique (Browne, 2004), the now widespread consensus isthat this is a sphere of enterprise and entrepreneurship (Itzigsohn, 2000; Otero, 1994;Rakowski, 1994). As the ILO (2002a: 54) state, the off-the-books economy acts as “anincubator for business potential and … transitional base for accessibility and graduationto the formal economy” and many off-the-books workers show “real business acumen,creativity, dynamism and innovation.” During the past few years, and reflecting this, asimilar representation has begun to emerge when discussing the off-the-books economyin the western world (Evans, Syrett and Williams, 2006; Renooy et al., 2004; SmallBusiness Council, 2004; Williams, 2004, 2006, 2007) and importantly given the focus ofthis paper, also the transition economies of East-Central Europe (Smallbone and Welter,2001).

Indeed, in transition economies, this representation of the off-the-books economy bothas a site of, as well as “seedbed” for, entrepreneurship has been widespread for some time(Smallbone and Welter, 2001; Szelenyi, 1988). Until now, however, there has been apaucity of evidence on the degree to which entrepreneurs start-up on an off-the-booksbasis. Although numerous studies enumerate the size of the off-the-books economy, fewif any have so far evaluated the proportion of business ventures that start-out in this



sphere. This is a significant gap in our understanding that needs to be filled. Below, in con-sequence, one of the first known studies to investigate this is reported.

Evaluating Entrepreneurship in Ukraine

Ukraine, the second-largest successor state of the former Soviet Union, is a country inwhich there exist strong tensions between the state and society and severe economic prob-lems. As the 2004 New Europe Barometer reveals, although two-thirds of people in newEU member states state that most public officials are corrupt, 92% in Ukraine believe thisis the case—the highest figure in all 13 East-Central European countries studied (Rose,2005). The outcome is low “tax morality”; few Ukrainians believe in paying tax since theydo not trust the state to use it for redistributive or collective purposes. When coupled withthe fact that official employment declined by about one-third between 1990 and 1999(Cherneyshev, 2006) and that 73% of Ukrainians assert that they receive insufficient fromtheir main income to buy what they really need (Rose, 2005), it would be surprising if off-the-books transactions were not rife in contemporary Ukraine.

Until now, however, and despite numerous contemporary surveys of the Ukraine labormarket, including the Ukrainian Longitudinal Monitoring Survey (Brown, Earle andVakhitov, 2006; Kupets, 2006; Lehmann and Terrell, 2006; Lehmann, Pignatti andWadsworth, 2006), the Labor Force Survey-based modular Decent Work Survey, theEnterprise Labor Flexibility and Security Survey and the People’s Security Survey(Cherneyshev, 2006; Standing, 2005; Standing and Zoldos, 2001), no attempt has beenmade to directly collect data on off-the-books working practices (Dean, 2002). Instead,only indirect measurement methods using proxy indicators have been used to estimate itssize. According to these, the off-the-books economy in Ukraine is equivalent to47.3–53.7% of GDP using physical input proxies (Schneider and Enste, 2000) and55–70% using currency demand (Dzvinka, 2002), with official Ukrainian governmentestimates, based on such proxies, asserting that it is equivalent to 55% of Ukraine’s GDP(NCRU, 2005). Indeed, this perhaps explains why the official government statistics forUkraine identify that the official unemployment rate in 2006 (using the ILO definition) is7.9% when only 57.1% of the total population aged 15–70 in 2006 were in employment(State Statistics Committee of Ukraine, 2006).

Nevertheless, both OECD experts in their handbook on measurement methods(OECD, 2002) and the most recent European Commission report on undeclared work(Renooy et al., 2004), as well as a host of academic evaluations (Thomas, 1992; Williams,2004, 2006; Williams and Windebank, 1998) conclude that proxy measures are very lim-ited in their usefulness. Indeed, for our purpose here which is to investigate the proportionof businesses that start-up in the off-the-books economy, such indirect proxy indicatorsare of little use beyond suggesting that a significant proportion of business might be oper-ating in this sphere.

In consequence, and in order to estimate the proportion of businesses that start-up onan off-the-books basis, as well as the size and nature of the off-the-books economy, dur-ing late 2005 and early 2006, a direct survey was conducted. Given the significant differ-ences previously identified in the magnitude and nature of the off-the-books economyacross affluent and deprived, as well as urban and rural, populations (Williams andWindebank, 1998), a maximum variation sampling technique was used based on these twovariables to select four contrasting localities. First, and in the capital of Kiev, an affluentarea was chosen, namely Perchersk, along with a deprived neighborhood, namelyVynogardar. Continuing the process of maximum variation sampling, a deprived rural area

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near Vasilikiv was then chosen, and finally, a town on the Ukrainian/Slovakia border wasselected, U�hgorod. Within each locality, a spatially stratified sampling methodology wasthen employed to select households for interview (Kitchen and Tate, 2001). In each of thefour localities, 150 households were interviewed (600 in total). In consequence, if therewere 3,000 households in the area and 150 interviews were sought, then the researchercalled at every twentieth household. If there was no response and/or the interviewer wasrefused an interview, then the twenty-first household was visited, then the nineteenth,twenty-second, eighteenth and so on. This provided a spatially stratified sample of eacharea.

To investigate whether people had started up new business ventures and whether theyhad done so off-the-books, structured face-to-face interviews were conducted. Some newto this subject might believe that respondents would be unwilling to divulge such infor-mation to interviewers. However, the common finding of direct surveys across the worldis that just because this work is hidden from the state for tax or social security purposesdoes not mean that people are unwilling to openly discuss such work with academicresearchers (for a review, see Williams, 2004). Here, therefore, face-to-face interviewswere conducted.

First of all, this gathered data on gross household income, the employment status ofhousehold members, their employment histories, ages and gender, as well as whether theyhad engaged in self-employed endeavor over the past 36 months and/or started up somenew business venture. Second, they were asked about the forms of work they most reliedon to maintain their living standard. Third, closed-ended questions were asked about theforms of work both used by their household to get common tasks completed as well aswhether members supplied both unpaid and off-the-books jobs in relation to specifictasks, followed by open-ended questions about other off-the-books work conducted andits relative importance to their household income. Fourth and finally, and using five-pointlikert scaling, attitudinal questions were posed about their views of the economy, politics,everyday life and their future prospects. Below, the findings are reported on, first, theimportance of off-the-books work to their living standards and second, whether those whohad started up self-employed and/or new business ventures in the past 36 months had doneso by conducting some or all of their transactions on an off-the-books basis.

The Prevalence of Off-the-Books Practices in UkraineTo understand the degree to which the surveyed population rely on off-the-books

transactions for their livelihoods, respondents were asked about the form of work mostimportant to their standard of living, along with the second most important. One in six(16.4%) reported that they rely primarily on off-the-books work for their livelihoods (seeTable 1). Moreover, a further quarter of respondents state that off-the-books work is thesecond most important contributor to their standard of living. Some 28% of all householdsprimarily dependent on subsistence production, that is, cite off-the-books work as theirsecondary strategy, 22% reliant principally on mutual aid, 30% chiefly reliant on formalemployment and 14% primarily dependent on state benefits. In total, therefore, some 40%of all Ukraine households cite off-the-books work as either the principal or secondary con-tributor to their livelihood.

Who, therefore, depends on off-the-books working practices? Contrary to the “mar-ginality thesis” which holds that off-the-books work is concentrated amongst marginal-ized groups such as the unemployed or deprived populations (e.g., Gallin, 2001; Kim,2005), this survey finds that this is not the case. As Table 2 displays, just 12.5% of house-



holds with no formal wage earner cite off-the-books work as their primary strategy com-pared with 23.5% of households with one formal wage earner and 13.9% of householdswith multiple formal wage-earners. Indeed, of all households primarily reliant on off-the-books work for their livelihood, some 51% are multiple-earner households (58% of allhouseholds surveyed), 43% single earner households (29% of surveyed households) andjust 6% no-earner households (12% of surveyed households). This study thus reinforcesthe wealth of previous literature that has refuted the marginality thesis both in westernnations (Jensen, Cornwell and Findeis, 1995; van Geuns, Mevissen and Renooy, 1987;Renooy, 1990; Williams, 2005) and transition economies (Rosser, Rosser and Ahmed,2000; Wallace and Latcheva, 2006). In consequence, the off-the-books economy is notsome marginal sphere of minor importance to a limited range of households but, rather, isan important practice for a large proportion of the Ukraine population.

