Can Entrepreneurial Ecosystems Address Urban Economic Inequity?

Can Entrepreneurial Ecosystems Address Urban Economic Inequity?

I officially retired as a university professor about one month ago.  Although many friends and relatives advise me that it takes at least a full year to transition fully into retirement, I’ve already begun to enjoy one of the great benefits of my new status: more flexibility in how to spend my time.  My gardens have fewer weeds, my lawn is mowed more often, and I’m enjoying more time exercising at the local pool with my wife. 

I’ve also begun re-reading some of my favorite books.  I promised my wife I would limit the number of books in our house to whatever number I could cram into four large new bookcases that I bought as part of refreshing my home office.  This required me to be very selective when I closed out my campus office.  That careful selection process also motivated me to begin re-reading my favorites.

All devoted readers collect books that cut across many different themes.  Three of my favorite themes relate directly to the work I’ve tried to do as a professional over the last several decades. 

The first theme explores the historical processes of economic growth, with a focus on cities and urban regions in the U.S.  The second explores whether the consequences of urban economic growth can be steered in ways that decrease social and economic inequality, again with a focus on cities.  And the third uses the lens of systems theory to gain better historical perspectives on the first two.

Books (and articles) that examine these three themes have always helped me develop pragmatic and critical perspectives on the practice of local, regional, and state-level economic development activities.  I’ve tried my best to incorporate those perspectives into engaged research, consulting advice, and teaching.

Economic development initiatives among local, regional, and state-level actors tend to be faddish over time.  National economic policy-making has been dominated by academic economists for more than a century, most of whom have argued that state, regional, and local policy makers should simply stay out of this arena.  Consequently, ideas about sub-national economic development policies tend to come from critics of orthodox academic economics and/or other fields of research such as sociology and history. 

One current topic (or fad) is known as entrepreneurial ecosystems.  Described briefly, an entrepreneurial ecosystem is the network of individual people, groups of people, and associated institutions within a specific community, city, or region that start-up, staff, support, finance, and promote new businesses. 

All places have each of these components to some degree.  But an ecosystem forms only if the components systematically collaborate with each other to achieve goals that go beyond the success of individual businesses.  Among such broader goals can be higher levels of overall job creation, local economic revitalization, and/or greater equity in the distribution of income and wealth.

The current wave of interest in studying entrepreneurial ecosystems began in 2010 with an article published in the Harvard Business Review.^[i]  The concept was embraced by the influential Kauffman Foundation and then endorsed by the OECD.  Important aspects of this concept are currently inspiring new de facto urban policy experiments using multi-year grants from the Federal government authorized by the Inflation Reduction Act and the Bipartisan Infrastructure Law.

So how can I use the contents of my four bookcases to assess this new topic?  How do entrepreneurial ecosystems relate to the three themes I listed above?

First of all, I have plenty of books that reinforce the notion that entrepreneurism is a critical component of economic growth over time in all market-based cultures.  Yet the concept of entrepreneurial ecosystems falls on one side of a long-standing intellectual debate about the core nature of entrepreneurism.  Is entrepreneurism an individualistic activity or is it the result of collective behavior? 

If it is inherently individualistic there is not much benefit from cultivating an ecosystem that would collaborate for broader goals.  Each individual entrepreneur should succeed or fail on their own ability to use the networks of support they can access.

Indeed, the study of entrepreneurial activity in American history has been dominated by works that put individuals at the center of the action.  Grob and Billias describe the development of this tradition^[ii], the beginnings of which they attribute to the publication in 1894 of Henry Demarest Lloyd's Wealth Against Commonwealth^[iii]. 

Lloyd described the rapid development of the American economy from the 1840s to the 1890s as the result of the activities of individual businessmen who used the emerging capitalistic system to amass unprecedented amounts of economic monopoly power for themselves.  They acted independently.  The result, he argued, was leading the nation ever closer to the brink of class warfare. 

Reform minded writers during the Progressive era picked up Lloyd’s theme and made it central to their own characterization of America’s independent-minded businessmen and entrepreneurs.  The central image of the Progressive debate was not coined until well into the 1930s by Matthew Josephson's The Robber Barons.^[iv]

A more benign theme within the individualistic interpretation argued that American businessmen were great independent innovators working for the benefit of all society.  The argument was often made by businessmen themselves and other popular writers who explained and justified to the public the rabid acquisitiveness of businessmen through popular books and biographies. 

Andrew Carnegie was probably the most articulate spokesperson.  In his so-called "gospel of wealth" article^[v]published in 1889 Carnegie justified the accumulation of wealth by powerful businessmen by assigning to wealthy individuals the task of giving their wealth away as they say fit to support the improvement of mankind.  Although Carnegie himself eventually practiced his own creed, he was the only one.

Regardless of whether an author praised or condemned the activities of Andrew Carnegie, John D. Rockefeller, James J. Hill, or any of their contemporaries, all agreed that the results of their entrepreneurism were essentially the achievements of those individuals.

