The influence of culture on entrepreneurship ecosystems : an exploratory quantitative analysis

(1)

The Influence of Culture on

Entrepreneurship Ecosystems:

An Exploratory Quantitative Analysis

Master Thesis

Mihály Kocsi |10683321 | kocsimihaly@gmail.com Faculty of Economics and Business

Mentor

Roel C.W. van der Voort

(2)

2

This document is written by Student [Mihály Kocsi] who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

(3)

3

1.1 Abstract

Culture and Entrepreneurship are two of the most intricate concepts of the human condition. This very fact might be the reason why exceptionally limited research has been conducted analysing aspects of the two, notably in the case of the relatively new concept of Entrepreneurship Ecosystems. The informal ubiquity of culture makes it extremely difficult to quantify, whereas the current understanding of entrepreneurship ecosystems is incapable of predicting or explaining entrepreneurial success despite massive amounts of available data. This research attempts to quantitatively analyse the relationship between these two all-encompassing conceptions of collective human endeavour by equating 50 laboriously found variables of cultural production, consumption, participation and public expenditure with 30 of the most well-scrutinised entrepreneurship variables of the Global Entrepreneurship Monitor. An unexpected number of highly significant correlations are found which are elaborated with multiple linear regression analyses to investigate the causal direction of cultural and entrepreneurship variables. Conclusions and implications are then drawn from careful examinations.

(8)

8

1.2 Introduction

In the wake of the 21st century, the ubiquity of instant communication would let anyone believe that the location of something is irrelevant of its cultural influence. Yet, it seems that place is more than ever, the bedrock of distinctive cultures. Large urban communities are increasingly becoming common sites of cutting-edge economic activity in the form of massive clusters of industrial and business activity. Complex interactions between the cultural and the economic are already set in motion due to the established political, , economic, and cultural peculiarities of a given entrepreneurship ecosystem. Local cultures also help to form and mold the nature of intra-urban economic activity. For this reason, economic activity simultaneously becomes a dynamic, essential feature of the culture generating capacities of urban areas. This argument applies to forms of economic activity related to both cultural and non-cultural products (Thrift et al, 1994).

Additionally, there are also certain places whose idiosyncratic past and their present socioeconomic environment create global demands for their specific cultural artefacts and images which are broadcast across the world.

This research attempts to find meaningful relationships between the system that sustains the economic stability and competitive advantage of certain areas, and the omnipresent subtle vacuum that influences our every move.

1.3 Problem definition

This research is conducted to gain more insight in to the effects of cultural production, consumption, participation and public expenditure on the level of entrepreneurial activity in given area.

What influence does cultural production, consumption, participation and public expenditure have on the level of entrepreneurial activity present in a given area?

(9)

9

2. Literature Review

2.1 Entrepreneurship Ecosystems

Isenberg defines an entrepreneurship ecosystem as ‘a set of networked institutions with the objective of aiding the entrepreneur to go through all the stages of the process of new venture development. The entrepreneurship ecosystem can be conceived as a service network, where the entrepreneur takes centre stage as the focus of action and the measure of success.’ (Isenberg, 2010).

Stam (2014) defines an entrepreneurship ecosystem as a collection of interdependent actors who carry out processes and influence each other to enable entrepreneurial action. The way the ecosystems are governed with their respective institutional and physical characteristics can not only facilitate or hinder consequent entrepreneurial action, but it also affects future governance as well. Actors are intertwined in different types of networks, which can be traded (e.g.. market transactions) or untraded (e.g. formal and informal institutions) (Dosi, 1984).

The concept of entrepreneurship ecosystems is still evolving, so there is no agreed definition among scholars yet. It does consist of two components: entrepreneurship and ecosystem. Entrepreneurship is a system by which opportunities to develop goods and services are identified, evaluated and then capitalised on (Shane & Venkatamaran, 2000). To give a broader description, it is the process by which entrepreneurs seek opportunities for innovation. Wherever there is innovation, new value is created to society. Innovation can be guided towards exploring completely new ideas or towards improving existing opportunities (March, 1991). The EE literature frequently reduces entrepreneurial firms to “high-growth entrepreneurial firms” (WEF, 2013), claiming that this type of entrepreneurship is the most important source of innovation, productivity, employment and economic growth (WEF, 2013:5). In addition, Stam (2008, 2013) urges us not to mix up statistical indicators of entrepreneurship like self-employment and small businesses with the process of entrepreneurship.

(10)

10

The second component is ‘ecosystem’, the first definition of which the Oxford Dictionary describes as a biological community of interacting organisms and their physical environment, but nowadays in general use it also means complex network or interconnected system. The second meaning is exactly why scholars use this term.

The main notion of EE asserts that entrepreneurship arises in a community of interdependent actors. Not only that, the EE literature focuses on the role of the social framework in facilitating or constricting entrepreneurship and the interrelationships between actors within the system. The entrepreneurship ecosystem is a similar approach to more settled concepts such as clusters, innovation systems, learning regions and industrial districts; since the aforementioned all have the firm’s external conditions for innovation and business performance at their investigative focus. However, the EE method does not take the viewpoint of a firm, but places the entrepreneur at the centre of attention instead. This way the connections between the individual and other factors of the ecosystem, can be recognized.

Another pivotal divergence from previous economic development ideas is that the EE approach does not just see entrepreneurship as an outcome of the ecosystem, it also recognizes entrepreneurs as key players in generating and maintaining the ecosystem, with a somewhat more limited direct role of the government than in previous approaches.

The EE concept emphasizes how entrepreneurship is enabled by a comprehensive set of resources and actors, which have a major role to play in facilitating entrepreneurial action. Most of these actors and resources appear to be present locally, often requiring face-to-face contact or local mobility. A critical role in the functioning of these ecosystems seems to consist of forms of governance that enable connections that are sufficiently stable to enable investments but sufficiently flexible to allow recombination for innovation to take place. There are particular formal and informal institutions that enable these forms of governance (Williamson, 2000) and ultimately productive entrepreneurial action in general.