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Table 1. Primary and second most important form of work for living standard: % of households

Secondary strategy

Self-provisioning

Unpaidmutual aid

Off-the-books work

Formal job Benefits All

Primarystrategy

Self-provisioning

0.9 1.7 2.2 2.4 0.5 7.7

Mutual aid 0.2 0.9 1.0 1.4 1.0 4.5

Off-the-books work

3.4 4.1 1.5 6.0 1.4 16.4

Formal job 10.3 17.5 18.4 9.5 5.7 61.4

Pension/Benefits

2.9 4.1 1.4 0.5 1.0 9.9

Source: 2005–06 Ukraine survey.

Table 2. Primary sphere relied on by Ukraine households, 2005–06: by type of household

Primary strategy

% Self-provisioningUnpaid mutual

aidOff-the-books

workFormal

employmentPension/benefits

Employment status of household

Multiple earner 4.7 1.5 13.9 78.6 1.1

Single earner 8.4 4.8 23.5 56.0 7.2

No earner-working age

37.5 18.8 12.5 18.8 12.5

No-earner-retired 5.4 3.6 5.4 10.7 75.0

Gross Household Income/month (gr)

<600 9.6 4.1 15.1 41.1 30.1

600–1399 6.7 3.3 13.4 61.9 14.6

1400–2199 6.6 4.1 17.3 71.1 0.8

2200–2999 3.4 1.7 18.6 73.3 1.7

3000–3799 10.2 2.6 15.4 69.2 2.6

3800+ 4.5 0 22.7 72.7 0

Source: 2005–06 Ukraine Survey.


What types of off-the-books work, therefore, do these respondents engage in for theirlivelihoods? The ILO (2002b), as discussed earlier, sub-divides participants in off-the-books work into those who are self-employed and those engaged in waged employmenton an off-the-books basis. If a significant proportion of off-the-books workers in Ukraineare in waged employment, then this sphere cannot be represented as a hidden enterpriseculture and seedbed for new enterprise creation. The finding, however, is that just 28% ofthose engaged in off-the-books work are in waged employment. This is similar to the ear-lier reported finding by the ILO (2002b) that elsewhere in developing nations some30–40% of off-the-books workers are found to be in waged employment on an off-the-books basis.

The vast majority of off-the-books workers (72%), however, are not waged employ-ees but doing so on an own account basis. Below, therefore, we analyze one segment ofthese self-employed, namely those who have started-up a new business ventures duringthe past three years so as to enumerate the degree to which entrepreneurs start up on anoff-the-books basis.

How Many Entrepreneurs Start-Up Trading Off-the-Books?The 600 face-to-face interviews conducted revealed a high-level of entrepreneurship incontemporary Ukraine. Some 331 individuals asserted that they had started-up an enter-prise in the past three years. Of these, just 33 (10%) stated that their business ventureswere wholly legitimate operations that were registered with the state, in possession of therequired licenses and conducting all of their transactions on a declared basis for tax andsocial insurance purposes. The remaining 298 entrepreneurs (90%) stated that their busi-ness ventures operated wholly or partially in the off-the-books economy. Some 39% of allentrepreneurs starting-up a business venture in the past three years, that is, had a licenseto trade and/or the business was registered but a portion of their trade was conducted inthe off-the-books economy, while 51% operated on a wholly unregistered basis with nolicense to trade and all of their trade was conducted on an off-the-books basis. In conse-quence, over half of all business start-ups are not even on the radar screen of the state andof those business start-ups registered and on the state’s radar screen, some 80% operatepartially in the off-the-books economy.

Who, therefore, are these nascent entrepreneurs operating wholly or partially in theoff-the-books economy? Above, it has been already displayed that those most dependenton the off-the-books economy are not the unemployed and relatively low-income popula-tions as depicted in the marginality thesis. Instead, they are already in formal employmentand spread across the income spectrum. The same applies when analyzing those entrepre-neurs starting-up business ventures. On the whole, some 55% are in formal employmentand operating their business alongside their formal waged work as an “on-the side” busi-ness venture and the remaining 45% are a mixture of various categories of people regis-tered as non-employed including the “economically inactive” such as housewives and oth-ers unregistered as engaging in any form of employment, pensioners and people claimingunemployment benefit. This finding reinforces the evidence elsewhere that those starting-up enterprises tend to be people in waged employment, often depicted as straddling thelegitimate and off-the-books economy as a “risk-reduction strategy” (McCormick, 1998),and that it is only later in the development of the enterprise that they might become fullyself-employed and to leave their waged employment (e.g., Reynolds et al., 2002). As astudy in Russia has displayed, 26.5% of the new self-employed work on an off-the-booksbasis as a second job at the outset, displaying how the off-the-books sphere is an incuba-tor for new self-employed businesses (Guariglia and Kim, 2006).



Turning to the gender of those starting-up enterprises operating wholly or partially inthe off-the-books economy, moreover, although the split between men and women entre-preneurs was 40:60 for wholly off-the-books nascent enterprises, the gender ratio for own-ership of nascent legitimate enterprises conducting a portion of their trade off-the-bookswas 70:30 in favor of men. Wholly off-the-books nascent enterprises, therefore, are oper-ated more by women, while legitimate nascent enterprises trading off-the-books were pre-dominantly operated by men. Most wholly off-the-books business start-ups, moreover, arerelatively small-scale piecemeal operations operated as part of a survival strategy by theowner, whilst the legitimate enterprise start-ups operating partially in the off-the-bookseconomy are relatively larger-scale and operated by their proprietors more to “get-ahead”that to “get-by.” Indeed, nearly all wholly off-the-books business start-ups had no employ-ees, while some 35% of registered business start-ups working partially off-the-books hadadditional employees. Examining the sectors in which such enterprises operated, the vastmajority (90%) were service sector rather than manufacturing sector enterprises, and mostof these (85%) sold chiefly to final users rather than other firms (i.e., they were chieflyconsumer service or business-to-consumer enterprises rather than business-to-businessfirms). This consumer service sector focus, nevertheless, was more marked amongstwholly off-the-books business start-ups than amongst registered business start-ups con-ducting a portion of their trade off-the-books (95% of wholly off-the-books start-ups werein the consumer services sector compared with 70% of registered start-ups tradingpartially off-the-books).

Of those setting up an enterprise, about 80% use the skills, tools and/or social net-works directly related to their current or previous formal employment and/or employ-ment-place in their off-the-books business ventures. For example, those working asplumbers in their formal occupation tend to operate plumbing enterprises “on the side” ortend to use contacts from their employment-place in order to find work for their off-the-books enterprise. An example would be university teachers who offer University entranceexamination candidates tuition on an off-the-books basis in order to help them pass theirentrance examinations. The remaining fifth of those starting-up a business are doing so infields that arose out of what Stebbins (2004) refers to as some “serious leisure” such as ahobby or interest that leads them to set up enterprises selling goods produced or servicesresulting from it. This included those who had learned some skill by pursuing some hobbyor interest (such as painting, carpentry) and had then decided to establish an enterprisebased on this skill.

In Ukraine, therefore, the vast majority (90%) of entrepreneurs are starting-up theirbusiness ventures either partially or wholly on an off-the-books basis. Such entrepreneurs,in consequence, cannot be depicted as some small segment of the totality of entrepreneursexisting in the margins. They are the “mainstream” of total entrepreneurial activity and itis legitimate entrepreneurs who inhabit the margins. If entrepreneurship is to be under-stood in Ukraine, then it is little use adhering to the more wholesome and virtuous text-book representation of entrepreneurs as legitimate super-heroes and focusing upon solelythis group since they are only a small minority of all entrepreneurs.

