entrepreneurship for sustainable development - an exploration of theoretical approaches
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Diplomarbeit
Entrepreneurship for Sustainable Development
An Exploration of Theoretical Approaches
Deutscher Titel: Unternehmertum für nachhaltige Entwicklung
Eine Untersuchung von theoretischen Ansätzen
zur Erlangung des akademischen Grades Mag. rer. soc. oec.
im Diplomstudium Volkswirtschaft
Verfasser: Alexander Joshua von Gabain
0152202
Angefertigt an der Wirtschaftsuniversität Wien,
Institut für Regional-‐ und Umweltwirtschaft
Betreuerin: Univ. Prof. Dr. Sigrid Stagl Mitbetreuer: Dr. Christian Rammel
Wien, November 2012
Joshua von Gabain Entrepreneurship for Sustainable Development
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Statement of Originality
I hereby declare that this thesis has been composed by me and is based on my own work.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Acknowledgements
I am heartily thankful to my supervisor Prof. Sigrid Stagl for introducing me to the topic of Sustainability-‐driven Entrepreneurship and continuously providing me with advice and support during the process of this thesis. The same thankfulness I like to express to Dr. Christian Rammel for insightful and exciting discussions on some of the topics explored
within this work.
Further I owe my deepest gratitude for friends and colleagues at the Institute that always provided inspiring insights, comments and ideas whenever a discussion on the topic
emerged. Their openness to share their experiences and knowledge with me allowed me to create an understanding of the situation and gain insights in the complexities that this topic
entails.
Very special thanks for their personal support and comments go out to Tanja, Teresa, Annika, Ernest, Christoph, Carolina, Larah, Dorje, Tensel, Beni, Alex and Mell.
Further I must thank my whole family for giving me emotional and mental support in times
where it would not have worked without it.
I also have to give out deep acknowledgement to all members of the Brain Drain Orchestra for giving me the time I needed to complete this work.
Last but not least, I would like to dedicate this to my Grandma Muck who has been an
inspiration throughout my life and who so often provides the wisdom for life that nowhere else can be found.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Abstract
With the onset of the 21st Century, it has become more than evident that humanity is
currently pursuing a trajectory path that is not sustainable in the long run. Socio-‐economic
systems are thus in the need for achieving a transition towards more sustainable modes of
production and consumption that provide the capabilities for human well-‐being, while also
assuring that eco-‐system services can sustain themselves for the generations to come. This
transition can however not occur without new innovative forms of enterprises that line up
with a more sustainable development. But how can they be conceptualized from a
perspective of socio-‐economic theory? The current study aims to merge ideas and concepts
from the literature on Sustainable Development with ideas and concepts from
Entrepreneurship Research in order to explore current theoretical approaches for explaining
the Sustainability-‐driven Entrepreneur.
After an introduction to ideas and concepts from the literature on Sustainable Development,
a similar review is made based on the literature on entrepreneurship. Drawing on the
distinction between weak and strong sustainability, two approaches for describing
Sustainability-‐driven Entrepreneurship will be examined. The weak sustainability approach
builds on a market equilibrium framework, the strong sustainability approach builds on a co-‐
evolutionary framework. Building on the latter, issues of sustainable development such as
eco-‐efficiency, resilience, equity, sufficiency and multidimensional value criteria are
discussed in regards to the organizational design principles for the sustainability driven
entrepreneur. Going further these insights are explored in the context of socio-‐economic
transition dynamics. Last but not least, the ideas and concepts are summarized in a
concluding chapter.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Table of Contents
List of Figures ....................................................................................................... vii
List of Tables ....................................................................................................... viii
Chapter 1 Introduction ........................................................................................ 1 1.1 Research Motivation: Exploring the Challenges of our Current Economy .............. 1 1.2 Research question ........................................................................................................................... 4 1.3 Road Map ............................................................................................................................................. 5 1.4 The Limitations of this Work ...................................................................................................... 6
Chapter 2 Sustainable Development .................................................................... 8 2.1 Introduction ....................................................................................................................................... 8 2.2 A History of Ideas towards Sustainable Development .................................................... 8 2.3 Deriving a Definition for Sustainability ................................................................................ 17 2.4 Ontological Interpretations of Sustainable Development in Economics ............... 20 2.4.1 Weak Sustainability ................................................................................................................... 22 2.4.2 Strong Sustainability ................................................................................................................. 24
2.5 Main Principles of Sustainable Development .................................................................... 29 2.5.1 The Normative Principle .......................................................................................................... 30 2.5.2 The Equity Principle ................................................................................................................... 31 2.5.3 The Integration Principle ........................................................................................................ 32 2.5.4 The Dynamism Principle .......................................................................................................... 33
2.6 Models of Sustainable Development ..................................................................................... 34 2.6.1 Triple-‐Pillar Approach .............................................................................................................. 35 2.6.2 Nested Model ................................................................................................................................. 36
2.7 The Role of Enterprises for Sustainable Development .................................................. 37
Chapter 3 Dimensions of Entrepreneurship Research ........................................ 39 3.1 Introduction to the Economic Relevance of Entrepreneurship ................................. 39 3.2 The Historical Development of Entrepreneurship Research ...................................... 40 3.2.1 Early Development -‐ What is an Entrepreneur? ............................................................ 41 3.2.2 The Emergence of a Highly Interdisciplinary Field ...................................................... 42
3.3 To Equilibrate or not to Equilibrate. Is that the Question of the Entrepreneur?45 3.3.1 The Uncertainty in the Neoclassical Treatment of Entrepreneurship ................. 45 3.3.2 Schumpeter -‐ Innovative Entrepreneurs as Disequilibrating Forces ................... 46 3.3.3 Kirzner and the Austrian School -‐ Entrepreneurs as Equilibrating Forces ....... 47
3.4 Exploring Modern Themes of Entrepreneurship Research ......................................... 49 3.4.1 The Psychological “Traits" of Entrepreneurs .................................................................. 49 3.4.2 The Context of New Venture Creation ................................................................................ 50 3.4.3 The Crucial Role of Entrepreneurial Opportunities ..................................................... 52 3.4.4 The Individual -‐ Opportunity Nexus Model ...................................................................... 53
Joshua von Gabain Entrepreneurship for Sustainable Development
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3.4.5 The Value-‐creation Perspective of Entrepreneurship ................................................. 55 3.5 To Discover or to Create -‐ That is the Philosophical Debate ....................................... 56 3.5.1 Entrepreneurial Logic as Effectuation? ............................................................................ 57 3.5.2 Critical Realism vs. Evolutionary Realism ........................................................................ 57
3.6 Typologies of Entrepreneurship ............................................................................................. 61 3.7 A Summary of Ideas on Entrepreneurship ......................................................................... 61
Chapter 4 Sustainability-‐driven Entrepreneurship ............................................. 63 4.1 Introduction ..................................................................................................................................... 63 4.2 Entrepreneurial Typologies towards SuE ........................................................................... 64 4.2.1 Ecopreneurship ............................................................................................................................ 64 4.2.2 Social Entrepreneurship ........................................................................................................... 66 4.2.3 Institutional Entrepreneurship ............................................................................................. 68 4.2.4 Community Entrepreneurship ............................................................................................... 70 4.2.5 Concluding thoughts on the converging types ............................................................... 71
4.3 Sustainability-‐driven Entrepreneurship -‐ A birds eye view ....................................... 74 4.3.1 Reviewing the Research Domain of SuE ............................................................................ 74 4.3.2 Defining Sustainability-‐driven Entreprenership ........................................................... 78
4.4 SuE in the Eye of Weak and Strong Sustainability ........................................................... 81 4.4.1 Market Imperfections -‐ Equilibrium-‐based Approaches for Explaining SuE .... 81 4.4.2 A Co-‐evolutionary Model of Entrepreneurship ............................................................... 88
4.5 Organizational Principles for SuE -‐ Going beyond Eco-‐efficiency ......................... 100 4.5.1 Resilience, Adaptive Capacity, Equity and Sufficiency ............................................. 100 4.5.2 Towards an Organizational Design for SuE ................................................................. 113 4.5.3 Organizational Design within a Multi-‐value Spectrum ........................................... 118 4.5.4 The embeddedness of SuE in a dynamic context ........................................................ 121
4.6 Conclusion: Summarizing a Systems Approach for SuE ............................................. 128
Chapter 5 Conclusion ....................................................................................... 133 5.1 Summary of Research and Findings ................................................................................... 133 5.2 Limitations and Future Research ......................................................................................... 138 5.3 Outro -‐ a point for reflection .................................................................................................. 142
Chapter 6 References ...................................................................................... 146
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List of Figures
Figure 1: Linkages between Ecosystem Services and Human Well-‐Being;
Source: MEA (2005) ........................................................................................................ 15
Figure 2: Placing perspectives on a map; Source: taken from Hopwood et al. (2005) ........... 18
Figure 3: The Triple-‐Bottom Line Approach; Source: own illustration ................................... 35
Figure 4: A Nested Approach towards Sustainability; Source: own illustration ..................... 37
Figure 5: A framework for describing new venture creation; Source: Gartner (1985) ........... 51
Figure 6: The Individual-‐Opportunity Nexus; Source: own illustration .................................. 54
Figure 7: SuE incorporates social and ecological dimension; Source: own illustration .......... 74
Figure 8: Four modes of entrepreneurial response to environmental
problems/opportunities; Source: Potts et al. (2010) ...................................................... 93
Figure 9: Economic and environmental co-‐evolution; Source: Potts et al. (2010) ................. 94 Figure 10: The Sustainability Entrepreneurship Model; Source: Tilley and Young (2010) .... 112
Figure 11: A model of sustainable enterprise design. Source: Parrish (2005) ...................... 117
Figure 12: Shift to Systems View in Stakeholder Engagement;
Source: Svendsen et al. (2005) ..................................................................................... 126
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List of Tables
Table 1: UNCED "Earth Summit" in 1992 -‐ Conference Documents and Proposals ................ 14
Table 2: Root principles of sustainable development and their sources;
Source: adapted from Quental et al. (2010) ................................................................... 16
Table 3: Definitions of Sustainable Development .................................................................. 19
Table 4: Worldviews and Frameworks of Thinking; Source: adapted from Mebratu (2001);
Porter and Cordoba (2009) ............................................................................................. 21
Table 5: Comparison of some dimensions of weak and strong sustainability; Source: authors
work adopted from Gowdy and Erickson (2005) ............................................................ 29
Table 6: Entrepreneurship within different disciplines; Source: Landström (1999) ............... 43
Table 7: Comparison of Discovery vs. Creation View in regards to opportunities and
exploitation process; Source: adapted from (Sarasvathy, 2001; Alvarez and Barney,
2010; Edelman and Yli-‐Renko, 2010; Alvarez et al., 2012) ............................................. 60
Table 8: Outlining the boundaries of SuE;
Source: Adapted from Shepard and Patzelt (2011) ........................................................ 75
Table 9: Dimensions of SuE Research; Source: own compilation ........................................... 77
Table 10: Table of Definitions of SuE; Source: own compilation ............................................ 80
Table 11: Market imperfections as entrepreneurial opportunities; Source: adopted from
Cohen and Winn (2007) .................................................................................................. 83
Table 12: A Comparison of Approaches for Explaining SuE Activities; Source: own
compilation ..................................................................................................................... 99
Table 13: Principles of Survival and Purpose needs on different levels; Source: adapted from
Parrish (2005) ............................................................................................................... 116
Table 14: Traditional Firm Allocation vs. Sustainable Firm Allocation;
Source: Hofstra (2007) .................................................................................................. 119 Table 15: Comparison of exploitative and perpetual reasoning in a organizational design;
Source: Parrish (2010) .................................................................................................. 121
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Chapter 1 Introduction
1.1 Research Motivation: Exploring the Challenges of our Current
Economy
The last century is meant to have brought economic prosperity and an overall increase in the
quality of life for a large proportion of the human population. However, in this very short
time span of not even 200 years, humanity, as a species and actor on this planet has evolved
to become the major driver of biophysical activity on this planet. Population growth, the
demand for achieving affluence and therein connected use of technology and resources
have by now reached a critical mass that evidently goes beyond the ecosystem capacity to
sustain delivery of needed services and resources for human life.