According to Isenberg (2010), EEs consist of six domains: policy, finance, culture, supports, human capital, and markets. He also states that each entrepreneurship ecosystem is

(11)

11

unique. This single statement explains why so many politicians’ efforts of replicating Silicon Valley over the years turned out to be futile. (Hospers, 2006)

Another major characteristic of EEs is that each ecosystem, especially the successful ones are so complex and interconnected that these multi-dimensional cause-effect relations are impossible to pinpoint to a few key roots. This means that specifying generic root causes of the entrepreneurial ecosystem has limited practical value, so deriving a universal model for a self-sustaining EE from reducing successful EEs to key roots is highly unlikely. Isenberg (2010) also concludes that EEs become at least relatively self-sustaining as soon as all six of his proposed domains are strong enough.

In addition to entrepreneurs being the point of analysis in entrepreneurship ecosystems, at the same time the EE approach heavily emphasizes the context by which entrepreneurship is enabled or constrained. So entrepreneurs are not only the key objects of analysis, they are also seen as the leaders of entrepreneurial ecosystems, while other entities, like governments and service providers are seen as feeders of entrepreneurship ecosystems (Feld, 2012).

This assumption above introduces one of the central ongoing questions regarding EE research: the extent to which the state plays a role in an entrepreneurship ecosystem. Many scholars have indicated the positive influence entrepreneurship and entrepreneurship policy had on economic growth (Audretsch et al. 2002; Acs and Szerb 2007; Baumol et al. 2007). Therefore, government plays an essential role in promoting entrepreneurship and innovation in any given area within its country borders.

On the other hand, Minniti (2008) argues, based on her literature review that the fact that public policy is positively linked to economic prosperity does not justify public policy intervention. Governments can only provide an underlying environment which is suitable for the emergence of productive rather than unproductive entrepreneurship. For this reason, governments should strive to create environments that enable and advance the division of labour and the commercialization of invention and exchange. The author concludes that excessive public involvement, without co-interest from the private sector, creates possible market distortions which impedes rather than benefits entrepreneurs.

Audretsch (2004) supports these claims by stating that the mandate for public policy intervention can only be the result of fundamental market failures. Fuerlinger et al. (2015)

(12)

12

describes the governmental approach of creating EEs, which says that EEs need specialized inputs from the government, like technology parks or innovation centres to enable the emergence of such an ecosystem. The authors point out that these policy implementations can become excessive public commitments which distort the market and hinder the development of a sustainable and dynamic ecosystem.

So according to the main current EE approach, the primary responsibility of the government is to get the framework conditions right (education, taxation, market regulations, research, employment protection and environmental legislation, etc.). There is absolutely no other actor that will take the lead on these issues. However, the role of the government changes at local level as opposed to the national level: more often entrepreneurs and other entrepreneurial actors are leading the way, and the local (or national) government is feeding them (Feld, 2012).

There are two known ways public policy might improve the entrepreneurship ecosystems at the local/sectoral level (Napier et al, 2011).First, public policy can identify and engage the key actors within each group of stakeholders, like serial entrepreneurs and established firms. Second, it can engage in an entrepreneurship ecosystem dialogue together with all the other relevant stakeholders.

The government’s role is the most dominant in establishing and maintaining national framework conditions. However, if these national framework conditions are not enabling initiatives at the local level, the effects of local initiatives are likely to remain suboptimal (Bosma & Stam, 2012).

Apart from the government aided top-down approach of creating EEs discussed above, there is another approach which is based entirely on the bottom-up approach of building EEs by the people and their personal networks. New ventures are created by a constant recombination of ideas, talent, and capital, embedded in a supportive culture or community.

According to this logic a government’s job is to understand basic local mechanisms in order to create a framework that supports such recombination.

(13)

13

Therefore, the government has the difficult task to find the right balance: it has to enable the community of entrepreneurs to start new businesses while making sure not to distort the market. Feld (2012) urges governments not to overestimate their potential for creating self-sustaining EEs and recommends them acting as a supporting force, rather than leading the movement.

2.2 Critique of the Entrepreneurship Ecosystem concept

Despite the fact that the EE concept has received growing attention from policy makers and researchers alike, it does suffer from a few shortcomings. It is tautological – EEs are regarded successful where high levels of entrepreneurship are present. Another shortcoming is that the current concept is only able to provide laundry lists of relevant factors (Isenberg, 2010), without a clear indication as to how these factors are interdependent in space and over time, and what the key mechanisms are to focus on for policy makers. Consequently EE approach cannot provide a clear ‘dependent’ variable on what is a successful entrepreneurship ecosystem (either in entrepreneurial terms, or in broader welfare goals).

On top of this criticism, it is not yet clear what the adequate unit of analysis is: whether it is the national economy, the regional economy, a sector, or a corporate system.

In summary, the EE concept lacks causal depth and is not properly differentiated from other similar concepts. Despite the critique, the concept does embody numerous valuable elements for understanding the performance of meso-economic systems. Firstly, it explicitly addresses the interdependencies between all actors in the context of entrepreneurship, which goes beyond the narrow market-hierarchy view of governance. Secondly, it provides a bottom-up perspective of the performance of meso-economic systems, and the rise of the entrepreneurial economy (Thurik et al., 2013). However, Stam (2014) warns us that if EE remains a fuzzy concept, that will seriously constrain policy its implications, and limit public and private value creation.

The EE approach lacks a dynamic view on entrepreneurship ecosystems. The question still remains on how they emerge, what keeps them healthy and going and what causes their demise. The EE approach could learn from the recent literature on cluster emergence and evolution, where cluster formation is viewed as a sequential process with an evolutionary logic:

(14)

14

a triggering event coupled with an entrepreneurial spark sets in process of coevolution in which technology, institutions, and business models arise and reinforce increasing returns that improve the competitive advantage of the region in attracting talent, finance, and firms (Braunerhjelm & Feldman, 2006).