Conclusions

The starting point of this paper was that much of the entrepreneurship literature errstowards representing entrepreneurs first, in a positive and virtuous manner, and second, ina clean and sanitized way. The problem, however, is that there seems to be marked dis-crepancy between such textbook celebratory odes to the entrepreneur as wholesome superheroes and the lived realities of entrepreneurship.

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In this paper this has been shown by highlighting how many entrepreneurs work on anoff-the-books basis. Until now, and despite the common representation of entrepreneursas risk-taking heroes, it has been seldom if ever questioned whether this means that theyalways keep to the rules. Notable by its absence from most literature on entrepreneurship,that is, is the notion that risk-takers might weigh up the probability of being caught andthe level of punishments and decide to do some or all of their business on an off-the-booksbasis.

Reported the results of one of the first known surveys to identify the proportion ofbusinesses that start-up in the off-the-books economy, this paper has revealed that inUkraine during 2005–06, just 10% of those who had started up business ventures in thepast three years were operating on a wholly legitimate basis, 39% had a license to tradeas self-employed and/or had registered their businesses but were conducting a portion oftheir trade in the off-the-books economy while the majority (51%) operated wholly unreg-istered off-the-books enterprises and/or did not have a license to trade as self-employedand conducted all of their trade on an off-the-books basis.

Here, in consequence, the depiction of enterprise culture as composed of super-heroentrepreneurs playing by the rulebook in their business lives is transcended. Althoughthere may be a gleaming “whiter-than-white” textbook depiction of entrepreneurship, thisis here asserted to represent but the tip of the iceberg and beneath the surface, so far large-ly ignored, exists a large hidden enterprise culture composed of entrepreneurs who do notalways play within the bounds of the law. By shining a light on this hidden enterprise cul-ture beneath the waterline, the aim has been to begin to tarnish the sanitized and clean rep-resentation of entrepreneurship by revealing the everyday lived realities. Of course, not allentrepreneurs engage in illegitimate off-the-books transactions and it is not the intentionhere to say that they do. Denoting entrepreneurs as always breaking the rules is as erro-neous as asserting that they are always virtuous and follow the letter of the law. The pointis that some of these so-called “super-heroes” are not perhaps as clean-cut and aboveboard as is asserted in text-book depictions.

This finding has major implications for public policy. Until now, a common tendencyespecially in East-Central Europe has been to seek to eradicate the off-the-books econo-my by increasing the actual or perceived likelihood of detection and the level of penaltiesfor those caught. However, this paper has revealed that if governments pursue such a pol-icy of eradication, they will with one hand be stamping out precisely the enterprise cul-ture that with another hand they are so desperately seeking to foster. To resolve this, gov-ernments need to perhaps concentrate on facilitating the legitimization of such off-the-books enterprises rather than simply seek to eradicate them. This requires a shift in pub-lic policy away from the current punitive deterrence approach and towards a moreenabling approach that seeks to help off-the-books enterprise move into the legitimateeconomy. Measures that might be used include regulatory and tax simplification initia-tives, the provision of business advice and support on how to put their affairs in order,amnesties for off-the-books enterprises making a voluntary disclosure of their past taxevasion activities, as well as broader awareness raising campaigns and education on thebenefits of tax compliance (see Williams, 2006). If pursued, then the current discrepan-cies and contradictions in public policy towards entrepreneurship and the off-the-bookseconomy would be overcome.

Of course, whether it is the case in other countries that business ventures often start-up off-the-books, and the degree to which this is the case, now needs to be investigated.



This study of Ukraine pinpoints a potentially important facet of entrepreneurship that hasbeen so far subject to little empirical investigation. It is perhaps time therefore that furtherresearch was conducted to evaluate the proportion of business start-ups in other countriesthat are wholly legitimate ventures, the share that are registered enterprises conducting aportion of their trade off-the-books and the percentage that are wholly unregistered enter-prises conducting all of their trade on an off-the-books basis. If this paper stimulates suchresearch and encourages greater consideration of the lived realities of entrepreneurship soas to transcend the virtuous ideal-type of the entrepreneur, then it will have achieved itsobjective.

Acknowledgements

This paper arises out of a project entitled “Surviving post-socialism: evaluating the role of the infor-mal sector in Ukraine,” funded by the UK’s Economic and Social Research Council (Grant No.RES000220985).

Contact Information


Colin C Williams, Professor of Public Policy, Centre for Regional Economic and EnterpriseDevelopment (CREED), School of Management, University of Sheffield, 9 Mappin Street, SheffieldS1 9DT, United Kingdom

E-mail: [email protected]

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68 WILLIAMS


Extracting Value from Their Environment: Some

Observations on Pimping and Prostitution as

Entrepreneurship

Robert Smith, The Charles P. Skene Centre for Entrepreneurship,

Aberdeen Business School, The Robert Gordon University, Aberdeen,

Scotland

Maria L. Christou, Criminologist and Independent Academic

ABSTRACT. There has been an upsurge in academic studies relating to the underclass as a marginalized group.Notwithstanding this, the literature seldom represents the underclass as an economically active grouping. Thisstudy counters this stance by considering street prostitutes and pimps as economically active members of anentrepreneurial underclass. Although previous studies have wrapped the prostitute (and particularly theMadame) in the mantle of entrepreneurship, none have sought to do so in relation to the pimp who traditionallyhas been portrayed as a swaggering, flamboyant, violent, ruthless, calculating individual existing at the marginsof society. In reality they remain an elusive and difficult to research genre. Few ever publicly accept the persona.Indeed, pimping runs contrary to accepted masculine doxa of what it means to be a man, making it deeplyshameful to live off the immoral earnings of women. This paper, based upon the observations of the authors,adopts a semiotic perspective to refocus these elusive characters in the entrepreneurial and criminological gaze.By concentrating upon prostitution and pimping as an entrepreneurial behaviour, and not on the prostitutes andpimps as entrepreneurial types, the paper contributes to extant knowledge by developing an appreciation ofentrepreneurial strategies employed by them to create and extract value from their environment. The methodol-ogy circumvented the issues of access allowing a wider sociological discussion to develop, as well as high-lighting other ethical issues of researching street-level entrepreneurship.

RÉSUMÉ. On a constaté chez les universitaires une flambée d’intérêt pour le quart-monde en tant que groupemarginalisé. Malgré cela, la documentation représente rarement le quart-monde comme un groupementéconomiquement actif. La présente étude renverse cette attitude en considérant prostituées et souteneurs commedes membres économiquement actifs du quart-monde entrepreneurial. Bien que des études précédentes aient revê-tu les prostituées (et en particulier les tenancières de maison close) du manteau de l’entrepreneuriat, aucune n’acherché à le faire en relation avec les souteneurs, traditionnellement décrits comme des fanfarons flamboyants,violents, impitoyables et calculateurs qui vivent en marge de la société. En réalité ils représentent un genredifficile à joindre et à étudier, et peu d’entre eux acceptent publiquement cette image. En fait, être souteneur vaà l’encontre de l’idéal masculin qui couvre de honte celui qui vit des gains immoraux des femmes. Cet article,basé sur les observations des auteurs, adopte une perspective sémiotique afin de livrer ces personnagesinsaisissables au regard entrepreneurial et criminologue. En se concentrant sur les activités de prostitution et desouteneur en tant que comportements entrepreneuriaux, et non sur les prostituées et les souteneurs en tant quetypes entrepreneuriaux, cet article contribue aux connaissances existantes en développant une appréciation desstratégies entrepreneuriales visant à créer et exploiter de la valeur à partir du milieu ambiant. Cette méthodologiecontourne les problèmes d’accès et permet une discussion sociologique plus large, tout en soulignant d’autresquestions morales concernant la recherche sur l’entrepreneuriat de la rue.