First, recent publications in renown journals such as Nature and Science witness
evidence of anthropogenic resource depletion, climate change, deployment of toxic and non
biodegradable waste into the ecological system and a reduction in diversity at a magnitude
of an alarming non-‐sustainable rate (MEA, 2005; Worm et al., 2006; Foley et al., 2007;
Pachauri and Reisinger, 2007; Halpern et al., 2008). Rockström and colleagues from over 20
universities portray some of the ecological limits that we should not surpass in order to
preserve a resilient and sustainable environment (see Rockström et al., 2009). It is thus more
than evident that humankind’s use of resources and sinks, with the metabolism of
industrialized countries, outstrips the ecological limits of the planet (Haberl et al., 2009;
Running, 2012).
Second, many countries are using more than their fair share of materials, water,
available energy and resources. This has resulted in global inequality of material and energy
streams that cannot be sustained over a longer term. Industrial nations are indebted to non-‐
industrialized societies (Srinivasan et al., 2008). Given a trend of estimated population
growth of 30-‐40%, and that developing countries, encompassing two thirds of the world
population, were to evolve to current “business as usual” industrialized socio-‐economic
structures, this would require a threefold increase in global material and energy demand by
2050 (Haberl et al., 2009; Running, 2012). On aggregate, the socio-‐economic domains
mobility (automobile and air transport, including holiday travel), food (meat and dairy,
followed by the other foodstuffs), and building construction and demolition account for 70%
to 80% of the life cycle environmental impacts of industrialized countries (Tukker et al.,
2006). This provides a strong argument for policy interventions (Hertwich, 2010; Tukker et
al., 2010). While technological progress is often argued to bring about the needed reduction
Joshua von Gabain Entrepreneurship for Sustainable Development
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of biophysical resources, it has been shown that efficiency gains delivered by technological
innovation are being outbalanced by the so called “Rebound Effect”, also called the “Jevon’s
Paradox” (Binswanger, 2001; Sorrell et al., 2009). That is, material productivity improved
worldwide by an average rate of 1% per year since the 1950s, the absolute levels of material
(and energetic) use have in fact nearly doubled (Krausmann et al., 2009; Steinberger et al.,
2010). Indeed, the strong links between mineral materials and income imply that absolute
dematerialization requires a fundamental restructuring of the physical basis of economies
(Krausmann et al., 2009; Steinberger et al., 2010) towards more sustainable modes of
production and consumption.
When looking at indicators of income, economic growth and the inherent well-‐being
that it delivers, we are confronted with a third challenge. For instance, the Human
Development Index (HDI) is a composite measure of development based on indicators of
longevity (life expectancy at birth), education (mean years of schooling and expected years
of schooling) and standard of living (per capita gross national income). A comparison of 177
different nations in regards to the HDI reveals that we are experiencing a diminishing
marginal utility of income GDP per Capita (PPP $2005). This relation also shows that while
growth in per capita income is likely to improve well-‐being in developing countries, the same
may not be true for developed countries (see Jackson, 2009). However, when taking the
dimension of income distribution into consideration empirical work suggests that health and
social problems are worse in more unequal countries (Oishi et al., 2011; see Pickett and
Wilkinson, 2011). So while there is a stark discussion on how to measure inequality, recent
reports do highlight rising inequity as an important dimensions that cannot be neglected in
regards to the well-‐being of a global society (OECD, 2008; Stiglitz et al., 2011; Stiglitz, 2012).
Another dimension can be ascribed to the economic challenges. As a follow up to
the economic crisis of 2007 many industrialized countries experienced the challenge of
increasing government debt while being confronted with a suppressed demand and hence
economic growth. Many of the OECD countries are thus struggling with rising levels of
unemployment. While a return to business as usual may be regarded as a solution to the
dilemma, it also is confronted with ever increasing carbon emissions with current technology
infrastructures (see York, 2012). While emerging countries like China, India and Brazil show
room for economic growth they are still largely dependent on exports to OECD countries. At
the same time, their ever-‐increasing demand for resources per capita becomes evident in
rising prices that put pressure on household incomes as well as company balance sheets.
The need for investing in a green economy is more than evident (UNEP, 2012). Hence, there
Joshua von Gabain Entrepreneurship for Sustainable Development
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needs to be a shift from labor productivity towards paying attention to resource productivity
(UNEP, 2011).
As a consequence of these challenges there has also been intensive research on the
need to decouple economic growth from material and energy use while achieving more
fairness and intergenerational equity (Ayres, 2008; Victor, 2008; Jackson, 2009). Some
authors thus argue that the goal of economic development should thus not be to maximize
GDP but to improve human well-‐being and quality of life (Layard, 2005; Jackson, 2009;
Sorrell, 2010; Costanza et al., 2011) while staying within the boundaries of the ecosystem
carrying capacity. Although these problems pose an enormous challenge for economies on a
local, national and global scale, research suggests that that high human development (as
measured by the HDI) can be achieved at fairly moderate energy and carbon levels. In
contrast, increases in energy and carbon beyond a certain threshold may fail to contribute to
higher standards of living (Suárez, 1995; Steinberger and Roberts, 2010). This would imply
the potential for a steady state of material and energy throughput. Inevitably "a new growth
engine is needed, based on non-‐polluting energy sources and selling non-‐material services,
not polluting products” (p.292, Ayres, 2008). Research streams within the economic sciences
thus suggest that we are in the need for a systemic transition towards a more sustainable
socio-‐ecological economy (Daly, 1991a; Ayres, 2008; Victor, 2008; Beddoe et al., 2009;
Jackson, 2009; Costanza et al., 2011). Consequently this also involves changes in behaviors,
lifestyles, daily routines, beliefs and worldviews in order to induce this wider socio-‐economic
change (Beddoe et al., 2009).
More recently, there has been an intensifying discussion on the role of the
Sustainability-‐driven Entrepreneurship (SuE) in complementing and to some extent driving a
transition to a more sustainable path (within biophysical limits and social fairness) on an
intergenerational scale (Dean and McMullen, 2007; Parrish and Foxon, 2009; York and
Venkataraman, 2010). From a practical perspective, the experimentation of more
sustainable modes of production has taken shape in many different societies, civilisations
and era’s of human development. Modern organic farming and sustainable modes of
housing in the UK emerged during the 1920s (Smith, 2007). Nonetheless, it still represents
only a niche in terms of production share of the total economy. From a research perspective,
the literature on the topic on sustainability driven entrepreneurship (SuE) is widely
dispersed. It also comes from a range of different disciplines and academic perspectives,
such as socio-‐entrepreneurship and eco-‐entrepreneurship, highlighting different important
attributes and characteristics. The purpose of this work is to investigate the theoretical
Joshua von Gabain Entrepreneurship for Sustainable Development
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approaches for explaining the phenomena. Thereby it integrates relevant ideas and concepts
from sustainable development with ideas and concepts from entrepreneurship research.