The EE approaches provide useful recommendations for public policy, while also keeping the role of the government central in the ecosystem. They all stress the role of intermediaries and support services and cultural change, while most of them also recognize the major part talent and finance plays in ecosystems. However, these models provide no insight into the fundamental causes of entrepreneurial ecosystems (Acemoglu et al. 2005) and the ensuing possibilities for public policy interventions. The WEF (2013) study for instance concludes that accessible markets, human capital, workforce and funding and finance are most important for the growth of entrepreneurial ecosystems and the companies within them. Stam (2014) points out that these are likely to be proximate causes, not fundamental causes of ecosystem success (since human capital and funding are likely dependent on underlying institutions with respect to education and financial markets). Not to mention that at this point it is not apparent what the necessary and contingent conditions are for successful ecosystems, and what the role of the government and other public organizations is, which are said to follow the electoral cycle (WEF, 2013). This is especially the case in even fuzzier public-private arrangements. So in term of consequences, there is little evidence to how ecosystems perform with respect to entrepreneurship rates (as a proximate consequence, output) and more aggregate welfare (as a final consequence, outcome)?

So entrepreneurship ecosystems are an interdependent set of actors that is governed in such a way that it enables entrepreneurial action (output). Entrepreneurial action refers to the process by which individuals pursue opportunities for innovation. Innovation involves new value creation in society, which is the ultimate outcome of an entrepreneurship ecosystem. EEs can be broken down to framework conditions (the formal and informal institutions, and physical conditions that commonly enable or restrain human interaction, particularly entrepreneurial action) and systemic conditions.

(15)

15

The systemic conditions (networks, leadership, finance, talent, new knowledge, and support services / intermediaries) interact with each other, and are limited and enabled by the framework conditions. Networks enable a smooth division of labour, and flow of information and capital within the entrepreneurship ecosystem. Leadership of the most successful entrepreneurs and individuals provides guidance and role models within the EE. This leadership by entrepreneurial leaders who are committed to the region plays a crucial role in building up and sustaining a dynamic ecosystem. Accessibility to finance, preferably provided by actors with knowledge of the entrepreneurial process, is of paramount importance for investments in entrepreneurial projects with a longer term pay-off. Stam (2014) notes that perhaps the most important element for a thriving entrepreneurship ecosystem is the presence of a diverse and skilled workforce. An important source of entrepreneurial opportunities can be found in new knowledge, both in public and private organizations. Lastly, the provision of support services through private and public intermediaries might considerably lower the entry barriers for new entrepreneurial projects and might also speed up the time to bring innovations to market.

The attributes and principles mentioned above show that the EE approach suggests a shift from traditional economic thinking on firms and markets to a new economic thinking which is inclusive of people, networks and formal and informal institutions. According to this new approach, people create new value, organized within a variety of governance forms, enabled and constrained by particular institutional conditions. This new approach does not imply that firms and markets are irrelevant, it rather suggests that markets and firms are modes of governance that will always fail to be perfect. Not to mention, entrepreneurship is more often than not about firms and markets in the making, and almost never about situations that come close to perfect efficiency of markets in equilibrium (Beinhocker, 2007). Apart from barely ever taking place in reality, such perfect efficiency might even restrain innovation in the long run, which shows the weakness of entrepreneurship and innovation policy by market failure arguments (Nooteboom & Stam, 2008; Dodgson et al., 2011)

Recent empirical studies on EEs conclude with two models of EE emergence (OECD, 2013). The first model shows how one exceptional firm expands rapidly and creates a whole ecosystem along with it (Napier & Hansen, 2011; WEF, 2013). The second model can be described as the startup community model, since it demonstrates how a group of successful entrepreneurs, by reimbursing and reinvesting in the ecosystem (Mason & Harrison,2006), acts as connectors, and are also regarded as role models for nascent entrepreneurs (Feld, 2012).

(16)

16

In the first model the corporate ecosystem might be the most dominant entity, while in the second model the critical mass of generating actors is a lot more dispersed. In the first model the triggering corporation might leave a much stronger impression on the nature of the ecosystem than in the second model. Stam’s (2014) assessment of the literature urges us to separate causes from consequences. For example, the EE literature claims that VC firms and support organizations are key ingredients for creating an entrepreneurship ecosystem. However, this regularly appears to be more of a consequence of ecosystem emergence than a cause, as the second model of ecosystem emergence also seems to suggest (Braunerhjelm & Feldman, 2006).

Spanning the literature, a rather strange and wide research gap was found within the study of Entrepreneurship Ecosystems and other related concepts. All Entrepreneurship Ecosystem models focus on the narrow view of culture, which is closely related to the entrepreneur herself. After careful examination of the EE literature, not a single article was found that takes a look at how culture in general, of a given city, region, or nation influences the ecosystem. Isenberg’s (2010) cultural domain of entrepreneurship is the only one that includes a few cultural traits of the public that is not entirely related to entrepreneurs; tolerance of risks and mistakes, innovation, creativity, and experimentation. All other models or literature that could be found made no difference between ecosystem culture and the general culture of the ecosystem, the very few relevant articles solely focused on the innovation or entrepreneurship culture of start-up communities within an ecosystem.

It is plausible to suspect that cultural aspects that are unrelated to entrepreneurship and entrepreneurial opportunities might play a significant role in the influx and local creation of human capital, the strategic decisions and positioning of facilities, events, and conventions of major corporations, the success of university entrepreneurship communities, and the self-sustainability of incubators and start-up communities, etc. within an Entrepreneurship Ecosystem.

So despite the heavy emphasis of context that surrounds the entrepreneur in an ecosystem, the study of cultural influence towards elements of entrepreneurship ecosystems have been curiously neglected in the EE literature. Bosma and Holvoet’s (2015) investigation of a Belgian ecosystem is the only research whose main focus is the role of culture in

(17)

17

entrepreneurship ecosystems. However, their findings are only concerned with cultural aspects that are closely related to entrepreneurs or entrepreneurship. Figure 1 shows the focus of their research, which was developing a cultural profile for the Belgian region of Flanders.

The authors found a positive link between profiles of regional entrepreneurial culture and profiles of regional entrepreneurial activity. Their results indicate positive correlations between individual self-perceptions when it comes to seeing good opportunities to start a business and the actual opportunity-motivated entrepreneurial activity. Their findings also suggest a positive relationship between perception of entrepreneurs as innovators and actual rates of self-reported innovative entrepreneurial activity in the ecosystem. They also observed a positive correlation between the assessment of entrepreneurship education and the number of growth-oriented early-stage entrepreneurs in the region.