Introduction

Traditionally the underclass are viewed as an economically surplus and thus marginalizedsocial grouping. This paper examines a form of street-level entrepreneurship practiced inan underclass environment, concentrating primarily upon the thriving Scottish city of


Smith-Christou.qxp 9/12/2008 3:14 PM Page 69

Aberdeen, but using research material gathered in other British cities. In criminology, oflate several academic studies have sought to (re)construct the underclass (Hayward andYar, 2006; Johnson et al., 2006). Mention of constructionism brings wider socio-culturalissues into play—in popular culture, being of the underclass is synonymous with beingstreetwise. In entrepreneurial mythology much is made of the streetwise nature of manyentrepreneurs. In this paper we therefore consider street-level prostitutes and pimps asentrepreneurial types.

At the outset, this work was conceived as a study of “the pimp as entrepreneur.”Although existing studies such as those of Heyl (1978) and Francis (1986) have wrappedthe prostitute in the mantle of entrepreneurship, traditionally the pimp has been portrayedas a swaggering, flamboyant, violent, ruthless, calculating, cowardly individual existingat the margins of society. We find it ironic that these words are also commonly used todescribe entrepreneurial behaviour. By logical extension it is perhaps plausible (in somecases) to socially reconstruct the pimp as an entrepreneur figure rather than the prostitute.However, as the study progressed we found that concentrating upon the ideal type of pimpand prostitute we encountered obscured appreciation of the entrepreneurial strategies usedby many street-level prostitutes and pimps to extract value from their environment. Thus,in seeking to establish whether the pimp (as an ideal type) could be found on the streetsof a British city we initially fixated upon floating social constructions of the pimp and theentrepreneur establishing many parallels between the pimp and entrepreneur in both theconstructs and literature; however, it was not until we adopted a more holistic view ofpimps and their prostitutes by observing them in action in their environment that we cameto appreciate the full extent of their entrepreneurial income generating strategies.

This paper resulted from a chance encounter between the authors at a criminology con-ference. During the ensuing discussions the subject of pimps arose and an area of mutualresearch interest developed. The second author recounted her research activities into pros-titution, articulating that researching prostitution is both ethically and physically danger-ous. She told an intriguing tale of the field (in the manner of Van Maannen, 1988) of howwhen conducting street research she had been physically assaulted and verbally abused bya pimp and his entourage, who were annoyed that she would not pay him for using up hisgirls’ time. These aspects and other ethical issues will be further developed in the method-ology section. As experienced researchers, the authors appreciated that gaining researchaccess to an actual pimp would be difficult to negotiate because few would publiclyacknowledge this stigmatized label. From this standpoint emerged the idea of conductinga study using observations gathered in the field. This was made possible by the extent ofthe empirical street research conducted by the second author in American and Britishcities over a number of years.

This paper has four sections. The first relates to a literature review of the entrepre-neurship–prostitution nexus, setting up a theoretical underpinning enabling comparisonsto be drawn between the pimp and the entrepreneur. Section two discusses importantmethodological and ethical issues, whilst section three presents observations gatheredduring the actual research. Section four discusses the implications of the research and inparticular its contribution to entrepreneurship theory.

Understanding the Entrepreneurship–Prostitution Nexus

According to Ringdal (1997) and Van Brunschot et al. (1999: 47), the practice of prosti-tution has been labeled “the world’s oldest profession.” Academic appreciation of theentrepreneurship–prostitution nexus is not a new phenomenon and a limited number of

70 SMITH AND CHRISTOU


studies portray prostitutes and madames as entrepreneurs. Studies that emphasise theentrepreneurial nature of prostitution include those of Heyl (1978) and Francis (1986).However, these studies concentrate upon the female control of prostitution as opposed tothe male domination of vulnerable women by pimps.

This section provides a literature review of the entrepreneurship–prostitution nexusconcentrating upon the dearth of literature in relation to the pimp as a genre. We adopt thedefinition posited by Anderson (1995, 2000), for whom entrepreneurship can be articulat-ed as the “creation and extraction of value from an environment.” This definition hasmerit in relation to our analysis of prostitution as entrepreneurship because by its verynature the concept of value remains vague and elusive. Also, Anderson (2000) applies thisdefinition in relation to the notion of periphery, which is also of interest because theperiphery is traditionally seen as a poor environment. Prostitutes work on the periphery oflegality but still manage to extract value from their environment. However, it is necessaryto stress three class-based themes that run through the literature of entrepreneurship(Smith, 2006). These are (1) the focus on the entrepreneurial middle classes; (2) the eulo-gisation of the working class entrepreneur and its associated storyline of the poor-boy-made-good; and (3) the hagiography of the respectable peasant entrepreneur. These threetheoretical frameworks lead us to consider the possibility of underclass entrepreneurship.

Considering the Possibility of an Entrepreneurial UnderclassEmergence, ethnicity and marginality are all hallowed and recurrent themes in entrepre-neurial narrative. Nevertheless, it is a valid observation that despite society’s fascinationwith the Algeresque (and clichéd) storyline of the poor-boy-made-good, the equally pow-erful constructions of the entrepreneur as hero, and entrepreneurship as a morally delin-eated activity, serve to exclude the underclass from a permanent position in entrepreneur-ship theory. The themes of overcoming poverty, discrimination and blighted education aremerely starting points in the epic story that is entrepreneurship. Indeed, entrepreneurshipis billed as an escape from an impoverished environment. The entrepreneur is cast assomehow being special, as being different. Seldom is consideration given to the possibil-ity that entrepreneurship may be an integral part in the fabric of underclass existence.Thus the working and middle classes have the entrepreneur as a role model and the under-classes—their criminal counterparts. If the very fabric of society is woven from individ-ual acts of entrepreneurship, why are members of the underclass excluded from this richtapestry, particularly when eminent economists such as Baumol (1990) accept that entre-preneurship can be productive, unproductive and destructive? For us, prostitution is, atbest, an unproductive, and, at worst, a potentially destructive form of entrepreneurship.

Prostitution can be viewed as a deviant behaviour, nevertheless Cloward and Ohlin(1960) argued that some manifestations of deviance are attributable to the presence, orabsence, of institutionalised opportunities to achieve culturally preferable results compli-ant with the “dream of material success and being your own boss.” Moreover, Claster(1992: 130) describes the emergence of criminal subcultures where legitimate means forachieving success are inadequate, but illegitimate avenues of prosperity exist such as pros-titution, gambling, and illegal drugs. Cloward & Ohlin (1960) argue that the absence ofillegal avenues of wealth creation make society worse because the displaced energy ischanneled into retreatist (drugs) or conflict (violence) subcultures. Cloward and Ohlin’sgood versus evil model is built on the premise that “those from the humblest origin aspireat the outset to success as defined by the dominant majority and only resort to delinquentbehaviour as barriers arise.” These arguments are the criminological equivalent to

PIMPING AND PROSTITUTION AS ENTREPRENEURSHIP 71


Baumol’s argument that entrepreneurs emerge from all strata of society and that entrepre-neurs and criminals come from the same societal pool. Thus, those who live off theimmoral earnings of prostitutes can be considered entrepreneurs. Notwithstanding this,there are issues of social constructionism to be considered.

Dealing with the Issue of Social ConstructionismVarious conflicting social constructions combine to make consideration of the prostituteand pimp as entrepreneur problematic. These are the socially constructed nature of: entre-preneurship (Chell et al., 2000); the underclass (Morris, 2002); urban space (Baker, 2006);sexuality (Brison, 2001); prostitution and pimping (Van Brunschot et al., 1999).

These often conflicting constructions set up competing narratives, ideologies andsocial imageries, which are difficult to reconcile. We have already touched upon the pre-dominant social constructions of the entrepreneur as hero and saint and also noted that theunderclass (as a genre) are generally not regarded as being entrepreneurial per se.Prostitution is generally regarded as a problem associated with urbanity. Indeed, Baker(2006) makes reference to the social construction of urban space where whores and pimpsmake a living. In addition, sexuality is a taboo subject as are prostitution and pimping. Theprostitute is commonly portrayed in the media as “a morally depraved woman” (VanBrunschot et al., 1999: 56). This particularly gendered social construction is tempered bythe caveat that she has been led astray. In the folklore of America, the prostitute is alloweda place alongside the entrepreneur as a folk hero, as evidenced by such ballads as“Hickory Hollers Tramp” (O.C. Smith) where the women is wronged by a philandering,alcoholic husband who leaves her to raise 14 hungry children. She does this by turning toprostitution but remains an all-American mom to be proud of. In a similar manner, Boje(2001: 202) in researching the striptease business in America tells of the “rags to richesstory told by big business to attract labor” and of the lure of easy money, citing the moviesShowgirls and Gypsy as examples. Boje (2001: 205) eloquently narrates the stories ofshowgirls selling us the “spectacle of rags to riches, the American Dream realized in thecareer move from Strip Club to Showgirl, from strip tease to Big Bucks Casino Shows.”These examples illustrate how prostitution, like deviance and criminality, can be linked tothe American Dream and thus entrepreneurship. However, Van Brunshot et al. (1999) alsohighlight another social construction, visible in contemporary discourse—namely theprostitute as a deviant and morally depraved junky. The overall tone towards prostitutionas socially constructed is that of moral disproval.