The origins of this consensus are worthy of some examination.  Although historians often have stressed the central importance of individualism in interpretations of American history, economists are the more likely source of the individualistic interpretation of entrepreneurial activity. Economists more than historians were focused on theories relating entrepreneurial activity to economic growth in the late nineteenth and early twentieth centuries.

Hebert and Link describe the variety of competing theories of entrepreneurial activity in the intellectual history of mainstream Western economic thought.^[vi] Indeed, the role of entrepreneurs in economic growth has sparked a great deal of debate in the evolution of economic thought. 

One debate revolved around the relationship between entrepreneurs and economic equilibrium.  According the Hebert and Link, economists such as Clark, Grinner and Schultz argued that entrepreneurs are creators of equilibrium, while others, most notably Schumpter and Weber, ascribed them the role of destroyers of equilibrium. 

Yet despite the list of debatable issues involving individual entrepreneurs, Hebert and Link assessed the common ground among economists accordingly.  "From Cantillon to Schultz, all of the theories of entrepreneurship reviewed in this volume have regarded the primary motives to productive activity as individualistic rather than social.  In addition, they all share a functional orientation...the functional approach does not require the entrepreneur to be a member of a certain economic or social class."^[vii]

The first fundamental challenge to the individualistic description of American entrepreneurism came from the work of the business historians in the 1950s.  In several studies organized by the Research Center in Entrepreneurial History at Harvard in the 1950s, authors including William Miller and Robert K. Lamb developed an interpretation of entrepreneurial activity that revolves around institutions and communities, instead of individual businessmen, embedded with larger social systems. 

"For students of the economic aspects of society", wrote Lamb, "social institutions are the basic data."^[viii]  Individual decision makers did play important roles in the processes of economic growth according to the new historical model.  But individual decisions are bounded by "(t)he social groupings or institutions of that social system wherein he operates ... (which prove) ... to have their own value systems and goals of activity, within the larger set of assumptions which organize that society."^[ix]

In order to begin mapping out the connections between entrepreneurs and society's larger social groupings and institutions, Miller analyzed the social origins of the American business elite in the early twentieth century.^[x]  He found them to be very homogenous.  As expected, they were males from native-born, white, upper and middle class, Anglo-Saxon protestant households.  Although Miller's data have been criticized by some, his results withstand specific methodological criticisms.^[xi]  Other authors looking more narrowly at the business leadership in specific sectors confirmed Miller's findings.

John Ingham, for example, looked at the social origins of entrepreneurs in the iron and steel industry from 1874 to 1965.^[xii] In the case of Pittsburgh, he found that the same type of homogenous background dominated.  The only general upward social mobility he could find among these entrepreneurs was the emergence of a Scotch-Irish protestant group into the entrepreneurial elite. 

Yet even among this upwardly mobile Scotch-Irish minority "it was not poverty they were forsaking; it was a negative cultural stereotype"^[xiii] held by the majority of Anglo-Saxon protestants within the entrepreneurial elite.  Only nineteen percent of the city's iron and steel elite were either first or second generation immigrants.  And only five individuals from this category came from backgrounds that could be considered poor.  One was Andrew Carnegie.  The other four were Carnegie’s business associates.

Ingham goes on to describe in great detail the kin networks, intermarriages, and club associations that bound together the entrepreneurial iron and steel elites of Pittsburgh, Philadelphia, Bethlehem, Cleveland, Youngstown and Wheeling and connected them to the emerging national urban elites of their era.  In doing so, Ingham convincingly established the collective nature of the social group that lead entrepreneurial activity within the iron and steel sector of the economy. 

Yet Ingram gives us little information about their motives.  Individual acquisitiveness and the desire to maintain continuity of control by the collective in an era of rapid urban change were certainly important motivations, as suggested by Ingham.  But the reader is left to speculate about others.

A more comprehensive interpretation of both the motives and the collective nature of entrepreneurial activity in the nineteenth century is given by Robert Dalzell in his sweeping history of the founding of the New England textile industry in Enterprising Elite.^[xiv] 

Dalzell describes the conscious attempt of the so-called Boston Associates to build a complex web of private institutions, both for-profit and not-for-profit, that would create a set of social and commercial relationships among themselves and other classes in the community that would perpetuate the elite's collective wealth and assure their lofty social position in American society. 

From their own lofty position, the Associates could use philanthropy and textile entrepreneurism to conserve a broad range of traditional community and religious values that they feared were threatened by the changes in American society stemming from the American revolution and the coming of industrialism.  According to Dalzell, "(i)f there is any truth to the notion that the early nineteenth century witnessed a rising tide of 'individualism' in America, that development touched Boston's premier business elite hardly at all."^[xv]

The crucial individuals who started the textile industry in New England, Francis Cabot Lowell and Nathan Appleton, were not content simply to build profitable mills for their own benefit. They feared the potential for recreating the "critical disorganization" and "specter of popular discontent"^[xvi] they witnessed as a result of industrialization in England. 