1. Figure: Regional entrepreneurial culture profile for the Belgian region, Flanders (Bosma & Holvoet, 2015)

It is clearly visible from the cultural profile that all the variables are related to the entrepreneur or the perceptions of the entrepreneur and entrepreneurship. There is no mention of other cultural aspects of people or entrepreneurs in the region. While the entrepreneurship ecosystem research takes the entrepreneur as a point of analysis, a suggestion could be made that taking a cultural perspective, and putting the individual citizen – as opposed to the entrepreneur – as the

(18)

18

focus of action, might become a worthwhile endeavour which bears interesting results in the end.

Another reason why the individual should be the focus of study is because Stam (2014) concluded after his literature review that perhaps the most important element for a thriving entrepreneurship ecosystem is the presence of a diverse workforce, which is of course made up of individuals. It seems quite obvious that it is not just entrepreneurs who create value, they might be the ones who create, organize and manage the creation of value, but they are also managing other individuals who are indispensable to the process of new value creation. Due to the fact that the ultimate goal of entrepreneurship ecosystems is to increase the well-being of most or ideally all individuals within an ecosystem, it seems logical to take into account every single individual in the EE model, because they are the ones that make up the whole of an entrepreneurship ecosystem, including its culture.

Since entrepreneurial action (output of an ecosystem) is mainly carried out by the workforce, and new value creation is mostly done by the workforce as well (outcome of an ecosystem), this suggests that the success of EEs is largely dependent on the expertise and skills of its workforce. Therefore, it is plausible that the cultural consumption of a workforce within an EE might be related to the level of entrepreneurial activity present there.

2.3 The cultural economy of Entrepreneurship Ecosystems

There are numerous distinct centres of cultural production in the modern world, with each being largely idiosyncratic in its character as a place. This idiosyncrasy lies partly in the given uniqueness of the history of any given place, while on the other hand it resides in the very functioning of the local cultural economy which in countless instances, through round after round of production, becomes ever more specialised and place-specific. As capitalism globalizes, the geographical specificity of the cultural economy of cities becomes even more articulated and clear-cut from other places, because globalization enhances the possibilities of vertical disintegration, productive agglomeration and specialisation (Scott, 1988). While this holds true for cities the most, it would be difficult to argue that this trend is non-existent in vaster regions like provinces or countries.

(19)

19

2.4 Share of public cultural spending by levels of government

Scott (1997) proposes that capitalism is transitioning into a phase in which the cultural forms and meanings of its outputs become critical elements of productive strategy, and in which the realm of human culture as a whole is increasingly susceptible to commodification, for instance supplied through profit-making institutions in decentralized markets. This means that an increasing range of economic activity is concerned with producing and marketing goods and services that are instilled with at least some kind of aesthetic or semiotic attributes (Lash and Urry, 1994; Molotch, 1996).

On top of that, Knox (1995) argues that as a result of the growth of disposable income and the expansion of discretionary time in modern society, the consumption of cultural products of all kinds is evidently expanding at an increasing pace, and the sectors that are involved in making them are some of the most dynamic economic frontiers of capitalism today. The geographic impacts of this unprecedented process are proving to be complex and wide-ranging, which can be easily seen in the emergence of multiple giant cities representing the flagships of a new global capitalist cultural economy.

Entering the 21st century, there is a visible growing tension between culture as something that is inherently place-bound, and culture as a sequence of non-place specific, globalized occurrences and experiences (Appadurai, 1990). Therefore, despite the ease and rapidity of communication becoming ubiquitous all over the world, place is still arguably the bedrock of distinctive cultures. Contrarily, there are also certain places whose idiosyncratic past and their current socioeconomic environment create global demands for their specific cultural artefacts and images which are broadcast across the world. It is easy to see how this same process has a greatly transformative, mostly negative impact on many other local cultures. The geography of culture, just like the geography of economic activity, is stretched across an incomprehensibly intricate web of local and global linkages (Featherstone, 1995; Robertson, 1992). While production mostly takes place in localized networks of cultural production, final outputs are transmitted to an ever more spatially extended spheres of consumption. This means that while some local and regional cultures are under serious threat and decline at the moment, other places are striving and reaching new, receptive audiences.

(20)

20

Indeed there are some places, mostly at the major metropolitan areas of modern world capitalism, cities like New York, Tokyo, Los Angeles, and London continue to be unique and highly creative producers of culture. Scott (1997) points out that regardless of the political implications of this predicament-laden situation may be, it does not seem to point towards cultural uniformity across the globe. On the contrary, we can witness a faint but very active type of regional cultural differentiation, which is expressed with and through a widening structure of national and international cultural niches. (adolescents, environmentalists, paragliders, art collectors, nuclear physicists, mountaineers and so on).

One major influence on regional culture is the collection of locally bound endowments, capabilities, and facilities of specific places, districts, and communities in cities. Scott (1997) explores the innately intertwined effects of production processes and the ever-rising cultural content of economic outputs, and the ways in which these effects become present in the growth and development of specific places.

Place and culture are inherently tangled together, buried in convoluted human interactions, since a place is always a locus of dense human interrelationships, out of which culture partly grows. Culture is a phenomenon that tends to have intensely place specific characteristics that helps in differentiating places from each other (Zukin, 1991, 1995). Entrikin (1991) also reasserts place as a privileged locus of culture based on the continued and intensifying significance of massive urban communities characterized by countless diverse and specialized social functions and dense internal relationships. All of these communities represent a hub of location-specific interactions and emergent effects, in which the stimulus, need and demand to cultural experimentation and renewal tends to be high.

To evaluate the cultural production of specific urban areas, cities or regions, extensive amounts of data are needed to be organized and made transparently available. Regrettably, no such database exists even at the country level, Sönderman et al. (2012) points out that countries are not even able to agree on the typology of cultural occupations. Germany for instance does not acknowledge a great number of cultural occupations recognized by UNESCO due to the narrow German classification system of cultural occupations. So in order to be able to test at least some form of cultural production at different levels of government in relation to the ongoing levels of entrepreneurial activity present, data about the ratio of public cultural expenditure will be used.