Through this, it is hoped to gain a better understanding of how the sustainability-‐driven
entrepreneur actually can be explained, interpreted and theoretically conceptualized from a
socio-‐ecological perspective. This also involves comparing ideas and concepts from
environmental economics with that of ecological economics, and to connect these with
insights from entrepreneurship research.
1.2 Research question
This work is an attempt to reconcile relevant concepts and theoretical principles from the
literature on sustainable development with that of entrepreneurship research in order to
describe the phenomena of Sustainability-‐driven Entrepreneurship from a socio-‐ecological
perspective.
• How can the Sustainability-‐driven Entrepreneur be theoretically conceptualized in
regards to a weak and strong sustainability perspective?
Consequently the following sub-‐questions will also be confronted:
• What concepts, elements and theoretical perspectives from entrepreneurship and
sustainable development are useful for describing the sustainability driven
entrepreneur?
• What kind of models of SuE can be derived from these insights?
• In what ways can research inform us about the diffusion process of sustainability
driven entrepreneurial activities into the larger economy?
• Last but not least, what benefits can SuE bring to the larger socio-‐economy?
Joshua von Gabain Entrepreneurship for Sustainable Development
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1.3 Road Map
This work investigates the theoretical approaches that have emerged to describe the
phenomenon of Sustainability-‐driven Entrepreneurship (SuE). It can be described as an
attempt to merge the areas of entrepreneurship with insights from sustainable
development. The thesis thereby has a theoretical outset and focuses on reviewing and
investigating theoretical approaches that are relevant for describing the phenomenon.
The second chapter will give the reader an introduction to the research area of
sustainable development. This involves a brief review of its historical development and
intellectual roots and a discussion on the difficulties of defining the term. Next the different
emerging epistemic worldviews of interpreting sustainable development within the
economic sciences will be briefly depicted before presenting two relevant approaches for
this research: An environmental economics and an ecological economics framework
approach. These will be especially contrasted by the academic discourse that builds upon
the differentiation of "weak" and "strong" sustainability. Then we will make a brief
introduction to some principles of sustainable development that have emerged as important
pillars within the academic discourse. This will be followed by a depiction of two simple
visual models that have gained popularity within the sustainability discourse. We will finish
with a brief review on the 'business case' for sustainable development that serves as a
transition to the next two chapters.
The third chapter will give a general review of literature on entrepreneurship. This
will highlight its classical historical roots and the role of entrepreneurial activity for
economic development from two economic perspectives, namely that of Joseph Schumpeter
and Israel Kirzner. Then it will present modern definitions, concepts and approaches that
have become widely recognized as relevant dimensions for entrepreneurship research. The
chapter proceeds with a discussion on the epistemological underpinnings of the different
streams within entrepreneurship research so as to connect it with ideas developed in the
previous chapter. After highlighting the big role of typologies within entrepreneurship
research a brief summary on the insights that this chapter made will be given.
The forth chapter aims to develop a better understanding of Sustainability-‐driven
Entrepreneurship (SuE). It will begin with a brief elaboration of related types of
entrepreneurship. Ecological, social, institutional and community entrepreneurship all
highlight dimensions that are relevant for understanding SuE. Building on these insights, a
brief review of existent research of SuE can be made. This then allows for an attempt to
define SuE. This will bring us to the core focus of this work, which deals with investigating
Joshua von Gabain Entrepreneurship for Sustainable Development
6
two theoretical approaches for explaining the phenomenon. Building on the dichotomy of
weak and strong sustainability, a market equilibrium oriented approach and a co-‐
evolutionary model of entrepreneurship will be presented, analyzed and compared. This will
be followed by an exploration of the concepts of eco-‐efficiency, resiliency, equity, sufficiency
in relation to Sustainability-‐driven Entrepreneurship and Enterprises. This also involves
looking at a corporate sustainability and management oriented approach, and a systemic
and multidimensional value perspective that can deduce some ideas and principles for the
design of organizations by SuEs within a strong sustainability approach. A last section will be
placing these insights back into the dynamics context of the current economic transition. It is
thus inevitable that research areas of innovation, organization, socio-‐technical economic
development and transitions will be, while not systematically investigated, touched upon.
Last but not least, we will conclude and summarize the ideas and insights gathered in order
to derive a systemic perspective of SuE.
We will end with a concluding chapter that reflects and summarizes the findings of
the previous chapters, highlighting limitations and areas for future potential research. This
chapter will end with an outro that aims to be a broader discussion on the implications of
the insights gained on SuE and its potential contribution for a sustainable economy.
1.4 The Limitations of this Work
The limitations of this work are three, albeit interrelated. First, an investigation on the role
of enterprises for sustainable development spans several interrelated areas. One area deals
with firms in general and how they implement factors of sustainable development (i.e.
Corporate Social Responsibility). Another interesting area of research deals with innovation
for sustainability (Vollenbroek, 2002; Smith et al., 2010). A larger area involves investigating
these components within the larger system dynamics of sustainable development. This
implies looking at transition research (for instance Geels, 2002; Rotmans and Loorbach,
2009) and innovation system approaches (Geels, 2004; Coenen and López, 2010; Jacobsson
and Bergek, 2011). The purpose of this work is to investigate entrepreneurship in regards to
sustainable development from a systemic perspective. So while having set a focus, it is
inevitable that the other areas just described will also have to be considered, nonetheless
not fully covered.
The second limitation builds on the fact that this work does not have a sectorial
focus. While this work continually draws on specific examples from literature, no attempt is
made to develop a detailed framework of sustainability driven entrepreneurial activities
Joshua von Gabain Entrepreneurship for Sustainable Development
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within a specific domain, sector and/or regional focus (i.e. rural vs. urban). Nonetheless, by
making a broader investigation of the topic, it is hoped to uncover some general principles
for sustainability driven entrepreneurship that could be considered in future in-‐depth
studies within specific sectors or domains.
The third limitation is the lack of any empirical research. This is simply due to the fact
that this work has a theoretical focus. However, this theoretical exploration of core ideas
developed within literature on sustainable development and entrepreneurship can be seen
as a vital initial step for designing new interesting areas of research that can enhance the
understanding of the process of sustainability driven entrepreneurship, and its
embeddedness in a transition towards a sustainable economy.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Chapter 2 Sustainable Development
2.1 Introduction
This chapter will explore the research field of sustainable development. First it will give an
introduction to the historical development of the concept as well as discussing issues of
defining the term. Second, there will be brief elaboration on the issue of worldviews
(ontology and epistemology) when investigating sustainable development. Building on this
discussion, a simple differentiation between weak and strong sustainability can be made
within the economic discipline. This also involves a presentation of environmental and
ecological economics. Each takes a different ontological outset to address the challenges of
sustainable development. As a follow up, the third part will summarize some main principles
that may be derived from the literature. A fourth section will depict two simple visual
models of sustainability that are often used within the sustainable development debate. The
last section will conclude with a very brief discussion on the role of enterprises in regards to
sustainable development.
2.2 A History of Ideas towards Sustainable Development
The term Sustainability ("Nachhaltigkeit") was first used in Germany during the 17th Century
in the discourse on how to manage the growth and use of forestry land. Another early, yet
important, contribution to the discussion of sustainable development was Thomas Robert
Malthus's publication „Essay on the Principle of Population“ in 1789. Therein he argued that
exponential growth in population would be constrained by a non-‐exponential growth of
resources, especially agricultural nutrition. As a consequence of this dilemma he foresaw an
emerging shortage that would lead to hunger, epidemics and wars for resources that would
induce a decline in overall population levels again. While it was one of the first works that
dealt with constraints on population growth and limits of resources, and hence questions of
sustainable modes of growth, his work lost relevance with the spread of the industrial
revolution. Through the historical continuation of technical progress, productivity growth as
well as the introduction of fossil fuel based energy sources, his arguments were interpreted
to have lost relevance.
On of the great classical economists, John Stuart Mill, also questioned the prospects
of endless economic growth. The questioning of an endless economic growth paradigm is
also to be found in Karl Marx as well as Adam Smith. J.S. Mill suggested growth might one
Joshua von Gabain Entrepreneurship for Sustainable Development
9
day reach a steady state of capital wealth, albeit still giving opportunity for human
improvement. Even John Maynard Keynes raised thoughts upon endless economic
expansion and that there might be a time “much sooner perhaps than we are all of us aware
of, when these needs are satisfied in the sense that we prefer to devote our further energies
to non-‐economic purposes” (Keynes, 1930).
With the turn of the 20th century and the emergence of neoclassical economic
theory, the discussion on resource constraints was widely neglected until the middle of the
century. This is largely due to the modeling framework that was inspired by Newtonian
physics and the mathematical models on the first law of thermodynamics in closed systems.
Equilibrium economics, marginal utility theory and the circular closed system depiction of
economic activity thereby withdrew any need to focus on the interactions between the
economy and the environment. So while industrial countries have been challenged with
environmental degradation in many facets throughout its early rise, it was not until the
1960s that the impact of socio-‐economic activity on the environment became an issue of
discourse in the broader social and political arena.
One of the first writings that discussed the interlinkages between human action and
nature was the book "Silent Spring" by Rachel Carson, published in 1962. There she
investigated the impact of the use of pesticides on the environment and human health. Her
research also posed questions and concerns of an intergenerational scope. Another
important publication was "The Population Bomb" by Paul and Anne Ehrlich (1968). There
they re-‐investigated Malthus's thoughts on the dangers and limits of exponential population
growth in an environment where natural resources are in limited supply. Shortly thereafter
Paul Ehrlich and colleagues also published the famous I-‐PAT equation. Impact is thereby
seen as a result of Population growth x Affluence (consumption for well-‐being per person) x
Technology (environmental impact in the production of goods and services per person)
(Ehrlich and Holdren, 1971; see also Victor, 2008).