Unlike England, America had no elaborate set of aristocratic institutions and officially-established churches to shield its upper class from potential upheavals. Consequently, they and their Boston Associates pursued a carefully designed collective set of entrepreneurial activities designed to bring industrialism to America in a way that would give the existing social elite the investment vehicles through which they could maintain their wealth and the social institutions with which they could defend it within a the increasingly democratic society of antebellum New England society.

An even more ambitious attempt to understand the collective nature of entrepreneurial activity in eighteenth and nineteenth century America was written by Peter Dobkin Hall.^[xvii] Hall tied collective entrepreneurism to a larger range of collective activities on the part of American elites motivated by the search to create a distinctively American culture, based on American sources of cultural authority. 

Hall argues that by rejecting the authority of the British crown, Americans created a serious vacuum of social authority.  Into that vacuum came the social and religious elites of Boston who together used their wealth to build new institutional sources of authority separate from government. 

Chief among the institutions were the emerging private corporations and the many not-for-profit institutions they endowed with philanthropy.  These institutions, especially Harvard, elite Protestant churches, and the growing number of hospital and medical societies, formed the basis for an emerging national urban elite that would eventually build authority on the basis of elite educational and religious networks and the new concept of professionalism.  In describing the Boston model as the basic structure that allowed the nation to create a unified urban elite, Hall agrees with Dalzell's closing statement that "the world the Associates made is with us still."^[xviii]

Within the context of these previous analyses of the collective nature of entrepreneurism in earlier American history, the current concept of entrepreneurial ecosystems looks a bit like old wine in a new bottle: outwardly flashy, but still the same old taste.

The concept of encouraging the components of any region’s existing networks of individual people, groups of people, and associated institutions that start-up, staff, support, finance and promote new businesses to collaborate with each other in systematic ways seems well established.  There are clear historical precedents.  Collaborative ecosystems have previously created enough new wealth to strengthen and/or revitalize the economy of a city and/or its surrounding region. 

Yet America’s historical analogies raise deep questions about whether entrepreneurial ecosystems can simultaneously increase the social equity of how the financial benefits of growth are distributed among residents.  Previous entrepreneurial ecosystems have primarily been built by existing elites as defensive systems.  They have transformed regions, but only in ways that have maintained social hierarchies during periods of broad social and economic transformation.

The current wave of experiments with entrepreneurial ecosystems aspires to much more fundamental goals of widespread upward economic mobility and social inclusion.  Most seek to empower entrepreneurs to emerge from previously excluded social and economic classes. 

If these broad goals are to be achieved by today’s city and regional ecosystems, it falls to today’s policy makers to demonstrate how they will leverage the existing ecosystems in particular places to embrace these socially transformative goals.  Otherwise, new investments in existing ecosystems may well create new wealth, but that new wealth will likely be used to reproduce the social hierarchy enjoyed by each city or region’s status quo.  That has been the American way.

Bob Gleeson

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^[i] Isenberg, D. (2010) How to start an entrepreneurial revolution. Harvard Business Review, 88(6) 40-50.

^[ii] Gerald N. Grob and George Athan Billias, "The American Businessman: Industrial Innovator or Robber Baron?", in Gerald N. Grob and George Athan Billias (eds.) Interpretations of American History: Patterns and Perspectives, fifth edition, Volume II (New York:  Free Press, 1987) pp. 27-41.

^[iii] Henry Demarest Lloyd, Wealth Against Commonwealth (New York, 1894).

^[iv] Matthew Josephson, The Robber Barons: The Great American Capitalists: 1861-1901 (New York, 1934).

^[v] Andrew Carnegie, "Wealth" North American Review, June 1889.

^[vi] Robert R. Herbert and Albert N. Link, The Entrepreneur: Mainstream Views and Radical Critiques (New York:  Praeger Publishers, 1982).

^[vii] Herbert and Link, p. 110.

^[viii] Robert K. Lamb, "The Entrepreneur and the Community" in William Miller (ed.) Men in Business: Essays on the Historical Role of the Entrepreneur (New York: Harper & Row, 1962) p. 114.

^[ix] Ibid. p. 116.

^[x] William Miller, "The Recruitment of the American Business Elite" in Miller (ed.) pp. 329-337.

^[xi] For a critical summary of the research on the social origins of the American business elite, see Burton W. Folsom, Jr. Entrepreneurs vs. The State (Reston, Va: Young America's Foundation, 1987), especially Chapter Six "Entrepreneurs vs. the Historians".

^[xii] John N. Ingham, The Iron Barons: A Social Analysis of an American Urban Elite, 1874-1965 (Westport, Ct:  Greenwood Press, 1978).

^[xiii] Ibid., p. 7.

^[xiv] Robert F. Dalzell, Jr. Enterprising Elite: The Boston Associates and the World They Made (Cambridge: Harvard University Press, 1987).

^[xv] Ibid., p. xi.

^[xvi] Ibid., p. 13.

^[xvii] Peter Dobkin Hall, The Organization of American Culture 1700-1900: Private Institutions, Elites, and the Origins of American Nationality (New York: New York University Press, 1984).

^[xviii] Dalzell, p. 231.