(21)

21

Hypothesis 1: The share of public cultural expenditure allocated to

municipalities/regions/central government in any country has a positive

relationship with the level of entrepreneurship present there.

2.5 Public cultural expenditure per capita

One of the most promising variables that is not only readily available to test quantitatively, but it also has the greatest probability of being causally interrelated to the level of entrepreneurial activity in an EE; the cultural public expenditure per capita. Individuals are the ultimate unit of analysis when it comes to the social sciences, and excess cultural expenditure per capita is one of the indicators of economic prosperity and therefore, high level of entrepreneurial activity, which will be tested by the following hypothesis:

Hypothesis 2: Public Cultural Expenditure per capita has a positive influence on

the level of entrepreneurial activity in an EE.

2.6 Cultural Products

Cultural products are particularly heterogeneous in their substance, appearance and industrial origins. One type of cultural products is originated from traditional manufacturing sectors engaged in the transformation of physical inputs into final outputs (e.g. clothing, furniture or jewellery). Another type of cultural products can be more accurately described as services based on the fact that they involve some form of personalized transaction or the generation or transmission of information (e.g. tourist services, live theatre, and advertising). The third type of cultural products can be thought of as sort of a hybrid form (music recording, book publishing, or film production). The point Scott (1997) makes is that regardless of the physical and economic constitution of such products, the cultural sectors that make them are simply in the business of the production of marketable outputs whose competitive advantages are highly

(22)

22

dependent on the fact that they are aestheticized objects, modes of entertainment, or sources of information and self-awareness, so in short artefacts whose psychological gratification to the consumer is high relative to its utilitarian purpose.

There are four interrelated assumptions which are usually made in cultural industries research concerning the market characteristics of cultural products. First of all, Cultural goods are experiential, and consumers have a need for novelty (Holbrook et al, 1982). Furthermore, cultural production is operated under increasing returns. While producing an album or film is an exceedingly costly endeavour, additional copies can be made at negligible cost. There is also extreme variance in demand and thus sales, since cultural products turn into hits and misses. The fourth assumption of cultural products is that the demand is unpredictable to the extreme (Caves, 2000).

Regardless of the nature of a cultural product or service, whether it is a pop culture album or tickets to the opera, their price varies across different locations, especially for nations, even when exactly the same cultural product is being sold at two places (CUPIX data, 2008). This fluctuation in price across nations has the possibility of being related to the prevalence of entrepreneurial activity in an ecosystem, which will be tested in the first hypothesis.

Hypothesis 3: The prices of cultural products have a positive relationship with the

level of entrepreneurial activity in an entrepreneurship ecosystem.

2.7 Public Arts Services

The demand for public art services share countless similarities with popular cultural products. Since there has not been any research done on the relationship between the prevalence or demand for high culture and entrepreneurship, one can only speculate that as entrepreneurs tend to be very motivated to learn and try new experiences, there has to be a substantial demand for diverse cultural production in a place where entrepreneurs, especially successful ones are concentrated within an entrepreneurship ecosystem. This proposition will be tested in the following hypothesis.

(23)

23

Hypothesis 4: The higher the prices are for public art services in a specific

entrepreneurship ecosystem, the higher level of entrepreneurial activity will be

present.

2.8 Cultural employment

We can see that place, culture, and economy are highly symbiotic with one another, and in the 21st century this synergy is reemerging in greatly influential, novel forms as expressed in the cultural economies of certain major cities (Scott, 1997). The cultural landscape of cities have long been conceived as either the commercialization of historical heritage, or large-scale public investment in artefacts of collective cultural consumption in the interests of urban renovation (Bassett, 1993; Bianchini, 1993; Frith, 1991). One can see that this conception is an outdated, static view of the cultural space that surrounds every single individual in a given city. It should be noted that nations also have extensive collective cultures that serve as their cultural global identities (Smith, 1992).

As the cultural identities and economic order of cities increasingly materialize on the landscape, the more these places enjoy monopoly of culture so to speak, which means the place-specific process and production of cultural products provide to an ever-increasing sphere of global demand. As a snowball effect, this monopoly increases their competitive advantages and provides their cultural products industries with an edge in more expansive national and international markets.

As Molotch (1996: 229) has stated:

“The positive connection of product image to place yields a kind of monopoly rent that adheres to places, their insignia, and the brand names that may attach to them. Their industries grow as a result, and the local economic base takes shape. Favorable images create entry barriers for products from competing places.”

(24)

24

Los Angeles is a great representation of the special recursive relations between the cultural attributes of the city and the structure of the local production system. The film industry of Los Angeles draws on a complex web of local assets that play a key role in communicating to the products of the industry their distinctive look and feel (Molotoch, 1996; Storper and Christopherson, 1987). The same products in turn create images (real or imagined) of Los Angeles that are later assimilated back into the city’s cultural assets where they become available as inputs to new rounds of production. One notable consequence of the intricate relationships between cultural and economic industries is that the reputation and authenticity of cultural products (qualities that often provide decisive competitive advantages in trade), are sometimes completely tied to specific places. Think of Florentine leather goods, Thai silks, London theatre, or Hollywood films.

Scott (1996) proclaims that mass production is decreasing in importance in the cultural economy as time progresses and is slowly overshadowed by a vast extension in assortment of craft, fashion and cultural products industries throughout the advanced economies, facilitated by a flood of incessantly emerging niche markets for design- and information-intensive outputs. Soja (1996) designates this trend as a postmodern expression of changing consumers’ tastes and demands involving a general aestheticization of non-cultural marketable products. This statement in no way implies that these newly developed products possess what Benjamin (1973) called auratic quality, or in other words true aesthetic value. Products range from masterpieces of cinematic art or handcrafted jewellery, to tacky tourist souvenirs or throwaway shopping bags, with the vast majority representing goods and services that capitalize on the basis of short- or medium-term fashion, information and entertainment value, and on their merits as social markers (Ryan, 1992).