Another important publication was Garret Hardin's article "Tragedy of the
Commons" in 1968. He critically assessed the impact of socio-‐economic activity on common
pool resources, such as water, air and fish stocks, for which there was no direct ownership.
He described a dilemma that arises when rational individual actors seek to maximize their
self-‐interest, thereby overexploiting these common pools. Stressing this as a social dilemma
fueled a discussion on how open access resources are to be regulated in the form of
management systems and of enforcement mechanisms (Quental et al., 2010). The recent
Nobel laureate Elinor Ostrom investigated the regulation of these common goods in greater
Joshua von Gabain Entrepreneurship for Sustainable Development
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detail, suggesting that local and communal regulation often achieves a sustainable use of
open access resources much better than either centrally (state) controlled solutions or than
market driven solutions. The work of these authors can be regarded as to have set the tone
for an increased environmental awareness within the civic, political and scientific
community.
Another publication with strong public impetus was the 1972 report of the Club of
Rome named "The Limits to Growth". It was a computer simulation that attempted to model
scenarios of possible trajectories regarding the growth of resource use, pollution, population
growth and environmental impact up until the 21st Century. They concluded that "if the
present growth trends in world population, industrialization, pollution, food production, and
resource depletion continue unchanged, the limits to growth on this planet will be reached
sometime within the next 100 years" (Meadows et al., 1972). Their rather pessimistic picture
of how growth is likely to become limited by ecological and population constraints, and the
parallel onset of the first oil crisis in 1972, fueled a discussion on the need to pursue an
alternative trajectory of human socio-‐economic development if it wishes to sustain itself.
Most of all, it challenged the basic human assumptions on unrestrained and endless growth
(Quental et al., 2010). The publication, however, also received a lot of criticism in regards to
their data source and modeling methodology, especially from the economic sciences. One
criticism, for instance highlights the model to lack technological improvements, as well as
the lack of price market mechanisms in the model (for instance Nordhaus, 1973). Another
well known discussion emerged in regards to the possibilities of substituting natural capital
with man-‐made capital (see Stiglitz, 1974 among others). So while it was initially disregarded
within mainstream economic discourse, it initiated further academic and political research
on the issues (see Victor, 2008). More recent papers that re-‐evaluated the results of the
model highlight that the projections of 1972 are still of relevance today. Further their
projections are said to be in line with current patterns of consumption, population growth
and environmental depletion (Turner, 2008).
Another highly relevant, yet very academic, publication that questioned economic
theorizing on growth was the work by Nicholas Georgescu-‐Roegen. In ‘The Entropy Law and
the Economic Process’’ (1971) he explored the implications of thermodynamic principles
(specifically the 2nd Law of Thermodynamics) on economic theory. The scope of his book
was extremely interdisciplinary including fields such as physics, economics, and the
philosophy of science. He thereby highly criticized the closed loop perception of mainstream
economic theory that disregarded resource flows from nature. Further he elaborated on the
Joshua von Gabain Entrepreneurship for Sustainable Development
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implications of entropy law for economic processes and how economic theory should be
grounded in biophysical reality (Røpke, 2004).
Steady-‐state Economics
Herman Daly, a World Bank economist and early student of Georgescu-‐Roegen, re-‐
introduced the idea of steady state economics. Building on the ideas of thermodynamic
constraints, but also on ideas by John Stuart Mill, Daly proposed that due to the Earth's
limited carrying capacity an ever-‐increasing throughput growth cannot be seen as a plausible
objective. Thus he proposed ‘‘development without growth’’ (p.69, Daly, 1996), implying a
steady state of (material) throughput. He understood growth as a quantitative increase in
the physical scale of throughput. Development, on the other hand, was to be understood as
an increase in services obtained from both higher production efficiency (stock per unit of
throughput ratio) and effectiveness (service per unit of stock ratio) holding throughput
constant (Quental et al., 2010). This qualitative development occurs from improved
technical knowledge or from a deeper understanding of purpose (Daly, 1968). Further, he
argued that since the sources of social welfare are the capital assets of an economy, they
must not be depreciated through time. However, according to Daly, this is what is currently
happening with natural capital and thus rendering it the limiting production factor in the
economy (Quental et al., 2010). From this Daly concluded that sustainable development is
only possible in a steady-‐state economy whose scale is sufficiently small so as to allow the
proper function of the Earth’s ecosystems to proceed (Daly, 1996). While mainstream
economists initially rejected his ideas, his work nonetheless spurred a discussion on the
possibilities and needs of achieving a steady state economy that does not seek to achieve
exponential growth.
In the year 1972 the United Nations Conference on the Human Environment (UNCHE) was
held in Stockholm. The conference ratified the Declaration of the United Nations Conference
on the Human Environment, also known as the Stockholm Declaration. It contained 26
common principles “to inspire and guide the peoples of the world in the preservation and
enhancement of the human environment” (UN, 1972). Indira Ghandi made a speech that
linked the need for poverty alleviation with that for the protection of the environment. This
event can be seen as an initial stage for many of the subsequent conferences and
agreements. One of these was the World Conservation Strategy in 1980 that can be seen as
one of the first attempst to carry the concept of sustainability beyond simple renewable
Joshua von Gabain Entrepreneurship for Sustainable Development
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resource systems (Lele, 1991). It suggested three principles for ecological sustainability: the
maintenance of essential ecological processes and life-‐support systems, the preservation of
genetic diversity, and the sustainable utilization of species and resources.
As a late follow up of the 1972 Conference, one of the most influential reports was
published by the United Nations under the World Commission on Environment and
Development (WCED, 1987). It was chaired by the Norwegian Prime Minister Gro Harlem
Brundtland and was therefore often referred to as "The Brundtland Report". As one of the
most cited documents in the sustainable development literature (Quental et al., 2010) it
popularized the term "sustainable development" (Robinson, 2004) defining it as
"development that meets the needs of the present without compromising the ability of
future generations to meet their own needs" (p.25, WCED, 1987). However, the report also
exclaims a more operational definition that is often not mentioned: “In essence, sustainable
development is a process of change in which the exploitation of resources, the direction of
investments, the orientation of technological development, and institutional change are all
in harmony and enhance both current and future potential to meet human needs and
aspirations.” (p.27, WCED, 1987). Based on the normative and procedural definition the
report proposed seven critical objectives for environment and development: (1) reviving
growth, (2) changing the quality of growth, (3) meeting essential needs for jobs, food,
energy, water, and sanitation; (4) ensuring a sustainable level of population, (5) conserving
and enhancing the resource base, (6) reorienting technology and managing risk, and (7)
merging environment and economics in decision making (WCED, 1987). Based on these
objectives they further proposed a reorientation in international economic relations.
Robinson (2004) describes the report to combine both radical and reformist
elements. From a radical perspective, the report explicitly linked environment with
development. The WCED exclaimed that the complex issues of environmental deterioration
and ecological sustainability could not be achieved without addressing the equally complex
issues of human development and poverty since they are so heavily entwined (Robinson,
2004). The reformist element has to do with the strongly human-‐centered nature of the
Brundtland report (Waas et al., 2011). It proposed that the solution to both over-‐ and under-‐
consumption lay in endorsing more, not less, human development. However, with the need
to be sensitive to environmental impact, the report highlights that over-‐development, in the
form of more of the same, should be replaced with a new (and sustainable) modes of
development (i.e. a qualitative change in growth) (Robinson, 2004). In order to meet these
challenges they called for a 5 to 10 fold increase in gross world industrial output over the
Joshua von Gabain Entrepreneurship for Sustainable Development
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next century to meet the needs of the poor. To conclude, the Brundtland focused strongly
on socio-‐political and distributional issues. It thereby prioritized collective institutional
responses, efficiency gains, and social responsibility for meeting human needs over change
in individual spiritual values, behavior and responsibility (Robinson, 2004).
The Brundtland Report also set the stage for the groundbreaking United Nations
Conference on Environment and Development held in Rio de Janeiro in 1992 (also known as
the Earth Summit). The UNCED is often interpreted as the official worldwide political
endorsement of sustainability as a new development model (Waas et al., 2011). About 180
countries sent officials from their head of state and between 20,000 and 30,000 individuals
from NGOs, institutions, affiliated actors and media groups participated at this event1.
Building on the ideas from the UNCHE of 1972 and the Brundtland report, the conference
resulted in a set of documents and proposals summarized in Table 1.
