Malmö University
Culture and Society
Urban Studies
Master Programme Leadership for Sustainability (SALSU)
Public Entrepreneurship
Developing Classification for Public Entrepreneurial Initiatives
Name and Code of the course
OL645E – Social Entrepreneurship, Social
Innovation and Sustainability
Name and Code of the Examination:
1201 – Individual Essay
Type and Date of Examination:
Regular Examination
04/03/2015
Students’ names:
Evgeny CHAVANIN, 25/10/87
Responsible Teacher
Fredrik BJORK
Contents
1. Introduction .............................................................................................................................................. 3
2. Literature review ....................................................................................................................................... 4
3. Research Methods and Methodology....................................................................................................... 9
4. Analysis ................................................................................................................................................... 10
5. Public Policies Typology for Entrepreneurship ....................................................................................... 13
5.1. Creating typology ............................................................................................................................. 13
5.2. Applying typology ............................................................................................................................ 14
5.3. Attuning MAXIMIZATION scenario of typology ............................................................................... 17
6. Conclusions and recommendations ........................................................................................................ 20
References .................................................................................................................................................. 21
1. Introduction
The numerous discussions on the nature and essence of entrepreneurship have been on research
agenda for the last few decades. As suffering from financial frugality national economies are
searching for additional drivers of economic growth, these discussions are getting even more
intensive. Both the supply-side (neoclassical economics) and demand-side (Keynesian)
alternatives have been explored and taken into consideration. However, some researchers believe
that it is only the Schumpeterian economics that could drastically transform our consumer
economies and lead to a more innovation-centered approach. The question arises if
entrepreneurship-focused government policies can improve stagnating economies, and, at the
same time, make them more resilient and sustainable.
Public entrepreneurship (PE), as used in this article, applies to the creative process within public
entities that facilitates organizational change and leads to innovation. This process is driven by
both endogenous and exogenous factors in which public agency operates, as well as psycho-
dynamic features of its leadership. This paper is trying to contextualize the term public
entrepreneurship in relation to organizational, institutional and economic theory, and at the same
time connect it to the latest research in social entrepreneurship.
In doing so I first conduct a literature review of the most recent articles in public
entrepreneurship and formulate hypotheses that are later tested via statistical analysis. Then
theoretical framework is built to typify the entrepreneurship-focused policies depending on
assessment of civil society and governmental entrepreneurial capabilities. Next the main clusters
of public entrepreneurship capacities are identified within the typology. And, finally, I utilize
McKague capability model to draw some practical recommendations from international
development experience on how to manage entrepreneurial capacities under one of the proposed
scenarios.
2. Literature review
The research on public entrepreneurship that goes in hand with the pre-identified definition of
this paper is rare and quite hard to find. That is why I seek to identify more public
entrepreneurship research on the intersection between social entrepreneurship, strategic
entrepreneurship, institutional entrepreneurship on the one hand and public policy on the other.
The triangulation point combines the organizational, institutional, economic, political and
psychological dimensions of the research, which is summarized in Table 1 below.
Table 1: Categorization of Public Entrepreneurship Literature
Research Methods Underlying fields of knowledge
Organizational / Institutional theories
Psychological theories Economic and Political theories
Empirical Quantitative (case analysis)
Smith (2012);
Ozcan & Reichstein (2009);
Empirical Qualitative (case analysis)
Irani & Elliman (2008) Gawell (2014)
Empirical Quantitative (survey)
Delabbio & Zeemering (2013);
Delabbio & Zeemering (2013)
Conceptual / Theoretical
Klein et al. (2013) Audretsch & Link (2011);
Public sector organizations form an important part of our society: in the OECD countries they
provide 14% of all the jobs, with the total governmental expenditures ranging from 30% to 55%
of GDP (Diefenbach, 2011). In the 1970’s Weberian bureaucratic government structures,
traditionally characterized by strict hierarchies and adherence to rules, had to evolve under the
pressure of intensifying criticism from the public. This led to the introduction of New Public
Management (NPM) practices in public administration characterized by implementation of
private sector management principles and an accentuated focus on the quality of service delivery.