Two of the most compelling instances of the power that lies within the success of cultural products industries in certain cities are the two contrasting cases of Los Angeles and Paris, both of which have powerful global reach in terms of their ability to connect with consumers. In the case of Los Angeles, the cultural economy is for the most part focused on products that cater to informal, post-bourgeois preferences, and it exploits an abundant versatile imagery

(25)

25

drawn from a mixture of natural local colour (sunshine, surfing, palm trees) and a relaxed context of social life combined with purely fictional associations that are themselves the leftovers of previous cycles of cultural production (Molotch, 1996; Scott, 1996a; Soja and Scott,

1996). The cultural economy of Paris, by contrast, is much more concentrated around the production of luxury cultural products for a more exclusive clientele. It exploits a long, historical tradition of superior craftsmanship and artistry, stretching from the seventeenth century to the present day.

In both cities, employment in cultural-products industries is high, and dispersed over a vast range of sectors such as clothing, furniture manufacturing, publishing, film and music production and so on. Production activities in these sectors are typically concentrated in specialized industrial districts within each metropolitan area as marked above all by dense agglomerations of vertically disintegrated firms together with adjacent local labour markets. It is apparent looking at these two pinnacles of cultural production how cultural employment might advance and expand the level and even the extent of entrepreneurship. It is therefore assumed that these peculiar places of globally successful cultural production are not the only ones who benefit from the presence of cultural employees.

Hypothesis 5: The share of cultural workers in total employment has a positive

influence on the level of entrepreneurial activity in an entrepreneurship

ecosystem.

(26)

26

2.9 Women employed in cultural and other industries

Cultural employment might be a good indicator to predict the level of entrepreneurial activity, but it is my personal opinion that equality in employment between the sexes might be one of the most important cultural issues in the world that universally affects all countries in the present day to certain levels of degree. Improving the level of equality in employment to all individuals is one of the best known ways to facilitate overall well-being of citizens. So it seems very probable that indicators measuring the level of equality in employment between the sexes are closely interrelated with the level of entrepreneurship and thus economic prosperity. The share of women employed in specific industries has the possibility to provide relevant clues as to what prerequisites are necessary for an entrepreneurship ecosystem to thrive indefinitely.

Hypothesis 6: The share of women employed in the cultural industries has a

positive influence on the level of entrepreneurial activity in an entrepreneurship

ecosystem.

Hypothesis 7: The higher share of women are employed in the high technology

sector, the higher level of entrepreneurship will be present in a given

ecosystem.

Hypothesis 8: The ratio of women employed in knowledge intensive industries,

the higher level of entrepreneurship will be present in any given ecosystem.

2.10 Public cultural expenditure by sector

It was shown above that major capitalist cities and their cultural economies are prone to exhibit well-developed individual identities, which is the result of the random turn of history, agglomeration and locational diversification. This phenomenon is most certainly rooted in the

(27)

27

fact that cultural products and service industries are progressively competing on ever more crowded global markets, and that success in this competition is advanced by the randomly originated monopoly power of places are exploited to the greatest extent in both implicit and explicit branding of products and services(Scott, 1997). This process is further supported by the positive spillover effects that almost exclusively tie different cultural sectors within a single city together into an evolving community with its characteristic styles, sensibilities and themes. This synergistic relationship is partly caused by the typical circumstance that these sectors are extensively making transactions with each other and they share the same labour market. It is also due to the fact that these sectors exploit design cultures and images drawn from the local urban context, communicating a generalized externality or competitive advantage for all (Molotoch, 1996).

The significance and efficacy of these relationships can be exemplified in numerous ways. The traditional craft industries in the towns of Third Italy represent one outstanding example. Ever since the 1970s, industrial employment in these towns has grown exponentially, and the cultural products of the region have successfully penetrated and competed in international markets where they diversified. This success was owed to their superior quality and style, which is based on a legacy of skilled craftsmanship dedicated to serving a traditionally perceptive clientele (Pyke et al., 1990; Scott, 1988). Woollen textiles from Prato, knitwear from Carpi, ceramics from Sassuolo, high-fashion shoes from Porto Sant’Elpidio, furniture from Pesaro, lace from Como and leather goods from Florence are only a few examples of cultural products that have spearheaded the recent economic growth of the Third Italy to unprecedented proportions. Apart from these now world known cultural products, local tourist resorts achieved excellence through intricate combinations of intertwining production and service functions, thus attracting consumers and tourists on the basis of unique physical or cultural assets, that is later made available for purchase and constantly reimagined as the local production system continues its now traditional process of commercialization (Urry, 1990; 1995).

It would be tremendously beneficial to investigate the economic output of major cultural producers in comparison with entrepreneurial activity. Regrettably, there does not exist any comprehensive database for the overall cultural production of any place or region.

(28)

28

However, the allocation of public expenditure on major sectors of cultural production (Museums, Musical performances, Theatre, Libraries, Radio, Television, Film production) in European countries is available. To test the relationship between individual sectors of public cultural expenditure and the performance of the entrepreneurship ecosystem, the following hypothesis will be tested.

Hypothesis 9: There is a positive relationship between the share of public cultural

expenditure allocated to a specific sector (Libraries, Museums, Performing Arts,

Theatre, Radio, Television, Visual Arts, Film production) and the level of

entrepreneurship in a given country.

The outputs of cultural-products industries are mostly inclined to a kind of convergence on place-specific product design contours and cultural content. To put it differently, cities are subject to the influence of peculiar imageries and sensibilities deeply rooted in the given place which is appropriable by individual firms within that city as competitive advantages. There are some prominent points of correspondence among important segments of these industries, due to the fact that they engage in general structures of flexible specialisation and vertically-disintegrated production processes.

2.11 Cultural Participation

Nicolas (2010) argues for the public support of increased governmental spending on cultural activities by having measured productivity increases and economic development of the region where cultural activity and participation was more present. Since entrepreneurs are inherently proactive and are known for being able to learn by doing new and old tasks and activities (Rocha et al., 2015), individuals who participate in some form of cultural activity are assumed to become more innovative and entrepreneurial in this hypothesis in order to test whether there is any notable relationship with the level of entrepreneurial activity.

(29)

29

Hypothesis 10: The prevalen

c

e of individuals who actively participated in any

form of public performance in the last 12 months has a positive relationship with

the level of entrepreneurship in an ecosystem.