The Rio Conference was successful in declaring areas of issues among the majority
of the world’s stakeholders. However, as these were not legally binding the implementation
of ideas and concepts only progressed at a slow pace. Nonetheless, other conferences
followed up on the issues of sustainable development. One of these was the United Nations
Millennium Summit in 2000 where world leaders gathered to discuss challenges for the 21st
Century. The summit ratified the United Nations Millennium Declaration that recognizes a
"collective responsibility to uphold the principles of human dignity, equality and equity at
the global level" (paragraph 2, UN, 2000). Some of the key objectives declared in the summit
were a source of inspiration for the Millennium Development Goals adopted by the United
Nations member states in 2001 (Houppermans, 2010). Other conferences of relevance are
the Earth Charter (2000), United Nations World Summit on Sustainable Development (2002)
and Rio+20 United Nations Conference on Sustainable development (2012). Describing these
in detail here, although interesting, would go beyond the focus of this work. But the issues,
areas and goals of sustainable development that were dealt with may be summarized as
(among others): Poverty, Water and Sanitation, Health, Education/illiteracy, Sustainable
production-‐ and consumption patterns, Climate change and energy systems, Chemicals,
Urbanization, Ecosystems, biological diversity and land use, Utilization of sea resources,
Food and agriculture, Trade Justice, Social stability, democracy and good governance, Peace
and Security (compiled by Abrahamsson, 2007). One of the more recent reports was the
Millennium Ecosystem Assessment that also connected the challenges of ecosystems with
the constituents of well-‐being (see Figure 1). 1 http://www.eoearth.org/article/United_Nations_Conference_on_Environment_and_Development_(UNCED),_Rio_de_Janeiro,_Brazil
Joshua von Gabain Entrepreneurship for Sustainable Development
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The Rio Declaration on Environment and Development: This short document entails 27 principles for guiding future sustainable development around the world. The principles provide guidance on issues of state sovereignty, rights to development, eradication of poverty, etc1. Agreement on the United Nations Framework Convention Climate Change (UNFCCC): The objective of this legally non-‐binding environmental treaty is to stabilize greenhouse gas concentrations in the atmosphere within safe level. This treaty eventually led to the legally binding Kyoto Protocol in 19972. The Forest Principle is a non-‐legally binding document making recommendations for the conservation and sustainable development for all types of forestry3. The Convention on Biological Diversity. This international legally binding treaty has three main goals. Conservation of biological diversity, sustainable use of its components, fair and equitable sharing of benefits arising from genetic resources4. The Agenda 21 as a non-‐binding comprehensive plan of action that governments, international organizations, industries and the communities can pursue in order to achieve sustainability. It was signed by 178 Nations and contained four sections with a total of 40 guiding chapters5:
-‐ Social and Economic Dimensions (combating poverty, changing consumption patterns, promoting health, achieving a more sustainable population, and integrating environment and development into modes of decision making).
-‐ Conservation and Management of Resources (Climate Protection, Forest Protection, Biodiversity, pollution control management of biotechnology and radioactive wastes).
-‐ Strengthening the Role of Major Groups (NGOs, Women, children and youth, indigenous communities and initiatives, business and industry and scientific and technology community).
-‐ Means of Implementation (science, education, technology transfer, international institutions and cooperation, and financial mechanisms and resources).
Future conferences reaffirmed, appraised and evaluated the commitment and progress of the Agenda 21. Sources: 1 http://www.unep.org/Documents.Multilingual/Default.asp?documentid=78&articleid=1163 2 (UN, 1992a) 3 http://www.un.org/documents/ga/conf151/aconf15126-‐3annex3.htm 4 http://www.cbd.int/undb/media/factsheets/undb-‐factsheets-‐en-‐web.pdf 5 http://sustainabledevelopment.un.org/agenda21/ Table 1: UNCED "Earth Summit" in 1992 -‐ Conference Documents and Proposals
Another, albeit more academic, stream that dealt with issues of sustainable development
emerged out of work that focused on the study of growth and development patterns, as well
as conservation of ecological systems, nonetheless from a complex systems perspective. This
was an attempt to study and describe systems that are far from equilibrium and thereby do
not regard systems as deterministic, predictable and mechanistic. Instead, systems were
described as non-‐linear, with diversity of agents, dispersed interaction, crosscutting
hierarchical organizations, continual adaptation, perpetual novelty, and far-‐from-‐equilibrium
dynamics. Due to the non-‐linear dynamics path-‐dependency emerges (see Folke, 2006) for a
more detailed description). Especially the work by C.S. Holling illustrated the emergence of
multiple states of stability domains or multiple basins of attraction in ecological systems due
to the existence of path dependency. He related this phenomenon to ecological processes,
random events in the form of disturbances, and heterogeneity of temporal and spatial scales
(Holling, 2001; Folke, 2006). He thereby introduced the term resilience. "Resilience
Joshua von Gabain Entrepreneurship for Sustainable Development
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determines the persistence of relationships within a system and is a measure of the ability of
these systems to absorb changes of state variables, driving variables, and parameters, and
still persist’’ (p.17, Holling, 1973). He contrasted this to 'stability', also often denoted as the
engineering resilience perspective. This he defined as "the ability of a system to return to an
equilibrium state after a temporary disturbance" (p.17).
Figure 1: Linkages between Ecosystem Services and Human Well-‐Being; Source: MEA (2005)
Going further, resilience also provides for adaptive capacity in terms of "the opportunities
that disturbance opens up in terms of recombination of evolved structures and processes,
renewal of the system and emergence of new trajectories" (p.259, Folke, 2006). Hence these
interrelated concepts were the breeding ground for a new way of studying socio-‐economic
and socio-‐ecological systems. It spurred a new way of discussing the interplay between
disturbance and reorganization, and sustaining and developing. Thereby the issues of
adaptive capacity and transformability, learning and innovation become the focus of study
while realizing that systems are integrative, and experience feedbacks and cross-‐scale
dynamic interactions (Folke, 2006). As a consequence of this approach, Holling described
sustainability as "the capacity to create, test, and maintain adaptive capability" while
expressing development as "the process of creating, testing, and maintaining opportunity"
Joshua von Gabain Entrepreneurship for Sustainable Development
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whereby sustainable development refers to "the goal of fostering adaptive capabilities while
simultaneously creating opportunities" (p.399, Holling, 2001). Important work by authors
that must be highlighted are "Panarchy -‐ Understanding transformations in human and
natural systems" by L.H. Gunderson and C.S. Holling in 2001; but also work by Ellinor
Ostrom, Carl Folke, Firkes Berkes have made great contributions.
To conclude the presentation of the historical roots of the sustainable development
concept, one may distinguish between six root issues that have been evident in the
discussion of sustainability: ecological/carrying capacity, resources/environment, biosphere,
critique of technology, no-‐growth/slow growth, and eco-‐development (Kidd, 1992). More
recently, Quental et al. (2010) try to derive a different set of principles that can be
understood as the backbone of the current scientific understanding of sustainability.
Further, they connect it to core works and scientific disciplines from which these principles
gained their roots, some of which have been described in this section (see Table 2). They
ascribe these principles to especially stem from three different scientific approaches:
Ecological Economics, Sustainability Transition and Sustainability Science. Many of their
facets and ideas from these disciplines will be addressed throughout this work, especially
Ecological Economics, albeit only in relation to the focus of this writing.
Principle Description Major Sources of ideas The limits principle The human economy is embedded within the
ecosphere. As such, sustainability depends on ensuring that the scale of the human economy is low enough to allow the maintenance of healthy life support systems;
"The population bomb" "The tragedy of the commons" Thermodynamics The limits to growth
The means & ends principle
Natural resources and economy have an instrumental value in fulfilling the ultimate ends of society. Economic growth is not understood as an end in itself but an instrument that can help achieving higher-‐order ends such as human well-‐being and freedom;
Steady state economics Sustainability Pyramid Development as Freedom (Sen, 1999)
The needs principle
Each system, and every human being, has its own minimum needs in order to be viable. These irreducible needs must be satisfied independently and cannot be aggregated;
Our Common Future Incommensurable needs
The complexity principle
Systems exhibit complex behavior, namely through multiple stable equilibria and non-‐linear behavior, and may even collapse when thresholds are reached.
Complex social-‐ecological systems Panarchy, adaptive cycles and resilience
Table 2: Root principles of sustainable development and their sources; Source: adapted from
Quental et al. (2010)
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2.3 Deriving a Definition for Sustainability
It becomes evident from the brief review of the historical development that many
different definitions and approaches have emerged that attempt to conceptualize
sustainable development. For instance, by 1994 there were more than 80 different
definitions and interpretations that built on the core concept of the WCED’s definition
(taken from Mebratu, 1998). But there has also been a fair amount of skepticism in regards
to the concept itself.
For instance, the term has been stated to be something of an oxymoron (Robinson,
2004). Daly argued that the term is often used as a synonym for 'sustainable growth', as the
call for a 5 to 10 fold increase in industrial output by the Brundtland report would suggest.
This would, according to Daly, however surpass the biophysical limits of eco-‐system
capacities (Daly, 1990). Redclift (2005,p.225) claims that the term 'sustainable development'
prompted "a number of discursive interpretations of the weight to be attached to both
‘development’ and ‘sustainability’". Holling (2001) on the other hand, who approaches the
topic of from a complex systems perspective argues it would not to be interpreted as an
oxymoron if one were to adopt the panarchy approach. "A panarchy is a representation of a
hierarchy as a nested set of adaptive cycles. The functioning of those cycles and the
communication between them determines the sustainability of a system" (p.396, Holling,
2001)2. Hence it may be asked if the term resilience (and adaptive capacity) is better suited
to describe the issues conferred on within sustainable development.
Another debate builds on the argument that sustainable development deviates from
addressing current world issues in an appropriate manner. When interpreted as an
anthropocentric approach, it does not put the current trajectory of growth and development
in a new form of ethic, a new set of values, and a new way of relating to the natural world
(as proposed by the deep ecologists). Further, the reformist perspective is criticized for
avoiding questions of power, exploitation, an even redistribution (as suggested by social and
political ecologist among others) (Mebratu, 1998; see Robinson, 2004; Redclift, 2005;
Sneddon et al., 2006 for a more detailed discourse). Hopwood et al. (2005) attempted to
place many of the different perspectives on a two-‐dimensional map. While useful for gaining
a brief overview (see Figure 2), it has also been criticized for not capturing the real
complexity that the debate on sustainability incorporates (see Davidson, 2011).