While NPM-model did favor the entrepreneurship and saw it as a mean to economic
transformation, its primary concern with efficient service delivery and customer satisfaction did
not allow this model to integrate a value creation perspective that could go beyond output
performance measures (Diefenbach, 2011). This mismatch resulted in introduction a new term
Public Value Management (PVM) in the research field. In short, PVM is driven by maximization
of public value, where public value is broadly defined as value for the public and value from the
public. On a more broad scale, PVM practices are aimed at tackling the problems that the public
most cares about, as well as public system maintenance, a rolling a continuous process of
democratic exchange (Diefenbach, 2011).
But development of the public administration models cannot and should not be studied in the
contextual vacuum. It is extremely important to connect these processes of public administration
(PA) evolution to underlying theoretical assumptions. Audretsch and Link (2011) attempt to do
so by looking into how entrepreneurial innovation outputs are valued under different schools of
economic thought. The authors introduce three main economic doctrines: neoclassical
economics, Keynesian economics, and Schumpeterian economics. They further argue that these
concepts vary in a number of fundamental ways: primary economic focus, mechanisms that
influence the primary focus, role and the stance for public policy. But, most importantly,
Audretsch and Link trace the role and the place of innovative and entrepreneurial activity. The
authors claim that unlike other theories, only Schumpeterian economics views entrepreneurial
innovation and creative destruction as the main driving force of progress and development. This
progress and development is mainly attributed to the main mechanism behind creative
destruction – an entrepreneur.
Next Audretsch and Link (2011) investigate Schumpeterian evolving views on organizational
forms and industry structures that are most conductive of innovation (from small enterprise to
big corporations). This leads them to a more thorough analysis of the influence of enterprise size
on innovative capacity. Audretsch and Link (2011) utilize the term “knowledge filter” to
exemplify how it impedes knowledge spillover effect and negates the transformation of
economic investment into innovation. More important for this particular paper is the notion that
public policy within Schumpeterian parameters should “facilitate investment in knowledge-
creating activities, such as research and education, and to encourage agents of change, or
entrepreneurs, to innovate” (Audretsch and Link, 2010, p. 15). According to authors, the absence
of Schumpeterian view in public policy discourse, which is occupied by Keynesianism and
neoclassicism, lowers our chances to respond to challenges of globalization and generate
economic growth.
Elin Smith (2012) looks into four determinants of public entrepreneurship (external environment,
managerial characteristics, strategy, and internal environment) in two different organizational
forms: local government administration (LGA) and local government corporation (LGC). The
author then develops 7 hypotheses and tests them on the data from Swedish waste and water
management sector. The sample included responses from 290 municipalities and 312
organizations (231 of LGA, and 81 of LGC). The results are provided in Figure 1 below:
Figure 1: Summary of the Findings in Relation to Hypotheses (Smith, 2012)
The main practical implication of the research is that entrepreneurship can be stimulated in both
LGCs and LGAs. The strategy of simulation varies depending on the type. For instance, while
organizational culture and public service objective may influence LGCs, they produce no effect
of LGAs. Whereas, managerial experience and strategy influence LGAs in a powerful and
lasting manner, fail to alter LGCs PE propensity.
Ozcan and Reichstein (2009) investigate the reasons behind the low rate of entrepreneurship in
public sector. They employ an econometric event history design analysis and US PSID survey
data on the sample of 4800 US households. The authors highlight the following findings:
Predisposition for public employment decrease the hazard of entrepreneurial exit. The
low rate of entrepreneurship observed in the public sector therefore may be explained at
least partly by labor market matching in which non-entrepreneurial individuals (Ozcan &
Reichstein, 2009, p. 614).
“The context of the public sector increases the hazard of entrepreneurial exit” (Ozcan &
Reichstein, 2009, p. 614)
“Individuals with longer tenure in public employment are significantly less likely to
become entrepreneurs” (Ozcan & Reichstein, 2009, p. 614)
“Public sector context effect inhibits transitions to entrepreneurship, indicating that
individuals find the private sector more inviting and fulfilling in terms of their
professional requirements (Ozcan & Reichstein, 2009, p. 614)
“The share of entrepreneurs is higher among individuals with higher education” (Ozcan
& Reichstein, 2009, p. 614)
Ethnicity (black) and gender (female) has a negative impact on entrepreneurial exit
Ozcan and Reichstein (2009) identify four main determinants of entrepreneurial exit: labor
market mismatch (predisposition of risk-averse people to choose a more secure job in a public
sector), context effects (characteristics of motivation and satisfaction potential within a job), and
tenure effect (the influence of prolonged period of time working in the industry).