Hypothesis 11: The higher the percentage of individuals who practiced any form

of visual art in the last 12 months within an entrepreneurship ecosystem, the

higher the level of entrepreneurial activity will be present.

(30)

30

3. Data and methods

In this chapter the data collection method (3.1), analytical strategy (3.2), reliability and validity (3.3) are discussed.

3.1 Data collection method

In order to test my hypotheses quantitatively so that they may hold true in terms of external validity, hard data was needed to be found about the cultural habits of people and cultural production with large enough sample sizes, which turned out to be a daunting task. There are no comprehensive databases about cultural production and habits relating to culture.

The only extensive database I could find was the COMPENDIUM database, which is a web-based and permanently updated information system of national cultural policies and trends in Europe, initiated by the Council of Europe over 15 years ago. The organization’s aim is to include increasingly extensive data on all 50 member states cooperating within the context of the European Cultural Convention.1 The COMPENDIUM database collects its data from the following sources:

- OECD PPP Benchmark Data

- European Audio-visual Observatory - EU Adult Education Survey

- EUROSTAT

- UNESCO Culture Reports

- UNCTAD Creative Economy Reports

(31)

31

The COMPENDIUM database is the most comprehensive collection of data about cultural participation of individuals, cultural production, cultural employment, and cultural public expenditure of nations, albeit only European ones.

cultural variables description of cultural variables

CDs the average price of best selling albums in a year

hat are also sold in all EU member states

Books the average price of best selling books in a year

that are also released in all EU member states

Film the average price of blockbuster films in a year

that are realsed in all EU member states

CUPIX_CICP_Median Average median of cultural industries consumer

prices Relation_to_CICP_All countries Median

the median of cultural induistries consumer prices in given counrty relative to median price of all

countries OECD_PPP_recreation_and_culture_100

median prices of cultural products in a country relative to the average PPP on recreation and

culture in OECD countries

Art_museum_tickets average price of museum tickets in a year

Music_lesson_price average price of music lesson in a given country

Opera_tickets average price of opera tickets in a given country

CUPIX_PASP_Median the median of public art services prices in a given

country relation_toÍ_PASP_MEDIAN

the median of public art services prices in a given country relative to the median of all countries' PAS

prices culture_100

the median of a country's public art services price relative to the average PPP on recreation and

culture in OECD countries

Libraries the ratio of state cultural expenditure allocated

towards Libraries

Museums the ratio of state cultural expenditure allocated

towards museums

Performing Arts(music,theatre) the ratio of state cultural expenditure allocated

towards performing arts (music, theatre)

RadioTV the ratio of state cultural expenditure allocated

towards Radio and Television channels

Visual_Arts the ratio of state cultural expenditure allocated

towards the Visual Arts

FilmVideo the ratio of state cultural expenditure allocated

towards film or video production

Public_Cultural_expenditure_per_capita total amount of governmental cultural expenditure

in a year divided by the national population

Visits_to_museums_per_capita total number of visits to museums divided by the

(32)

32

trend_past_5_yrs change in visits to museums per capita compared

to the last 5 years

Theatre_visits_per_capita total number of theatre visits divided by the

national population

trend_past_5_yrs1 change in visits to theatres per capita compared to

the last 5 years

cinema_visits_per_capita total number cinema visits divided by the national

population

trend_past_5_yrs2 change in visits to cinemas per capita compared to

the last 5 years TOTAL_percentage_public_performance

total percetage of the national population that participated in some kind of cultural performance

in the last 12 months low_education_level

percentage of poorly educated in the national population who participated in some form of

public performance in the last 12 months high_education_level

percentage of highly educated in the national population who participated in some form of

public performance in the last 12 months Female pp

percentage of females in the national population who participated in some form of public

performance in the last 12 months Male pp

percentage of males in the national population who participated in some form of public

performance in the last 12 months 2534pp

percetage of the national population aged between 25-34 who participated in some form of

public performance in the last 12 months 3554pp

percentage of the national population aged between 35-54 who participated in some form of

public performance in the last 12 months 5564pp

percentage of the national population aged between 55-64 who participated in some form of

public performance in the last 12 months total percentage visual arts

total percetage of the national population that practiced some form of visual art activities in the

last 12 months low edu visual arts

percentage of poorly educated in the national population who practiced some form of visual art

activities in the last 12 months high edu visual arts

percentage of highly educated in the national population who practiced some form of visual art

activities in the last 12 months female visual arts

percentage of females in the national population who practiced some form of visual art activities in

the last 12 months male visual arts

percentage of males in the national population who practiced some form of visual art activities in

(33)

33

2534_visual arts

percetage of the national population aged between 25-34 who practiced some form of visual

art activities in the last 12 months 3554 visual arts

percentage of the national population aged between 35-54 who practiced some form of visual

art activities in the last 12 months 5564 visual arts

percentage of the national population aged between 55-64 who practiced some form of visual

art activities in the last 12 months

Share_of_cultural_workers_in_total_employment ratio of cultural workers in total employment

Share_of_selfemployed_in_cultural_employment ratio of self.employed in any of the cultural

industries

Share_of_selfemployed_in_total_employment ratio of self-employed in total employment

cultural_employment ratio of women employed in the cultural industries

high_tech_services ratio of women employed in the high technology

industry

knowledge_intensive_services ratio of women employed in one of the knowledge

intensive services

country_total total annual public cultural expenditure by country

central_government ratio of public cultural expenditure allocated to the

central government

provincesregions ratio of public cultural expenditure allocated to

provinces or regions

municipalities ratio of public cultural expenditure allocated to

municipalities

number_of_cinemas number of total cinemas in a country

cinema_admissions_in_millions total number of cinema admissions in a year

cinema_admissions_per capita total number of annual cinema admission divided

by the national population

There is no available global database about national cultural expenditure, production, and individual habits outside of Europe. This is quite an unfortunate reality for the research at hand since there are readily available, vast collections of data that measure entrepreneurship all over the world, which would have given this research a lot more external validity. A prediction is made that an expanding body of information about cultural peculiarities of individuals in a growing number of nations will yield even more generalizable results in the future.