2 This will be discussed in more detail in Chapter 3.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Figure 2: Placing perspectives on a map; Source: taken from Hopwood et al. (2005)
The difficulties of defining sustainable development has also brought forth the issue of the
term being operationalized for activities that in reality cannot be considered as sustainable
processes (Robinson, 2004). That is, it has spurred initiatives of certifications, labeling and
standards that serve the purpose of communicating sustainability concerns by enterprises
and institutions (such as "Corporate Social Responsibility"). Thereby the term is often
adapted to suit to the purpose of the operand's goals while not dwelling on the real
concerns of sustainable development. While this is often recognized as 'green-‐washing' or
'green hypocrisy', it can also be understood as an initial attempt for communication and
discourse on what sustainable development really implies within the broader society
(Robinson, 2004).
Due to this variety and inherent vagueness of the term, a great discussion on what
sustainable development actually implies has been stimulated ((Pearce, 1988; Lele, 1991;
Robinson, 2004; Sneddon et al., 2006; Quental et al., 2010) (Kidd, 1992) (Hopwood et al.,
2005). For instance, the ecological economist Richard Norgaard wrote in 1988 "With the
term meaning something different to everyone, the quest for sustainable development is off
to a cacophonous start." (p.607, Norgaard, 1988). He proceeds by showing how the
understanding of the concept differs depending on the perspective one takes (i.e. local,
regional, biophysical, cultural, global etc.). Hence, Mebratu (1998) as well as Waas et al.
(2011) explain the reason to lie in its normative nature, the different disciplinary,
philosophical positions and professional backgrounds of concepts, and the resultant political
discourse among different stakeholders on its meaning and how to achieve it. As a
consequence, Kemp and Martens (2007) welcome a more open definition as it may in fact
Joshua von Gabain Entrepreneurship for Sustainable Development
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help communities and groups of actors to identify sustainability programs and actions that
are adapted to their concerns. Rigid and non-‐flexible definitions of the concept may in
contrast hinder such activity from taking place. Hence "what sustainable development
precisely encompasses varies greatly amongst various stakeholders" (p.1644, Waas et al.,
2011). As (Robinson, 2004, p. 374,) writes, “any attempt to define the concept precisely,
even if it were possible, would have the effect of excluding those whose views were not
expressed in that definition."
Going further, it has to be noted that the term “sustainability” is often used as a
synonym of “sustainable development”. However, it must be recognized that the terms offer
considerably different viewpoint (Waas et al., 2011). For instance some scholars argue that
sustainability stands for the goal or endpoint, whereas sustainable development refers to
the “process” to achieve this goal (see Reid, 1995; Diesendorf, 2000; Waas et al., 2011).
When investigating the phenomena for the purpose of this work, both the endpoint and
process can be seen as relevant. However, since many scholarly articles often use these
terms interchangeably, this work will do so too for the purpose of maintaining a literary
flow. What such variation of the term does make necessary however, is the need to present
some definitions for the purpose of this thesis (see Table 3).
Source Definition World Comission on Environment and Development (WECD), 1992
"Development which meets the needs of the present without compromising the ability of future generations to meet their own needs"
World Business Council for Sustainable Development (WBCSD), 1992
"Business leaders are committed to sustainable development, to meeting the needs of the present without compromising the welfare of future generations. This concept recognizes that economic growth and environmental protection are inextricably linked, and that the quality of present and future life rests on meeting basic human needs without destroying the environment upon which all life depends".
Holling (2001) "Sustainability is the capacity to create, test, and maintain adaptive capability. Development is the process of creating, testing, and maintaining opportunity." “Sustainable development therefore refers to the goal of fostering adaptive capabilities while simultaneously creating opportunities."
Table 3: Definitions of Sustainable Development
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2.4 Ontological Interpretations of Sustainable Development in
Economics
While there have been many attempts to reconcile and identify the core messages within
the many different approaches, these all differ in their outline of the most important
principles. Hence it is not a coincidence that Pezzoli (1997) highlighted that many queries
about the conceptual basis of sustainable development begin by raising fundamental
epistemological issues. The author continuous to define epistemology as "the study of
knowledge and the limits of human understanding. Central issues include how knowledge is
derived and how it is to be validated and tested. To theorize about prospects for
sustainability means to prescribe a particular way of conceptualizing some set of objects and
relations among them" (p.556, Pezzoli, 1997). While it would be too much of an effort to
explore the history of epistemology (and ontology) in great detail here, it nonetheless is
important to make a brief introduction to the worldviews that accompany the discourse on
sustainable development. The reason for this stems from the need to clarify the approaches
one adopts for explaining and interpreting not only challenges of sustainable development,
but also for the scientific discourse of entrepreneurial activity that will be introduced in the
next two chapters.
For instance, Mebratu (1998; 2001) makes a useful albeit simple differentiation
between positivistic, interpretative and systems thinking within the discourse on sustainable
development.. The first views reality as inherently objective where knowledge is continually
being added. The focus of analysis builds on a cause and effect principle that is reductionist
in its approach and has been the dominant paradigm within the natural sciences in the last
century. The interpretative approach sees reality as socially constructed, and knowledge
arising as out of purely subjective interpretation of the agent. Its research thus focuses on
the study of social context that is perceived as phenomenological. The systems approach
interprets reality to be both objective and constructed where knowledge is considered as
evolving; knowledge can thus be created, discovered and destroyed. The focus of research
thus becomes to investigate the interrelationships of different components by taking a
holistic and interdisciplinary (if not transdisciplinary approach) (see Mebratu, 1998;
Nightingale, 2008 on theory of the firm; Mebratu:2001wq and Porter:2009ed on
sustainability education, as well as Schindehutte and Morris, 2009).
Joshua von Gabain Entrepreneurship for Sustainable Development
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Positivistic/Functionalist Interpretative Systems / Complex Adaptive Systems
Reality Objective Socially constructed Objective & socially constructed
Principles and Assumptions
All aspects of systems are self-‐evident and knowable. All inputs, processes, and outputs may be quantified and optimized.
Meaning is subjective, socially constructed, and not self-‐evident . Systems and boundaries in conflict require further critical inquiry.
Densely connected networks of agents, self-‐organization, and emergence. Ongoing learning and bottom up evolution.
Knowledge Additive Subjective Evolving and interconnected
Focus of Research Linear cause-‐effect Context Interrelationship Approach Reductionist Phenomenological Holistic Theories Scientific management,
hard systems theory, general systems theory, structural functionalism
Symbolic interactionism, Frankfurt School, Soft systems theory, critical systems thinking
Complexity theory, non-‐linear systems, complex adaptive systems
Table 4: Worldviews and Frameworks of Thinking; Source: adapted from Mebratu (2001); Porter
and Cordoba (2009)
Another differentiation of worldviews that can be made in line with the above elaboration,
is that of interpreting sustainable development as a system of interactions between humans
and ecosystem in contrast to viewing humans as embedded in ecosystems (Davidson-‐Hunt
and Berkes, 2003). The first approach may also be understood as an anthropocentric view,
while the other leans towards an ecocentric view. The second attempts to move beyond a
Cartesian nature/culture, environment/society dichotomy by diverting the focus of
investigation on processes (Parrish, 2008). The implications of these different ontological
and epistemological viewpoints have an effect on the outcome on how issues of sustainable
development are interpreted, and consequently tackled from a policy perspective. With this
in mind it now makes sense to present some of the different approaches that explain and
investigate the phenomena of sustainable development within the economic discipline.
Ever since the publication of “The Limits to Growth” in the 1972 there has been a
discourse within the economic discipline whether natural capital can be substituted by
manmade ‘manufactured’ capital or not. The neoclassical streams of analysis derive a full
substitutability of different forms of capital from their models (see Nordhaus, 1973; Solow,
1974; Stiglitz, 1974). Ecological economists follow the conviction that substitutability of
manufactured for natural capital is seriously limited. The discussion is often framed in a
dichotomy between strong and weak sustainability that has found a wide arena of debate.
While it would be too simplistic to reduce the discussion on sustainable development to only
Joshua von Gabain Entrepreneurship for Sustainable Development
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this differentiation (Davidson, 2011), it here is regarded as useful for gaining a better
understanding of the economic discourse on sustainable development. Going further, it also
shows a very useful dichotomy for investigating theories on the sustainability driven
entrepreneurship in Chapter 4.
2.4.1 Weak Sustainability
One stream of economic theory that has gained considerable attention in regards to
sustainable development is that of environmental economics and resource economics. It is a
sub-‐discipline of the neoclassical school of thought that builds on premises such as
methodological individualism, perfect rationality, marginalism, efficiency criterion and
general equilibrium models (Venkatachalam, 2007). With the outset of a reductionist and
positivistic approach, it builds on the assumptions that individuals are rational and utility
maximizing, and firms profit maximizing under the condition of perfect information and
competitive markets. Values are here defined in terms of utility that surmounts to individual
transitive preferences and consumer sovereignty. As such, value neutrality is seen as given
within the discipline. With these given set of assumptions, actors (consumers and producers)
make optimal decisions based on Bayesian updating (Camerer and Loewenstein, 2004;
Blundell et al., 2006). Economic progress and wellbeing is thus mainly evaluated in terms of
maximizing expected utility, which may be understood as the willingness to pay for goods
and services consumed. The goal of such a framework is thus achieving maximum efficiency
by assuring the optimal allocation of capital (and scarce) resources.
Within such a framework, sustainability is basically seen as a problem of managing a
nation’s portfolio of capital, leaving future generations with a total stock of capital not
smaller than the one enjoyed by the present generation (in aggregation or per capita terms)
(Munda, 1997; Ayres et al., 2008). Expressed differently, (Pearce and Atkinson, 1993) state
from their economic model that an economy can be considered sustainable if it saves more
than the combined depreciation of natural and man-‐made capital. Stated differently, "we
can pass on less environment so long as we offset this loss by increasing the stock of roads
and machinery, or other man-‐made (physical) capital. Alternatively, we can have fewer
roads and factories so long as we compensate by having more wetlands or mixed woodlands
or more education" (p.56, Turner et al., 1994). This interpretation of sustainability is
however based on the strong assumptions of perfect substitutability between the different
forms of capital (see Pearce and Turner, 1990). Common and Perrings (1992) have also
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coined this the “Hartwick-‐Solow Rule" for sustainability (Solow, 1974; building on Hartwick,
1977; Solow, 1986)3.