Delabbio and Zeemering (2013) study public entrepreneurship and interlocal cooperation in
county government. The authors argue that theories of public entrepreneurship “can help us
better understand when county government leaders pursue new interlocal agreements or shared
service delivery projects” (Delabbio & Zeemering, 2013, p. 255). The research outlines 2 main
and 7 supplementary hypotheses that are later tested on the data acquired through the survey of
top county leaders from five different states (USA). Three regression models investigate the
associations between survey statements and three main factors that the authors believe play an
important role in interlocal cooperation: internal preparation, outreach to other local
governments, public explanation and personal risk. Delabbio and Zeemering (2013, p. 262) come
to the conclusion that a) “county officials may do more to foster thinking about interlocal
cooperation within their governments when confronting high levels of community need”; b)
officials that are new to interlocal cooperation tend to more actively outreach to other
governments; c) appointed public manager have higher career-related risk when communicating
with the public about interlocal cooperation; d) “county officials may need to engage in more
public outreach in communities with older residents and established households” (Delabbio and
Zeemering, 2013, p. 263).
Irani and Elliman (2008) employ institutional theory to construct an e-Innovations model in local
government as infrastructure that could promote social entrepreneurship. This trifold model of
ideas factory includes three following steps (creating, developing, and selecting) on the way
from to public funding of entrepreneurial projects. The model also incorporates mechanisms like
online ideas forums, innovation seminars, local authority sign-ups, project planning, e-innovation
mediator, approval and adjudication. Overall, Irani and Ellimand (2008, p. 341) “develop a
process to support local authorities in their quest to become more entrepreneurial and thus
supportive of innovation through a structured process”.
Ladeira and Machado (2013) employ an exploratory inference in social entrepreneurship (SE)
and provide the readers with an overview of the most recent definitions of SE. The authors also
bring the descriptive statistics on the most common portrait of a social entrepreneur, and review
most common SE-inducing public policies in developed countries. The article by Ladeira and
Machado (2013) culminates in the analysis of contemporary public policies in Brazil and
recommendations that could make these policies more successful and attuned to the context.
Another study by Gawell (2014) tries to connect social entrepreneurship theories to Swedish
social welfare theories in order to analyze five SE initiatives (Fryshuset, CRIS, Vagen ut!,
Kuling, Attac Sweden). In his analysis, Gawell (2014) comes to understanding that social
enterprises are moving away from a dependency on public grants and become more vulnerable to
market conditions. It is these market conditions that the government should try to target in order
to foster SE.
Klein, Mahoney, McGahan, and Pitelis (2013) investigate strategic entrepreneurship capabilities
in public organizations. In doing so the authors look at how public entities try to create and
capture value by entrepreneurially managing bundle of capabilities and subsequently shape
entrepreneurial action. In other words Klein et al. (2013, p. 70) “explain the nature and evolution
of public organizations and <…> apply this approach to a series of cases on the growth and
diversification of public organizations, the private provision of public goods, and related issues”.
Klein et al. (2013) develop a matrix that could help understand potential outcomes in the
deployment of public capabilities. The matrix has two axes (alignment of minority private
interests with the public interest; efficiency of public organizations in capability deployment) and
four probable scenarios: a) private capture of non-optimized public value; b) destruction of value
through the creation of public ‘bads’; c) bureaucratic capture of non-optimized public value; d)
public capture of public goods. The matrix can be found below on Figure 2.
Figure 2: Potential outcomes in the deployment of public capabilities (copied from Klein et al., 2013)
3. Research Methods and Methodology
This study dwells on epistemological / ontological empiricism, “which holds that experiments
and observation are superior to reasoning and reflection” (Mathison, 2005) and that “social
phenomena can be studied scientifically when modeled along the objective, experimental,
verifiable, and generalizable methods of the natural sciences” (Given, 2008). At the same time,
the author realizes the shortcomings of empiricism as applied to governance frameworks
(limitation of observable and quantifiable, separation of the knower and the known,
objectiveness of proper methods).