(34)

34

In order to measure entrepreneurial activity in a given country, the extensive set of indicators of the Global Entrepreneurship Monitor was used, which is the world’s foremost study of entrepreneurship. GEM today is the collaboration of more than 300 academic and research institutions that investigate more than one hundred national economies annually. GEM utilizes more than 500 specialists in entrepreneurship research who carry out centrally coordinated, but internationally executed data collection efforts. Over 17 years of the monitor’s foundation by the Babson College and London Business School, GEM has become the world’s richest resource of information on the subject of entrepreneurship. This is easily illustrated by the fact that GEM is a trusted resource on entrepreneurship for key international organisations like the United Nations, World Bank, World Economic Forum, and the OECD. GEM provides custom dataset, special reports and expert opinion to these important bodies, who leverage GEM’s rich data, tried and tested methodology and network of local experts to promote evidence-based policies towards entrepreneurship around the globe.

In each economy, GEM looks at two extremely intricate and comprehensive elements of entrepreneurship:

1. the entrepreneurial behaviour and attitudes of individuals (APS) 2. the national context and how that effects entrepreneurship (NES)

GEM investigates these two complex elements by carrying out two distinct surveys annually: For the measurement of entrepreneurial behaviour and attitudes of individuals the Adult Population Survey was established in 2001. In order to measure the national context related to entrepreneurship, GEM introduced its National Expert Survey in 2008.

The individual variables for the GEM Adult Population Survey and the GEM National Expert Survey can be seen below.

(35)

35

Assigned code

Adult Population Survey

variables description of variables

1. Perceived Capabilities Percentage of 18-64 population who believe they have the required skills and knowledge to start a business

2. Perceived Opportunities Percentage of 18-64 population who see good opportunities to start a firm in the area where they live

3. Fear of Failure Rate

Percentage of 18-64 population perceiving good opportunities to start a business who indicate that fear of failure would prevent them from

setting up a business

4. Entrepreneurial Intention

Percentage of 18-64 population (individuals involved in any stage of entrepreneurial activity excluded) who are latent entrepreneurs and

who intend to start a business within three years 5. Know Startup

Entrepreneur Rate

Percentage of 18-64 population who personally know someone who started a business in the past two years

6. Entrepreneurship as Desirable Career Choice

Percentage of 18-64 population who agree with the statement that in their country, most people consider starting a business as a desirable

career choice 7. High Status Successful

Entrepreneurship

Percentage of 18-64 population who agree with the statement that in their country, successful entrepreneurs receive high status

8. Media Attention for Entrepreneurship

Percentage of 18-64 population who agree with the statement that in their country, you will often see stories in the public media about

successful new businesses

9. Nascent Entrepreneurship Rate

Percentage of 18-64 population who are currently a nascent entrepreneur, i.e., actively involved in setting up a business they will own or co-own; this business has not paid salaries, wages, or any other

payments to the owners for more than three months

10. New Business Ownership Rate

Percentage of 18-64 population who are currently a owner-manager of a new business, i.e., owning and managing a running business that has paid salaries, wages, or any other payments to the owners for more

than three months, but not more than 42 months

11.

Total early-stage Entrepreneurial Activity

(TEA)

Percentage of 18-64 population who are either a nascent entrepreneur or owner-manager of a new business

12. Established Business Ownership Rate

Percentage of 18-64 population who are currently an owner-manager of an established business, i.e., owning and managing a running business that has paid salaries, wages, or any other payments to the

owners for more than 42 months

13.

Necessity-Driven Entrepreneurial Activity:

Relative Prevalence

Percentage of those involved in TEA who are involved in entrepreneurship because they had no other option for work

14.

Improvement-Driven Opportunity Entrepreneurial Activity:

Relative Prevalence

Percentage of those involved in TEA who (i) claim to be driven by opportunity as opposed to finding no other option for work; and (ii) who indicate the main driver for being involved in this opportunity is

being independent or increasing their income, rather than just maintaining their income

15.

Total early-stage Entrepreneurial Activity

for Male Working Age Population

Percentage of male 18-64 population who are either a nascent entrepreneur or owner-manager of a 'new business'

16.

Total early-stage Entrepreneurial Activity for Female Working Age

Population

Percentage of female 18-64 population who are either a nascent entrepreneur or owner-manager of a 'new business'

17. Informal Investors Rate Percentage of 18-64 population who have personally provided funds for a new business, started by someone else, in the past three years

(36)

36

18.

Growth Expectation early-stage Entrepreneurial

Activity: Relative Prevalence

Percentage of TEA who expect to employ at least five employees five years from now

19. New Product early-stage Entrepreneurial Activity

Percentage of TEA who indicate that their product or service is new to at least some customers

20.

International Orientation early-stage Entrepreneurial Activity

Percentage of TEA who indicate that at least 25% of the customers come from other countries

Assigned code

National Expert Survey

variables description of variables

19. Financing for entrepreneurs

The availability of financial resources—equity and debt—for small and medium enterprises (SMEs) (including grants and subsidies)

20. Governmental support and policies

The extent to which public policies support entrepreneurship - entrepreneurship as a relevant economic issue

21. Taxes and bureaucracy

The extent to which public policies support entrepreneurship - taxes or regulations are either size-neutral or encourage new and

SMEs 22. Governmental

programs

The presence and quality of programs directly assisting SMEs at all levels of government (national, regional, municipal)

23.

Basic-school Entrepreneurial Education and training

The extent to which training in creating or managing SMEs is incorporated within the education and training system at primary

and secondary levels

24.

Post-school entrepreneurial education and training

The extent to which training in creating or managing SMEs is incorporated within the education and training system in higher

education such as vocational, college, business schools, etc. 25. R&D Transfer The extent to which national research and development will lead

to new commercial opportunities and is available to SMEs

26.

Commercial and professional infrastructure

The presence of property rights, commercial, accounting and other legal and assessment services and institutions that support

or promote SMEs 27. Internal market

dynamics The level of change in markets from year to year 28. Internal market

openness The extent to which new firms are free to enter existing markets

29. Physical and services infrastructure

Ease of access to physical resources—communication, utilities, transportation, land or space—at a price that does not

The influence of culture on entrepreneurship ecosystems : an exploratory quantitative analysis