The pimp is another stigmatised social construction (Baker, 2006). Pimping runs con-trary to accepted masculine doxa of what it means to be a man, making it deeply shame-ful to live off the immoral earnings of women. Indeed, Paoli (2003: 70) stresses that theItalian Cosa Nostra initially forbade the organization of prostitution as being dishon-ourable. In a similar vein, Volkov (2002: 104) writing of the Russian Mafiya stresses,“Although quite profitable, prostitution, was regarded as an inferior business, capable ofdowngrading the relative status of the group, since it lived off women’s income.” Thisingrained stigma may also account for the dearth of studies in relation to pimps per se andmay be an artefact of the difficulty in negotiating research access, as few men ever pub-licly accept the persona. Psychologically, this stigma may run deeper in that Tsang (1996)argues that prostitution is not consistent with dominant Protestant or Catholic values.Ideologically, this makes prostitution incompatible with entrepreneurial ideology with itsespousal of morality and reverence of traditional values. Thus in Western societies a num-ber of related factors conspire to drive the entrepreneur in the sex trade underground, or



into red-light areas where they are more difficult to research. This further restricts theopportunity of researchers to study prostitutes and pimps as predatory street actors.However, in popular culture, the pimp is commonly portrayed in the media as a pan-tomime figure, a stereotypical representation of an archetypal figure embedded in thesocial consciousness. Such misleading ideal typifications, steeped as they are in the semi-otics of American street culture, result from a body of socially constructed imagery per-petuated in the media. Such images are misleading because the symbolism and meaningsassociated with class based semiotics associated with individual ethnic groupings andtheir cultures do not always transfer across cultures. These stereotypes may indeedobscure from view the fact that, as underclass actors, prostitutes and pimps are economi-cally active and form part of a wider alternative street economy.

However, at an abstract level, these apparently disparate constructs can be linked bythe notion of deviance. Nevertheless, theories of entrepreneurship are primarily focusedon the individual, their attributes and behaviours and not on the concept of place and envi-ronment. As will be seen, the environment is an important element in the social construc-tion of underclass entrepreneurship.

Repositioning the Prostitute within the Entrepreneurial UnderclassPerhaps the most widely known study of the entrepreneurship–prostitution nexus was thatof Heyl (1978) in her seminal study “The Madame as Entrepreneur.” However, Heyl hadpreceded this study with a similar one in 1977 entitled “The Madame as Teacher.” This isa significant distinction because it acknowledges the divisions of practice and takes cog-nizance of the different roles the madame performs in separating the craft side of prosti-tution from its practice as a business. Both activities are examples of co-terminus socialorganization. The madame and the brothel play a central role in the organization of pros-titution primarily because they create a different, more controlled dynamic from the streetprostitutes surveyed in this study. The presence of a madame and the semi-legitimacy ofthe brothel reconstruct the sexual experience in a more civilized manner. The “woman towoman” engagement literally takes the “man” out of “management” and the girls awayfrom the domination and violence of the pimp. An appreciation of the madame as an entre-preneur also has other historical precedents. Indeed, Hudson (2002) discusses the remark-able life story of Mary Ellen Pleasant, born a slave but as a free woman achieved entre-preneurial success. She developed the trusting persona of “Mammy” and transformedprostitution in San Fransico, becoming an entrepreneur and literate abolitionist.

Other academics have sought to reconstruct prostitution as entrepreneurship. Francis(1986) researched “The street queen as a sexual entrepreneur,” and Phillip and Dann(1998) describe the bar girls/prostitutes in central Bangkok as entrepreneurs. To continuethis theme, Hershatter (1989) discusses the role of the petty entrepreneur in a historicalperspective in the hierarchy of Shanghai prostitution between 1870 and 1949. Sun (2002)discussed Anhui women as invisible entrepreneurs because of their gender in a patriarchalChina, classing those in domestic servitude and those engaged in prostitution as beingentrepreneurs without an enterprise. This is significant from the perspective of underclassentrepreneurship because Arlacchi (1986) in researching the Italian peasant also consid-ered this possibility. This point introduces the concept of subsistence entrepreneurship.Indeed, Valenzuela (2001) argued with some conviction that the literature of entrepre-neurship is primarily elitist, concentrating upon proprietorship and does not engage withthe activities of the underclass. Valenzuela (2001) classified these workers under the dis-advantageous rubric of survivalist entrepreneurs. This label could equally apply to the



street prostitute and the pimp. The idea that prostitution is a form of entrepreneurship isfast gaining momentum as evidenced by three recent studies by Della Giusta et al. (2007,forthcoming and forthcoming) who seek to explore prostitution from an economic andthus entrepreneurial perspective. Indeed, Della Giusta et al. (2007) refer to prostitution asa denied industry and interestingly talk of feminist economics. This is relevant becauseentrepreneurship is studied from the perspective of masculine economics.

Schaab (2005) stresses that the types of work offered to women who lack educationoften pay significantly less than what a man would make as a laborer, therefore makingprostitution a viable proposition. This example illustrates the disparity between feminineand masculine economics. Schaab introduces the concept of social capital into the argu-ment by the use of the phrase “Her Body, His Capital.” This begs the question of whosecapital one has to consider in assessing entrepreneurial proclivity? Bourdieu (1986) posit-ed different categories of capital—financial, social, and human. Pimping spans all threeand, because of street encounters, involves an unwritten triadic contract and often a clashof capitals. Emotional capital may also come into play in the relationship if a love inter-est is involved between the pimp and prostitute.

However, the Madame and pimp are not the only entrepreneurial typologies availableto those engaged in the sex industry. Indeed, Van der Poel (1992) stresses that male pros-titution is generally regarded as a deviant, challenging activity and argues that this is sobecause researchers concentrate upon problematic categories and have avoided studyingsuccessful male prostitutes who may naturally be more enterprising. Van der Poel studiedmale prostitution as a career choice in Amsterdam, a rational commercial service-orientated business with economic and social characteristics in common with other smalland medium sized businesses. The successful gigolo can also be socially reconstructed asa predatory entrepreneurial type.

Considering the Pimp as EntrepreneurAlthough men do not appear to willingly accept the title of pimp, other acceptable mas-culine labels exist, namely “Hustler” and “Player.” These labels are also commonly usedto describe entrepreneurs. Academic studies of hustling abound (Steward, 1991; Wrightand Colhoun, 2001; and Gates, 2004). Wright and Calhoun (2001), using an ethnograph-ic approach, profile the activities of Tyrone, a hoodlum who is a part-time pimp and hus-tler, and of Oscar, who describes himself as being kind of entrepreneur, both operating outof a barber shop in a southern American city. The shop provides three levels of activity,namely legal, quasi-legal and illegal services. Indeed, Gates (2004) writes of young blackkids having a new entrepreneurial spirit. Desman (n.d.) discusses the socio-pathology ofentrepreneurs and criminals and states that prostitution, bootlegging, black-marketing,and illicit gambling are common delinquent threads running through both genres.Furthermore, Kloosterman (2001) describes prostitution as an easy market for immigrantentrepreneurs to engage in because of its ease of accessibility and lack of start up capitalrequired. Prostitution enables entrepreneurs to extract large profits from the work ofwomen under their control thereby accumulating a considerable amount of capital quick-ly. Furthermore, Butkevich and Storr (2001) discuss entrepreneurs as cultural characters,noting how in hostile environments they adapt to the opportunities available even if thatentails pimping or thieving. This again resonates with the work of Baumol (1999).