On the other hand, the research design follows the predispositions of analytical induction (Vogt,
2005) and formulates generalizations by finding similarities within the research on public
entrepreneurship presented in reviewed articles, which are then utilized to formulate the initial
hypotheses. The limitation of this approach is that generalizations derived in this way may be
probabilistic and that developed hypotheses should be further tested through case examination.
While this study only goes through one inductive iteration (review – hypothesis formulation –
hypotheses testing – classification development – classification application – classification
refinement) further iterations would certainly help limit the probabilistic bias, as well as help
refine and reformulate the initial hypotheses to account for the observed shortcomings of the
initial iteration.
The survey data collected for this essay was acquired through online platform (Google forms).
The survey consisted of 12 questions, of which 2 required simple text input (age and country of
origin), 5 were multiple choice questions (which investigated if the person was previously
employed in the public sector, as well as his/her degree of political activism, difference of
interests in political news by scale), 5 were Likert-scale questions (measuring perception of
governmental aspects like democracy of regime, likeliness to innovate, responsiveness to
criticism, as well as civil society activeness in the country of residence, and the familiarization of
the respondent with the term “social entrepreneurship”). The link to the survey was shared via
social networks and was open for responses for 96 hours. The total of 52 respondents from 25
different countries participated in the survey, 1 response had to be taken out of analysis since the
data that were provided within a form were incomplete.
The following hypotheses were proposed to be tested for connections between the variables:
H1: Previous work in the public sector is not associated with the views on who should
support entrepreneurs (Government / businesses / Government and businesses).
H2: Governments that are assessed as more democratic tend to be more creative /
innovative.
H3: Governments that are assessed more receptive (to criticism) tend to be more creative
/ innovative.
H4: Governments that are believed to have high civil society engagement tend to be more
creative / innovative.
4. Analysis
Cronbach alpha test was conducted to measure internal consistency of the sample in the
questions that utilized Likert-scale. Internal consistency would indicate that all of the items vary
in the same direction and have a statistically meaningful level of correlation with each other
(Trobia, 2008). The results indicate that four out of five ordinal variables have very good internal
reliability > 0,80 and one has an adequate internal consistency of 0.79 (Multon & Coleman,
2010). The results of the alpha-test can be found below.
Figure 3: Cronbach's Alpha Test
To test for H1 I conducted a Chi-square test to see if there is any association between the
previous exposure to public sector and respondents’ opinion on entrepreneurial support. The
indicated Chi-square coefficient (0,103) and the p-value (0,950) support out hypothesis, therefore
we conclude that previous experience in public sector is not associated with a specific preference
for governmental support mechanisms. The result point to A) a few flaws in the design of the
survey (more self-exclusive categories should have been offered), B) small sample size (<100).
Due to the fact that the categories within a question measuring preferences for entrepreneurship
support were not self-exclusive, Chi-square test could have been conducted with a selected
sample of responses with answers indicating either “Government” or “Businesses”. However,
such a filtering would have limited the number of cases significantly and would not allow the
reliable Chi-square analysis.
Figure 4: Chi-Squre Test Results
Multiple linear regression analysis was utilized to test H2, H3, and H4 on associations between
perception of entrepreneurial governmental capacity (dependent variable) and the following
independent variables:
1. Age
2. Income per capita by the country of origin
3. Previous public experience
4. Participation in elections / referendums
5. Active political membership in political organizations
6. Familiarity with the term social entrepreneurship
7. Active civil society in the country of origin
8. Democratic government in the country of origin
9. The degree to which the government is receptive of criticism from opposition
The R2 is quite high (at 0,671), which indicates that 67,1% of the variation within our dependent
variable can be explained by the combination of our independent variables. The F-ratio (9,279)
and the p-value (< 0,01) imply that the model is a good fit for the data. But not all of the 9
predictors turned out to be statistically significant: only variable 1, 2, 3, and 9 (highlighted in
bold) are statistically discernible. This leads us to the following assumptions:
- Elder respondents tend to assess their government as more entrepreneurial (this fact may
be attributed to increasing risk-averse tendencies in the character as individuals mature).
