3.1 What are the entrepreneurship, migration and growth debates?
Before we move to take a more detailed look at entrepreneurship and growth, try Activity 3.1.
Activity 3.1: Are you entrepreneurial?
Spend a few minutes thinking about what entrepreneurship means to you.
- Can you think of something that you have done that is entrepreneurial? (Or perhaps someone you know?)
- What makes it entrepreneurial?
As you discovered last week, there is an extensive history and literature surrounding the migration–development nexus and growth. The picture is similar with entrepreneurship. As early as 1725, the economist Richard Cantillon was theorising ‘the entrepreneur’, which carried through to the writings of the Scottish economist Adam Smith and the philosopher and political-economist John Stuart Mill.
Common to their thinking was the recognition that entrepreneurial behaviour was characterised by individuals adding value to the economy and markets by introducing new commodities. The entrepreneur is someone who sees opportunity for pioneering new products or processes and brings together the necessary resources to exploit that opportunity, while creating an environment of effective competition (Higgins, 1968; Kuratiko, 2015).
Classic economic theory sees entrepreneurship as a critical component in the expansion of an economy’s productive capacity (Kent, 1982) and, as such, it is viewed as an investment imperative for economic growth and development. In the 1930s, Joseph A. Schumpeter conceptualised and defined the role and activities that the entrepreneur contributed to the economic system, casting the entrepreneur as the personification of innovation (Hagedoorn, 1996).
The Schumpeterian view dominated economic thought for most of the 20th century – the entrepreneur as a risk-taking profit-maximiser who contributes to economic growth by disturbing the market equilibrium through the introduction of (Gries and Naudé, 2011):
- new technology
- competition (more efficient uses of resources)
- markets.
This view is very functionalist: that entrepreneurship is a vehicle for growth outputs. In fact, it is viewed within economics as one of the four key factors of production, along with land, labour and capital. Entrepreneurship, then, is just a means towards an end: to further economic growth. There is a notable absence in the welfare economics literature to examine the characteristics, roles and motivations that might sit behind entrepreneurial activity.
For economists, entrepreneurship as a determinant in growth is not contested. Over the past two decades or so, academic attention has started to take a more critical look at different facets and factors of the entrepreneur-growth story through development and entrepreneurial literatures.
Activity 3.2: Entrepreneurship and growth
Read an extract from an article by Wim Naudé [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] and make notes on these two questions:
- Why does Naudé argue that conventional thinking leads to a different relationship between entrepreneurship and growth in developed and developing economies?
- Why is the potential of entrepreneurs to contribute to growth less in developing economies?
Discussion
Naudé highlights that entrepreneurship, and specifically the critical ability to ‘innovate’, mean that entrepreneurs in developed and developing countries have a different relationship to growth. In essence, the entrepreneur is less significant to growth in developing countries, as their potential to capacity-build and expand the production base is much more limited. They replicate others’ innovations, rather than initiate their own ‘radical’ innovations that can potentially catalyse economic development.
Although limited, there is an emerging body of literature that, like Naudé, is holding up more of a critical lens and exploring different functions and roles that entrepreneurs might play in the story of growth, such as:
- within and across sectors
- between private and social entrepreneurial enterprises (Baskaran et al., 2019)
- connections between entrepreneurship, poverty alleviation and informal economies (Azmat et al., 2015).
Migrant entrepreneurs have also received significant academic attention. This is probably in no small part because there is a popular perception that they are a particularly innovative and resourceful group. A range of studies, including the Global Entrepreneur Report (Xavier et al., 2012), indicates that migrants are statistically more likely to set up their own enterprises than the native population because of:
- them taking advantage of skill and knowledge gaps in markets
- selective immigration policies creating more enabling environments for migrants
- the lack of opportunities at home
- discriminatory labour conditions in the host country.
You read in Week 2 how classic works on development and migration centred initially on the negative effects (the ‘brain-drain’ on sending countries) before the shift in the 1990s towards recognising that migrants can play a positive role. However, attention largely focused on remittances.
The migration literatures have not advanced much in relation to how migration contributions to growth are viewed and studied. Two key trends prevail:
- To concentrate on what migrants are sending back, or what they give back to their home economies once they return. While home is still a focus, how migrants might contribute has expanded beyond remittances to consider other resources such as skills and networks (Saxenien, 2005; Anwar and Chan, 2016).
- A preoccupation with growth and development at the individual and household level – how the migration experience equates to change in standards of living, income and expanding opportunities to access education and other services.
While there is a prevalence of literature on entrepreneurship, migration and growth, the way in which the relationship is conceptualised and studied has, to date, been narrow and focused on the individual level and home. There is almost no literature on how and why migrants contribute to growth in their host country, or what the entrepreneur’s role is within inclusive growth (IG). This has been a novelty that MIAG has brought to this body of work, particularly by paying attention to growth at the firm level.
Introduction