On the Importance of PlacePlace is important because it links in with social constructionism. Moreover, as this study



takes place at a street level it makes it incumbent upon us to understand the influence ofplace. Rojeck and Urry (1997: 7) discuss how traditionally, since Victorian times, thestreet has been reconstructed as a dangerous playground for the rich and the middleclasses—a “fantasy land” where one can engage with prostitutes. The street scenario isenacted as a socially constructed script in which the pimp, prostitute and the punter knowtheir place. There is a symbiotic element present whereby all accrue benefit in the man-ner of a relation of exchange as envisaged by Volkov (2002: 25). This concept lies at thevery core of this paper and is central to understanding prostitution and pimping as entre-preneurship because Volkov (2002: 15) talks of the “city as a market place for needs” andof “free economies of exchange.” For entrepreneurship to occur there must be a takingbetween and an exchange of value(s). Furthermore, Volkov (2002: 21) refers to “Predatoryman.” This phraseology is relevant because it encompasses the pimp as entrepreneur andthe customer as punter. The prostitute is also a predator because customers are merelypound notes or dollar bills or “Mugs” and “Punters” as envisaged by Hobbs (1986) whopopulate the lowest level of his entrepreneurial scale. Nor does social constructionism endthere, because a form of living street theatre ensues whereby all three have to look and actthe part. The pimp has to be recognisable as such to act as a visual deterrent; the prosti-tute has to look risqué; and the punter knows that he will fare better if he is mild manneredand well dressed. The pimp and prostitute scan the environment looking for deviationsfrom this well-rehearsed social script in case their quarry are undercover police or otherpredators. The pimp must project an aura of latent violence; the prostitute must exude ahalo of dangerous sexuality; and the punter must project a suitably subdued and ashamedpersona. If all stick to the script then the three actors collectively create and extract valuefrom the environment (as envisaged by Anderson, 1995).

As this study is set in a British context it is necessary to consider entrepreneurship,prostitution and pimping from a cultural perspective because so far many of the studies ofprostitution as entrepreneurship have been American or Asian. Sociologists writing aboutclass in a British context have long appreciated that prostitution allowed many poor mar-ried working-class women and widows an avenue out of poverty. Indeed, Bourke (1994:38) reminds us that many working-class women “sought social mobility through prostitu-tion, using the job to save money to buy a tobacconist shop or simply to live at a higherstandard of luxury.” Nevertheless, other historical studies shed light on the issue of under-class enterprise and particularly those who engage in prostitution or live off immoral earn-ings. One classic study is that of Quennell (1960) who presented selected sections of theoriginal works of the Victorian researcher Henry Mayhew. In this work, Quennell (1960:103) discusses the roles of such enterprising street actors as procuresses, pimps, bullies,clandestine prostitutes, fancy men and panderers, and in doing so paints a vivid word pic-ture of self-enterprise at street level. Interestingly, Mayhew (no doubt influenced by hisexposure to Victorian masculine doxa and the socially constructed nature of Victorian sex-uality) had little to say about the subject of pimps. Despite acknowledging that they werefrequently spoken about, he preferred to doubt that many actually existed, stressing thatwomen were more likely to act as pimps than men. We believe that this was merely anearly example of how social constructionism, combined with masculine doxa, influencedthe middle class research gaze because professional Victorian men could not envisagemen acting in such an ungentlemanly manner. Like Mayhew before us, we went in searchof the elusive pimp. In seeking to reconstruct the pimp as an entrepreneur, it is necessaryto stipulate that there is no one all-defining definition of entrepreneurship. In theliterature, particularly in the British context, one senses a pejorative attitude towards the



entrepreneur articulated so succinctly by Baker (in Chapman, 1968: 9), who describes“the petty entrepreneurs and the slick smart Alecs of Grab Street who thrive on the societywho spawns them.”

Having considered the entrepreneurship-prostitution nexus and issues of social con-structionism and class, it is helpful to discuss ethical issues that impinge upon thisresearch.

Ethical Issues

The purpose of this section is to discuss ethical issues relating to this research and todevelop an appreciation of street-level entrepreneurship. The research raises a number ofethical issues of interest to other researchers. The first relates to issues of access. As stat-ed in researching elusive social groups, such as pimps, it can be difficult to gain researchaccess. The second author has conducted numerous research forays into areas where streetprostitution is carried out, both in the US and in major cities in the UK. Such research canlead to conflict with other street stakeholders. One simply cannot just turn up and startasking questions of pimps without becoming an accepted part of the street scene becausestreet-girls are adept at telling people what they want to hear. One has to earn their respectby talking to them and demonstrating that as a researcher you know what you are speak-ing about. Confidences are not developed instantly. It can take many evenings.

It is also a dangerous activity. On one occasion when conducting research, the secondauthor became involved in an altercation with a pimp who was annoyed that she was tak-ing up the time of his girls. He demanded payment. When this was refused he assaultedher. Nosy researchers are bad for business. It is simply not ethical to offer payment forresearch access. This led to her taking the unusual step of hiring the services of a body-guard for protection. When conducting research it is easy to lose focus of everything butone’s respondent. However, this also has the effect of changing the street dynamic becausethe bodyguard can be mistaken for a “Minder.” It would be easy for other street actors tomisread the signs. The consequences could have serious ramifications because they couldbe mistaken for competition by other firms of villains. Yet, there is simply no other way.

On several occasions the second author has encountered hostility from street cops whocannot understand her presence on their streets. This is despite having a policy of writingto the individual forces expressing her intentions. She has been threatened with arrest andhas had to stand her ground when told in no uncertain terms to leave the area. This takesdedication and courage. As a result the prostitutes and pimps now treat her with a waryrespect. However, if her bodyguard was attacked and had to defend himself she could findherself in court having to defend her actions. This makes the research all the more ethi-cally and physically dangerous. Understandably, her research practices, bold as they are,do not ingratiate her with the pimps.

Observations on Pimping and Prostitution

This section reports on the empirical research conducted by the second author. We areaware that in choosing to research street level prostitution we may have limited ourchances of encountering examples of entrepreneurship because of the stratified nature ofthe organization of prostitution. Gutauskas et al. (2004: 213), who studied prostitution inLithuania, stress that it is conducted on three distinct levels: the lowest tier being drugaddicts and the homeless; the second tier being those who prostitute themselves in bars,restaurants, and hotels without a pimp; and the third and most profitable form of prostitu-tion is organised and conducted by pimps. Most Lithuanian pimps supervise from seven



to 10 prostitutes and can take from 50% to 70% of the money generated by the prostitute(Gutauskas et al., 2004: 213–14). This model is almost universal in western countries.

Although the research is set in Aberdeen, the second author has conducted research inLondon, Manchester, Hull, Edinburgh (Leith), and Glasgow. This underpins the findingsin relation to Aberdeen. Leith is the least accommodating alongside Manchester toresearch because both are major cities with extreme drug-related problems. Manchester,however, is mainly more problematic because of the obvious presence of the pimps whoare more than willing to show the girls precisely who is in charge. Glasgow girls alsoappear to be more willing to risk their safety, whereas Edinburgh ladies use networkingand converse with each other using mobile phones and texts to warn each other of prob-lem customers or perverts. This example of entrepreneurial cooperation does reduce theneed for an individual minder/pimp and obviously increases their earning power by cut-ting out the middleman.