- Respondents from countries with higher income per capita assess their governments as
more entrepreneurial (high income per capita is usually observed in the developed
countries that tend to have more governmental funding to engage in entrepreneurial
activities).
- People that had a prior experience of working in a public government assess their
governments lower on entrepreneurial scale.
- Governments that are more receptive of criticism tend to be assessed as more
entrepreneurial.
Thereby, we reject H2 and H4 and accept H3.
5. Public Policies Typology for Entrepreneurship
In this chapter I develop a classification framework for PE based on the results of the survey that was
conducted for this paper. This typology proposes a 4 categories / scenarios based on governmental
entrepreneurial capacities and the potency of civil society. The framework is further applied to create a
picture of variation between the countries. The chapter concludes with remarks on how one of the
scenarios can be managed to maximize entrepreneurial outputs.
5.1. Creating typology
How can public agencies foster the civil participation to maximize entrepreneurial capacities of the
agencies and at the same time bring about a positive societal change? While the answer to this question is
yet to be found and will largely depend on the socio-economic and cultural context of the change, the
following typology can be used to provide a preliminary approximation of possible public policy
scenarios.
1) MAXIMIZING public entrepreneurial capacity. This policy scenario implies maximizing the
agency capacity to innovate and fostering the endogenous organizational environment in order to
facilitate creativity among its employees. This scenario is more suitable for countries that are
characterized by high governmental entrepreneurial potency and active civil society. The
initiatives in this policy are created and developed within a public entity. The bureaucratic
capacity of the public agency increases by extending the services to a new sphere of public
domain - entrepreneurial activity. The most probable outcome of this policy is the establishment
of a new department staffed with both public and private consultants capable of developing and
implementing new economic policies.
2) LEADING public entrepreneurial capacity. This policy scenario implies maximizing the
agency capacity to mobilize civil society to lead societal entrepreneurial change. This approach is
more suitable for countries with high civil society engagement and with more rigid and deep-
seated governments that are not willing to innovate with its formal structures and bureaucracies.
The proposed policy is most likely to result in extra staffing across multiple departments, as well
as establishment of an inter-departmental committee to lead the change and facilitate the dialogue
between the main stakeholders.
3) OUTSOURCING public entrepreneurial capacity. This policy scenario implies outsourcing
public entrepreneurial capacity to the third-party organization in order to independently push the
entrepreneurial agenda in country’s economic policy. This policy is prescribed for countries with
low political and economic potency for change, but with high civil society involvement.
Outsourcing the right to provide the service to NGOs could help minimize opportunity costs for
change, and attract external expertise.
4) FOREGOING public entrepreneurial capacity. This policy implies inability and / or
unwillingness of the government to engage in entrepreneurial initiatives and is typical for poor
developing states whose administrations are understaffed, undertrained and underfinanced. The
situation in which the government’s capacity can only be extended to the provision of basic
human needs, such as policing, transportation, education and healthcare, and is lacking
technological expertise to transform societal capital into economic capital by the means of social
and technological innovation.
The typology matrix is presented below in Figure 6.
Figure 6: Public Entrepreneurship Capacity Typology Matrix
5.2. Applying typology
The survey data was utilized to apply typology in practice. The bubble chart was created to
illustrate the classification of countries based on the assessed entrepreneurial governmental
capacity and assessed state of activeness / passiveness of the civil society. The results are
provided below in Figure 7.
Figure 7: Public Entrepreneurship Typology by Country and Income
As we can see, majority of the countries seems to be concentrated in either higher right quadrant
or the lower left quadrant, rendering “MAXIMIMZING public entrepreneurial capacity”
scenario and “FOREGOING public entrepreneurial capacity” scenario the most common within
the classification. Another interesting observation is that such countries like South Africa,
Thailand and India with low income per capita appeared within the top performers.
It worth noting that while there were 51 respondents from 25 different countries in the sample,
19 were represented by the assessment of only 1 person (except for Germany, Russia, Italy,
USA, Brazil, and Mexico). This could have skewed the classification layout. More representative
independent samples are necessary to counterbalance this data collection flaw. Furthermore,
many 1-person responses were concentrated around the middle-line separators of the matrix,
which made it rather difficult to classify them (France, Jordan, Ukraine). Please consult Figure 8
for further analysis.