Going further, within these standard utility models issues of environmental
degradation are interpreted to be a consequence of market failures. While there are
different causes of market failure, one of them is that of negative externalities. An
externality may be described to occur when an activity or transaction by some parties
causes an unintended loss or gain in welfare to another party, and no compensation for the
change in welfare occurs (Daly and Farley, 2010). A negative externality is one where an
overall loss of welfare occurs whereas a positive externality results in a gain of welfare. "The
marginal external cost is the cost to society of the negative externality that results from one
more “unit” of activity by the agent" (Common and Stagl, 2005). The objective is to find the
optimal level of an externality, which follows from striving towards optimal social welfare or
pareto-‐efficiency. The latter is defined as "a situation in which an improvement in the
welfare of any individual cannot be achieved without a welfare loss for someone else" (p.15,
van den Bergh, 2001). Similarly, once market failures are identified, these can be seen as
producing profit incentives for the creation of market internalizing process (or technological
substitutes) that will allow the economy to continue growing indefinitely (Parrish, 2008).
Other forms of market failures will be discussed in relation to entrepreneurship in Section
4.4.1.
Another implication of the assumption of perfect substitutability is also that that all
forms of capital are commensurable. Calculations thereby take place in uni-‐dimensional
terms such as a monetary value. Within such a model, the action of putting a precise
monetary value to an environmental externality is interpreted as a solution for failing
markets (Munda, 1997). The major task of an environmental economist here is to employ
the standard utility models to analyze how individuals combine the market and non-‐market
commodities to produce economic welfare, and how this welfare changes in relation to
change in the combination of the goods. As a consequence environmental standard setting
by scientists and policy makers should be based purely on the ‘economic criterion’. This is
the optimal level of pollution determined by the marginal costs and marginal benefits of
controlling pollution (see Venkatachalam, 2007). Hence, within such a framework, any
scarcity of natural resources is interpreted to affect price information that in turn leads to
responses in terms of substitution, savings and recycling of materials, and to technological
innovations at process and product levels (van den Bergh, 2001).
3 see also (Neumayer, 2003) for a detailed exploration of the topic of substitutability.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Within a wider albeit not explicitly economic discourse, the term weak sustainability
may also be summarized under the term "ecological modernization". It was introduced by
Hajer (1996, p. 25) who defines it as "the discourse that recognizes the structural character
of the environmental problematique but none the less assumes that existing political,
economic and social institutions can internalise the care for the environment". Hence it is a
relatively optimistic view of the potential for technological change where little change of the
current system is needed in order to tackle the challenges of sustainable development. From
this perspective a conflict between environmental protection and economic growth is not
really evident, and are even mutually supportive (Murphy, 2000). A more critical approach,
nonetheless still to be subsumed under weak sustainability, can be found in the
'environmental justice' movement (see Agyeman and Evans, 2004). While being proponents
of economic growth and sustainability, they raise the issue of redistributing the costs and
benefits more equally on intra-‐ and intergenerational levels (Williams and Millington, 2004).
The most radical view within the weak sustainability perspective, most notably by
Wilfred Beckerman, argues that due to the muddled, incoherent nature of sustainable
development, it is unscientific, redundant and even counterproductive (Beckerman, 2002).
Hence this view rejects sustainable development as a useful concept. The author is thereby
critical to any limits of growth as market based price mechanisms and technical innovation
will ensure economic growth. He is thereby skeptical of any claims about resource scarcities.
Priorities should instead build on alleviating current generation poverty by extending human
rights and democratic principles (i.e. assuring freedom of opportunity).
2.4.2 Strong Sustainability
The economic assumption of perfect substitutability has received a considerable amount of
criticism within different streams of economic theory. The most prominent approaches are
ecological economics and the evolutionary complex system approaches. Research like
Nikolas Georgescu-‐Roegen’s work on The Entropy Law and the Economic Process (1971),
Herman Daly’s Steady-‐State Economy (1991a) and Kenneth Boulding’s Spaceship Earth
(1966), but also William Kapp's "The Social Cost of Private Enterprise" (1950) are notable
roots of this stream (Røpke, 2004; see Gowdy and Erickson, 2005; Røpke, 2005 for a detailed
account). Their ideas criticize the mainstream economic stream for neglecting the scientific
principles of thermodynamics in their modeling framework. Thereby they see a need to
interpret production processes as a biophysical process by integrating concepts of
thermodynamics into the model. With this in mind, the production of waste has to be seen
Joshua von Gabain Entrepreneurship for Sustainable Development
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as vital as the production of goods and services. From a macroeconomic perspective this
also introduces the issues of optimal scale and equitable distribution as a consequence of
limits to ecosystem capacities. Scale can here be understood as the maximum limit of the
regenerative or absorptive capacity of the ecosystem (Daly, 1991b).
This implies the acknowledgement of the environment as providing stock and flows,
but also as a sink of waste, all of which that are critical to resources and services of socio-‐
economic activity. Due to the complexities of ecosystem processes the substitutability of
manufactured for natural capital is seen as seriously limited. This is exemplified through
environmental characteristics such as irreversibility, uncertainty and the existence of
‘critical’ components of natural capital. These make a unique contribution to ecosystems
and welfare. Examples include climatic stability, the hydrological cycle, carbon, oxygen,
phosphorus and nitrogen cycles, and biodiversity (Ayres, 2007a; 2008). Natural capital may
thus have a substitutability of close to zero for some parts of capital while having a higher
substitutability for others (Common and Stagl, 2005; Ayres, 2007b)4. Hence, different forms
of capital should be viewed as complementary. A minimum amount of a number of different
types of capital (economic, ecological, social) should be independently maintained, in real
physical/biological terms for assuring that future generations can fulfill their needs (Ayres et
al., 2008). As a response there has been the investigation into the critical components of
natural capital and their functions (Groot, 1992). This includes the function of ecosystems as
sources and sinks, but also the functions of critical components for ecosystem stability and
resilience, as well as the life-‐support functions for human welfare (de Groot et al., 2002;
Ekins, 2003). In general terms, de Groot characterizes the ecosystem structure in terms of
four categories of biodiversity functions (de Groot et al., 2002; Chiesura and De Groot, 2003,
p. 223,):
1. Regulation functions: regulation of essential ecological processes and life support
systems (bio-‐geochemical cycling, climate regulation, water purification, etc.);
2. Production functions: harvesting from natural ecosystems of, for example, food, raw
materials and genetic resources;
3. Habitat functions: provision by natural ecosystems of refuge and reproduction
habitat to wild plants and animals and thereby contribution to the conservation of
biological and genetic diversity and evolutionary processes.
4 Robert Ayres (2007a) gives a good overview of the “practical” limits of substitution of materials in the real world.
Joshua von Gabain Entrepreneurship for Sustainable Development
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4. Information functions: provision of many possibilities for recreation and aesthetic
enjoyment, cultural and historical information, artistic and spiritual inspiration,
education and scientific research.
An important point that is often raised by ecological economist is that, "starting from a
strong sustainability assumption of non-‐substitutability in general, it is possible to shift to a
weak sustainability position where that is shown to be appropriate. But starting from a weak
sustainability assumption permits no such insights to enable exceptions to be identified. In
terms of scientific methodology, strong sustainability is therefore to be greatly preferred as
the a priori position" (p.168, Ekins et al., 2003). Hence, ecological economists also pursue a
precautionary approach. The idea of applying the precautionary principle for environmental
issues stems from the Rio Declaration (Principle 15) and states that: "In order to protect the
environment, the precautionary approach shall be widely applied by States according to
their capabilities. Where there are threats of serious or irreversible damage, lack of full
scientific certainty shall not be used as a reason for postponing cost-‐effective measures to
prevent environmental degradation" (UN, 1992b; see also Sandin, 1999).
Going further, the notion of weak sustainability (as expressed in neoclassical
methods) also attaches itself to the argument that everything can be expressed in terms of a
monetary value. This implies the existence of value commensurability (Martinez-‐Alier et al.,
1998). This issue has been critically assessed within the Ecological Economics (EE)
community, investigating the logics of valuation and issues of value incommensurability.
Incommensurability stands for the rejection of a common unit of measurement across plural
values. This entails the rejection not just of monetary reductionism but also any physical
reductionism (e.g. eco-‐energetic valuation). However it does not imply incomparability.
From a philosophical perspective, it is possible to distinguish between the concepts of strong
commensurability (common measure of the different consequences of an action based on a
cardinal scale of measurement), weak commensurability (common measure based on an
ordinal scale of measurement), strong comparability (there exist a single comparative term
by which all different actions can be ranked) and weak comparability (one has to accept that
the existence of irreducible value conflicts is unavoidable but compatible with rational
choice employing practical judgment) (O'Neill, 1993; Martinez-‐Alier et al., 1998). That
implies that some entities "may be measurable and non-‐comparable, some may by
comparable and not measurable, while others may be neither measurable nor comparable"
(p.9, Spash and Carter, 2001). This has resulted into the investigation of the feasibility and
Joshua von Gabain Entrepreneurship for Sustainable Development
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limits of valuation methods underlying the additive utility model (and cost-‐benefit analysis)
in neoclassical economics to steer questions of sustainable development (Martinez-‐Alier et
al., 1998).