Aberdeen is a major city and is the third largest in Scotland, after Glasgow andEdinburgh. It has a population of 202,370. It is a relatively wealthy city, being the oil cap-ital of Europe, and has a large thriving seaport and vibrant industries. As is the case inmany major cities, prostitution is stratified. There are several lap-dancing bars, whichcomprise the legal side of the sex industry. According to one respondent, there is a streettrade in rent-boys and male prostitutes carried out discretely in the city centre. There arealso several brothels in the west end of the city reputedly owned and organised by busi-nessmen. These tend to service a wealthy middle-class clientele and the prostitutes aremore up-market, often students paying their own way through university. The business-man acts as a father figure and mentor. As an aside, there is a suggestion that EasternEuropean organized crime groups have set up brothels run by pimps (along the lines ofthose described by Gutauskas et al., 2004). An interesting aspect is that for an additionalfee the proprietors of the brothels videotape the encounter and hand the customers a CDor video to take home and watch later. This is clear evidence of entrepreneurial strategiesin action. Aberdeen has a tolerance zone/red light district situated (where the trade had tra-ditionally been operated) in the harbour area. Other Scottish cities such as Glasgow andEdinburgh had tolerance zones but abandoned them. The tolerance zone makes research-ing prostitution easier and less dangerous. Prior to discussing the pimps themselves it ishelpful to discuss the street based prostitutes.

Prostitutes and Street ProstitutionThe street prostitutes surveyed operated in the tolerance zone. In relation to Scotland it isdifficult to find the average street prostitute because of the different geographic areas andregional differences and socio-cultural settings. The most visible girls tend to be olderthan they look. A mean age in Glasgow is 23, whilst in Edinburgh it is 27. Almost all ofthe prostitutes surveyed were on drugs or alcohol, or both. This is in line with researchthat suggests that 97% of street prostitutes in Britain have drug misuse issues. Only twoprostitutes claim never to have used drugs and hope to avoid it in the future. Theyacknowledge that they are exceptions.

All but one in Aberdeen are White. In Edinburgh, Glasgow and Dundee they are allWhite. Most have poor communication skills, though this is likely to be more attributableto their constant drug/alcohol use than any reflection on their intellectual capacity. Oneolder and articulate prostitute (aged 47) displays remarkable business acumen but lacksthe drive and/or funds to get started. Many prostitutes narrate a background of abuseboth physical and sexual. The women surveyed come from different socio-economic



backgrounds with the middle class and even upper class being represented. Interestingly,drug use had brought them to the streets, resulting in their families ignoring their exis-tence. Glasgow in particular had a high proportion—in fact all the women spoken to hadbeen sexually abused as children, either by a relative, family friend or other person inauthority. 75% of those in Glasgow had been raised in a local authority home, and ofthose three quarters had removed themselves and lived on the streets before they reached16 years of age. In contrast, in Edinburgh only 25% had been subjected to sexual abuseas a child whereas one third claimed to have had no abuse. Heroin was the most com-monly used drug, though cocaine was used by approximately 25% of all Scottish prosti-tutes surveyed. Other drugs, including prescription medication, were also used whenavailable but particularly when their main choice was not obtainable due to lack of fundsor scarcity. There is thus no ‘typical’ street prostitute. Many common threads tie themtogether, but equally many keep them apart. Many choose not to disclose their history forvarious reasons and others tell different stories to different people/agencies. Alcohol anddrug use are common, but again not every prostitute has an addiction; one or two (claim)to have overcome their addiction but still solicit because the money is better than statebenefits. Pathways into prostitution are complicated.

The Traditional PimpThe traditional pimp–prostitute relationship is a coercive (predatory) relationship entail-ing luring vulnerable girls and women into relationships. The pimp acts as a lover andundermines the confidence of the girl generally through abusive bullying and violentbehaviour and coerces her into acting as a prostitute. The relationship may become that ofentrepreneur–lover. In Aberdeen, Edinburgh and Glasgow there is not a culture of pimp-ing in the traditional sense we understand exists in other countries. Thus the authors didnot encounter stereotypical pimps and certainly no flamboyant examples such as thoseencountered whilst researching in America. This is to be expected because it demonstratesthe ideal typification of the pimp as socially constructed. Such images are caricatures,grotesque parodies of the American Dream. Nevertheless, it must be remembered that inits place within the culture that spawned it, does have a currency as street “cred.” InBritain very few of the pimps observed fit this ideal typification.

In Britain, the vast majority of pimps observed are more careful about flaunting theiroccupation for obvious reasons. No metallic pink Mercedes cars with alloys, no fur coatsor white suits. Such pretensions do not sit well with the British psyche and are bad for busi-ness because they attract unwanted police attention, not to mention ridicule. Instead, theBritish pimp carefully cultivates the regional variation of their hard-man image. This is evi-dence of the rationalisation of conduct to maximise the extraction of value (and thus entre-preneurship). At another level many pimps have other income streams such as drug deal-ing, smuggling contraband, extortion and so forth in which prostitution is but one part oftheir business portfolio. These illegal entrepreneurial activities qualify them for consider-ation of being criminal entrepreneurs. It could be argued that the traditional pimp providesan entrepreneurial service to their prostitutes if both are engaged in a joint enterprise.

There are quite considerable regional variations (as one would expect). Those areaswhere the pimps are more overt in their actions and behaviour are places such as parts ofLondon, Manchester, Hull and parts of Newcastle. Here their dress style and their behav-iour patterns are quite different. They dress in a more obvious business style with busi-ness suits worn with a somewhat crass style and jewellery (bling). Their vehicles tend to



be Range Rovers and other large 4X4 vehicles. Occasionally, for those individuals whoare less inclined to show their money, or because of financial constraints, cars are madeto look more “high end” than they actually are—such as making the exhaust bigger/louder, etc. The pimps also tend to work in groups of more than two in these areas. Theseare the most obvious entrepreneurial types, the top end of the entrepreneurial scale—boysdoing business (Newburn and Stanko, 1995), controlling their assets. Teamworking is evi-dent and the atmosphere is tense. In the larger cities in England such as Manchester andLiverpool pimps adopt a gangstery persona. This was not found to be the case in Aberdeenor other Scottish cities.

It may well be that the girls surveyed are reluctant to admit that their partner is a pimp.Those girls who do admit this (primarily those from south of the border) tend to be morewearily resigned to their role as “worker” though many still defend the pimp and his actions(e.g. they are violent, but the girls—like many in domestic situations—blame themselvesfor making their men angry). Also, the pimps—according to the girls—do a good job inprotecting them, but again they acknowledge that they work harder and longer than theyprobably would if they had no one there. They also admit that they are annoyed about giv-ing their money away, but many feel there’s no alternative or—more importantly—noescape. In the night-time economy the streets of our major cities can be dangerous places.Alcohol- and drug-fuelled violence is often unleashed as well as verbal abuse, taunts anddisrespect. Thus it could be argued that some pimps do provide a service to the girls, allow-ing them to work unmolested. However, in Scotland the predominance is for the consen-sual boyfriend–girlfriend variety.

Pimp-prostitute PartnershipsThese are generally partners in life and in crime. The prostitution is merely anotherincome stream to provide money for drugs and feeding the children. Such partners areusually in their mid 20s or slightly older. They are either generally from established crim-inal families or have gravitated from a criminal culture of drug abuse and alcohol depend-ency, and usually both have criminal records for petty crime such as assault, theft byshoplifting, robbery, carrying weapons and other street crimes. The main point is that bothpartners are streetwise and come to the realization through life experience that selling sexis easier and less risky than committing street crimes because the penalties are lower.Those girls who work with “boyfriends” are grateful for their presence as it makes themfeel safer. These are exploitative but protective partners who use sex as a strategy to pro-vide the wherewithal to obtain alcohol and drug money. The boyfriend acts as driver, min-der and negotiator. Turning a few tricks to them is less immoral than robbing or stealing.This particular dynamic seems to be applicable in Aberdeen and Leith (Edinburgh),whereas Glasgow appears to have a mixture of consensual and non-consensual partner-ships underway. The prostitution provides a stability of income in an otherwise chaoticlifestyle. It can break the vicious cycle of crime, court appearances, and jail. Admittedlyit is an illegal form of subsistence entrepreneurship. These low-level street entrepreneursare entrenched in the underclass milieu and are unlikely to climb the entrepreneurial lad-der to success. Such pimp-prostitute partnerships can be viewed as being co-preneurialcouples as envisaged by Marshack (1973). These couples are usually husbands and wivesor long-term common law partners, although the authors are aware of a case study wherea man was pimping a very young-looking girl in Aberdeen. The girl looked well under 16and her protector was in fact a father figure. Enquiry with other prostitutes confirmed that



this was indeed her father, who was exploiting the fact that the 17-year-old looked muchyounger and therefore fetched a higher price. Leaving aside issues of morality, it is evi-dence of entrepreneurial guile.