Figure 8: Public Entrepreneurship Typology Analysis
5.3. Attuning MAXIMIZATION scenario of typology
The higher right quadrant represents high activity within civil society and high PE governmental
capacity, which usually leads to establishment of a new public agency. I further argue, in line
with McKague (2011) research, that this scenario requires effective management of two key
organizational capabilities within institutional entrepreneurship: legitimacy management and
process management.
Gaining and maintaining legitimacy is extremely important, especially if the organization / entity
is operating as PPP and needs to conform to specific rules, norms and ideologies of public
environment (old stakeholders) within which it operates, as well as businesses (new
stakeholders) to which it serves. Another key organizational capability – institutional process
management – implies finding a balance between over- or under-provision of leadership and
commitment. Excessive leadership may hinder creating ownership among the organizational
partners, whereas insufficient leadership may bring about lack of focus and commitment from
major stakeholders (McKague, 2011). Figure 3 below provides an overview of the Capability
Model proposed by Mc Kague (2011).
Figure 9: Managing Key Tensions in Institutional Framework (McKague, 2011)
The model describes four scenarios which are most likely to follow the establishment of a new
international agency:
Suboptimal prescriptions (insufficient buy-in from a critical mass of stakeholders)
Business-as-usual scenario (nothing changes)
Waiting for opportunities (lack the momentum of an organized process to fully integrate
the new institutional norms and assumptions into their thinking and practice)
Hijacked by opportunistic interests (leading the process in the interest of people who are
in charge)
McKague (2011) also argues that the success of an institutional entrepreneur will largely depend
on his / her dynamic capabilities to manage the aforementioned key tension categories within the
framework. The dynamic capabilities are presented in the Figure 4 below.
Figure 10: Dynamic Capabilities of Institutional Framework
The capabilities described in McKague framework are pretty self-explanatory and incorporate
best management practices developed from the analysis of UNDP growing inclusive markets
(GIM) initiative. These capabilities should be further assessed in other socio-economic and
cultural contexts in order to provide for a better validity of results. Additionally, more analytical
material is needed in order to study various governmental entities that operate within local,
regional and national governments, and not international organizations like UNDP. Perhaps, the
initiatives are more effective, if and when the proposed organizational operations are benefiting
the weak (low-income populations) or addressing a common problem across the national
borders. If so, additional data should be collected and analyzed to better capture the differences
between various levels of cooperation.
6. Conclusions and recommendations
It is obvious that scientific community today is somewhat inconclusive when it comes to a clear
definition of public entrepreneurship. Most likely, this phenomenon has more in common with
institutional and strategic entrepreneurship, than with social entrepreneurship. As was observed,
PE manifests itself in both cumulative mean of all psychodynamic features of public employees,
as well as the cumulative mean of all the bureaucratic mechanisms within public entities.
Furthermore, public entrepreneurship and public policy should not be confused: the former is the
driver of the latter. And if the public policies vary depending on the country, as was
demonstrated in this essay, so does the PE capacity of the governments: some tend to be more
innovative and flexible in establishing governance frameworks to support innovation, while
others having no or little resources to spare, outsource the right to provide for innovation to
businesses and nonprofits.
Further research should include more thorough review and analysis of the literature focused on
strategic and institutional entrepreneurship, with more regard to organizational aspects of
governmental bureaucracies. Another classification should be developed in order to
accommodate regional variation within more heterogeneous countries. On the other hand, future
research should concentrate on a more detailed analysis of the public frameworks within
assessed countries to check what mechanisms they use or whether they have specific
departments / platforms to maximize innovation. Also, more attention should be given to survey
analysis: by increasing the number of respondents as well as adding / modifying some questions
that proved to be troublesome the researchers will be able to increase the predictability power of
the regression model utilized in this paper. Another improvement might come from utilizing
ordinal regression model. The paper would benefit a lot from employing bias-control techniques,
to test for the influence of political affiliation on the evaluation of governmental structures in the
survey.
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