This is a very different dynamic because the boyfriend will not adopt the street per-sona of a pimp, nor engage in the visual semiotics of bragging associated with that genre.It also makes the prosecution of pimping very difficult from a policing perspectivebecause it is difficult to prove that the boyfriend is living beyond their means—the ethosbehind this genre of prostitutes is summed up by Sterk (n.d.) as “Tricking and Tripping.”Hunt (1990) argues that the link between drug-taking and prostitution has turned prosti-tution into a more consensual crime and discusses how drugs lure female addicts intocommitting a battery of crimes such as prostitution, robbery, shoplifting and burglary.Hunt also stresses that the street-level drug dealer is often an individual entrepreneur whois in a position to use his near monopoly to his advantage. This frenetic activity is an entre-preneurial activity because it is the extraction of multiple income streams as envisaged byCarter et al. (2004). Their activity is a risk based opportunity model of income generation.However, the need to achieve is mood driven because once they have earned sufficientincome to meet their needs they stop working (see Figure 1 for a visual representation ofstreet level entrepreneurship achieved via extracting multiple income streams).

The Pimp as an Entrepreneur of ViolenceThe pimp can also be regarded as an entrepreneur of violence by extending VladimVolkov’s (2002) concept of “violent entrepreneurship.” For Volkov (2002: 25), violententrepreneurship is a legitimate method of extracting income. The anthropologist AntonBlok (1972) also used the term to describe a particular genre of Italian Mafioso as “vio-lent peasant entrepreneurs.” Volkov (2002: xiii–xiv) refers to an “exclusively male worldwhere male virtues associated with violent contest prevail.” This aptly describes the vio-lent underworld domain inhabited by the pimps in our study. The pimps observed could


Figure 1. Entrepreneurial income streams.


be described as entrepreneurs of violence because to them violence was merely anothercommodity to exploit as a form of exploitable social capital, which gives them leverageto extract value from their environment. The girls are commodities to be bought and sold.Violence and threats are used to protect their property (the girls) and their patch, and topunish the girls if they step out of line. As entrepreneurs of violence the pimps use theirreputations, social capital and social skills to dominate their environment. In doing sothey shape their professional and personal identities, both of which revolve around beingthe man. Thus the semiotics of gangsterism and machismo combine to present a cultural-ly credible symbolism enabling and empowering them to control their environment phys-ically, mentally and symbolically. These are thus techniques and stratagems for the main-tenance of masculine dominance.

The pimps observed during this study can be classified as entrepreneurs at many dif-ferent levels—as entrepreneurs of violence, or as enterprising individuals or couples cap-italising on their specific socio-cultural capital. Alternatively, others are businessmen orcriminal entrepreneurs.

Concluding Observations

This paper contributes to extant knowledge by developing an appreciation of street-levelentrepreneurs who operate in a shadow economy. There are limitations to the researchpractices of observing and street-level interviewing. It does not permit direct access topimps, nor does it allow one to research the dynamics of mixed entrepreneurial incomestreams. Many questions remain unanswered: Is it their main income generation activityor do they have multiple income streams? Are these all illegal or do they bolster legalentrepreneurial incomes? Also, how do pimps reinvest their earnings? Do they reinvest itin small businesses (shops, taxi firms, etc.) or is it their undeclared beer-money to rein-vest in hedonistic lifestyles—partying, drug misuse, gambling, betting, expensive restau-rants? If this is the case then the illegal money re-circulates in the legal economy. Are allpimps men? Do women use violence to gain competitive entrepreneurial advantage? Dothey make the girls work double shifts or in other avenues in the sex industry? The answerto these questions and others requires further research using different methodologies andtechniques, making it a legitimate field of research because entrepreneurship is not mere-ly found in legal commerce or in small and family businesses.

Another interesting avenue of research lies in exploring the modus vivendi pimps andother street entrepreneurs have with street actors such as taxi drivers, pub owners, hotelconcierges and even street cops. Is this space achieved via bribes, payments, or by thesheer force of personal magnetism? Or is it achieved by the projection of a hardman imageand a reputation for extreme violence? It would be also beneficial to research the linkbetween libido and entrepreneurial proclivity because the pimp, through the prostitute,provides a basic human need.

We found little evidence of the (elusive) archetypal pimp in Aberdeen or other Scottishcities. We cannot state categorically that they do not exist, but they are certainly elusive.From our research it appears that the typical pimp in Scotland is more likely to be aboyfriend or father figure. Nevertheless, our research also demonstrates that there is evi-dence of individual entrepreneurship manifested at a street level. Therefore, it can beargued with some justification that some pimps (but not all) are entrepreneurs. The pimpsand prostitutes surveyed for this study make a living out of the exchange by extractingvalue from an environment and some even practice entrepreneurship as envisaged byAnderson (1995).



In writing the paper we were struck by the recurring theme of morality and how andwhy pimping and prostitution are accorded various moral statuses. However, the rela-tionship between entrepreneurship and morality is very complicated. This caused us toquestion the connection between entrepreneurship and morality or whether it is a stanceadopted by the wider populace that bears little, if anything, to do with the act of enter-prising. Might entrepreneurship, in other words, be conceived of as a morally neutral actwhich adds or extracts social value accordingly? Entrepreneurship is an amoral conceptbut paradoxically entrepreneurs are not amoral or neutral—they are either imbued withmorals or they are not. Arguably, as entrepreneurial processes—opportunity identificationand exploitation are also neutral it is merely the evaluation placed upon it by the entre-preneurs, their peers and society which is morally laden. The notion that entrepreneurshipneed not be as Anderson (1995) suggests the creation and extraction from an environmentbut the extraction of value is a significant step forward from the original definition. Thesignificance of criminal/deviant entrepreneurship lies within the entrepreneur and not theconcept. It is only how it is operationalised that differs.

Contact Information


Robert Smith, The Charles P. Skene Centre for Entrepreneurship, Aberdeen Business School, TheRobert Gordon University, Aberdeen, AB10 7QE

E-mail: [email protected].

Maria L Christou, Criminologist and Independent Academic

E-mail: [email protected]

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Contributors

GEORGIOS ANTONOPOULOS is lecturer in criminology at the University of Teesside, UK.His research interests include illegal markets.

DAVID M. BOJE is the Endowed Bank of America Professor at the College of Business,New Mexico State University, Las Cruces, New Mexico.

MARTIN BOUCHARD is Assistant Professor at the School of Criminology, Simon FraserUniversity. His main line of research focuses on various dimensions of illegal drug mar-kets, with a special emphasis on the marijuana cultivation industry.

CLAUDE B. DION is a research assistant at the University of Montreal. Her research focuseson illegal drug markets.

KIRK FRITH is a research student. His particular area of interest is entrepreneurial cogni-tion and the development of entrepreneurial insight and learning.

FARZAD R. KHAN is Assistant Professor at the Suleman Dawood School of Business,Lahore University of Management Sciences (LUMS), Lahore, Pakistan.

GERARD MCELWEE is Reader in Rural Enterprise and editor of the International Journalof Entrepreneurship and Innovation. His research interest is Rural Entrepreneurship.

JAY MITRA is the Founding Professor of Business Enterprise and Innovation, Director ofthe Centre for Entrepreneurship Research at the University of Essex, and Head of theSchool of Entrepreneurship and Business at the University of Essex, Southend, UK.

COLIN C. WILLIAMS is Professor of Public Policy and Director of the Centre for RegionalEconomic and Enterprise Development (CREED) in the School of Management at theUniversity of Sheffield in the United Kingdom. His research interests are in the informaleconomy and its public policy implications. Recent books include Re-thinking the Futureof Work (Palgrave-Macmillan, 2007) and The Hidden Enterprise Culture (Edward Elgar,2006).

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