Since the history of economic thought is largely one of competing concepts of value
(Gowdy and Erickson, 2005; Gómez-‐Baggethun et al., 2010), valuation became an important
topic for ecological economists and socio-‐economists within mainstream economics. Socio-‐
economic approaches were apparent in ecological economics from the beginning (Røpke,
2005). For instance, a common thread in Goergescu-‐Roegen’s research was his
preoccupation with "valuation". His examination of the difficulties within the valuation
framework of neoclassical economics led him to explore the conflict between individual,
social, and environmental value. This convinced him that the choices our species make
about resource use and the distribution of economic output depends upon on the valuation
framework (Gowdy and Mesner, 1998). Thereby valuation must be recognized as a
phenomenon that is subjective, cultural, and contextual (Hornborg:1998ue , citing Sahlins,
1978), not only to be reduced to the material factors of production. Going further, EE
realizes socio-‐economic systems to be embedded in a complex and adaptive ecosystem. As
such, many components build upon each other in an interconnected constellation (also
called hierarchy) in order to maintain and cycle the capacity for life on earth to flourish.
Thereby it is highlighted that it is not only the different subjects (agents, actors or stocks)
that are of value for ecosystems to sustain themselves. Much more, the interconnections
and relation that have emerged become of greater importance. This brings forth a complex
systems approach to the value of ecological and social resources (Straton, 2006). Added to
this, socio-‐economic systems can be understood as emergent complex systems. Emergent
complex systems, like those involving society, cannot be fully explained mechanistically and
functionally since some of the elements possess individuality, some degree of intentionality,
consciousness, foresight, purpose, symbolic representations and values (Funtowicz and
Ravetz, 1994)5.
As an inter-‐ and transdisciplinary scientific discipline ecological economics
incorporates ideas from natural sciences, psychology, behavioral economics, anthropology
and other disciplines. It is thus an economic scientific research program that has promoted
looking beyond the edge of the plate of standard economic discipline in order to integrate a
better understanding of the co-‐evolutionary environment-‐economy interaction. The
5 This is not to deny that species within ecosystems also portray some characteristics of emergent complexity.
Joshua von Gabain Entrepreneurship for Sustainable Development
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methods and approaches for achieving this endeavor are thereby wide6. In the pursuit of
understanding dynamic change and interactions it has distanced itself from equilibrium
model analysis and moved towards more dynamic, evolutionary, co-‐evolutionary and
complex models to describe various phenomena. Through this lens, the scientific research
stream has been mapping and modeling energy and material flows, investigating system
resilience and adaptive capacity, the role of thermodynamics and entropy, economic and
socio-‐cultural behaviors in regards to production and consumption, the role of institutions
for transition, innovation and sustainable modes of growth and development. While
research suggests the clear message that sustainable development demands nothing less
than a radical change in human modes of consumption, production, technology, and
decision-‐making, it has also resulted in heated debates on how regulations, policy and
incentives can best provide for the solutions that limit the impact that socio-‐economic
activity has on the environment. Best known examples are the discourses and responses on
the known publication of Costanza et al. (1998) that attempted to measure eco-‐system
services in monetary units. Another well discussed publication is the Stern Review (Stern,
2007) in regards to the economics of climate change. It would however go beyond the scope
of this work to lay out all elements of ecological economics in this chapter. Recommended
readings are (Røpke, 2004; Gowdy and Erickson, 2005; Røpke, 2005).
In regards to weak and strong sustainability it must be highlighted that the
differentiation does not really encompass all differences between Environmental and
Ecological Economics (see Table 5). By raising this distinction many relevant dimensions of
analysis are disregarded. (Ayres et al., 2008) for instance highlight that the weak vs. strong
sustainability discussion does not really apply for decentralized family or firm level decision
making. Nonetheless, it here served as an initial step in portraying differences in theoretical
approaches for investigating the economics of sustainable development. This work will build
upon some of the ideas and concepts found within Ecological Economics when investigating
theoretical approaches for explaining sustainability entrepreneurship in Chapter 3.
6 Some authors would argue that a problem with EE is that it doesnt not set any boundaries towards the ontologies adapted in their work and hence also adapts models based on a logical empiricisist and reductionist framework. See Spash (2012) and Faber (2008) for a discussion on this issue.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Weak Sustainability a lá Environmental Economics
Strong Sustainability a lá Ecological Economics
Worldview & Scientific approach
Reductionist, linear, equilibria Non-‐linear, irreversible, complex, evolutionary, dynamic, multiple equilibria or far from equilibrium
Substitutability Capital forms are perfect substitutes
Capital are to be seen as complementary (and not fully substitutable)
Valuation Commensurability of values; value monism
Incommensurability of values; multicriteria assessment
Welfare/economic goals
Optimal allocation; efficiency; pareto efficiency
Scale, equity, efficient allocation, resilience of environmental and social systems
Uncertainty Uncertainty is reduced to risk Existence of pure uncertainty suggest the use of precautionary principle Process-‐oriented and co-‐evolutionary focus to decision making
Discounting Straight-‐line discounting of future costs and benefits
Recognize the difference between individual and social valuation of the future; hyperbolic discounting
Table 5: Comparison of some dimensions of weak and strong sustainability; Source: authors work
adopted from Gowdy and Erickson (2005)
2.5 Main Principles of Sustainable Development
While issues of development, environmental degradation, social inequity and issues of
poverty all have not been new concepts, it may be stated that the newness of sustainable
development movement, when taking a strong sustainability approach, lies in its attempt to
approach these themes in a interconnected, holistic and integrative way. It should thus not
be regarded as another objective on the agenda, but much more a metabelief, or a
paradigm shift that build on new understandings of environmental systems, technology,
social organization, knowledge, values and their interplay (Norgaard, 1988). Most recently
(Waas et al., 2011) summarize fundamental principles of sustainable development that they
found by reviewing previous work dealing with the topic. Here they differentiate between
the normativity principle, the equity principle, the integration principle, and the dynamism
principle. A brief introduction to these principles proves very useful for framing the
discussion of the sustainability driven entrepreneur in Chapter 4.
Joshua von Gabain Entrepreneurship for Sustainable Development
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2.5.1 The Normative Principle
The first principle builds on the idea that sustainable development is always socially
constructed and normative. This principle does not reject the validity of scientific analysis for
clarifying what sustainability is. Nonetheless, it also recognizes that scientific analysis is
embedded in value judgments and social commitments (Robinson, 2004). These must also
be open for examination and discussion. Hence, perspectives of sustainability thus exist in
an “objective—subjective” dichotomy (Waas et al., 2011). As we have learnt from the
discourse on weak vs. strong sustainability, all values cannot be seen as commensurable.
This also applies for needs, see (Quental et al., 2010). Hence "many nonmarket goods are
fundamentally different from market goods in ways that make 'scientific' comparison not
only impossible but also undesirable" (p.411, Daly and Farley, 2010).
This implies a shift away from economic commensurability, towards multi-‐criteria
evaluation of evolving realities (Martinez-‐Alier et al., 1998). When acknowledging and
applying multiple systems of value among agents in a process of deliberation, it provides the
opportunity to take non-‐monetary “cost” into account without committing category error7.
(Spangenberg, 2010). So instead of trying to monetize the non-‐market cost, social multi-‐
criteria analysis (MCA) could be used (Munda, 2008). In a multi-‐criteria problem there is
however no solution optimizing all the criteria at the same time. Therefore the decision-‐
maker has to find a compromise (i.e. a solution as a balance among different conflicting
criteria) (p.281, Martinez-‐Alier et al., 1998). As decisions must be taken, and valuation is
unavoidable, the core task is to suggest alternatives that can support political decision-‐
making in a more coherent way than cost–benefit analyses so as to assure sustainable
development. Going further, one can apply MCA within management decisions of firms and
communities. It thereby facilitates a participatory governance process which allows for an
inflow of other forms of knowledge (i.e. traditional environmental knowledge (Pollom,
2010), and different nonprofessional understandings of risk) that can contribute to the
sustainability discussion (Robinson, 2004).
To conclude, the focus on economic, social and ecological sustainability implies a
shift in focus from expansion of a commodity production vector (GDP growth) to the
reproduction, resilience and adaptive capacity of our planetary system of natural capitals
(p.231, O’Conner et al., 1996; Rammel and Staudinger, 2004). As a consequence, the current
monistic utilitarian approach to ecosystem services policy evaluation should be replaced by
7 Category error applies when considering value an immanent property of the object and not an emergent, relational property of each element within different systems’ dialectics (Stahel, 2005).
Joshua von Gabain Entrepreneurship for Sustainable Development
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a pluralist framework composed of a heterogeneous set of value-‐articulating instruments
(but not only metrics) and participatory governance structures that are appropriate to the
specific context within which decision-‐making takes place (Wegner and Pascual, 2011).
Sustainable development always "implies societal and normative choices, which are
ultimately based on the values we maintain" (p.1645, Waas et al., 2011). Within ecological
economics there has hence been the call for the need to investigate and implement the right
kind of 'value articulating' institutions that shape environmental, social and economic
valuation (Vatn, 2009).
2.5.2 The Equity Principle
The equity principle (or justice/fairness principle) is a central canon of sustainable
development. It can be subdivided into inter-‐generational equity, intra-‐generational equity,
geographical equity, procedural equity, and interspecies equity (see Haughton, 1999; Waas
et al., 2011):
Inter-‐generational equity was directly implemented in the definition of sustainable
development from the Brundtland report. The Native American proverb “We do no inherit
the Earth from our Ancestors, we borrow it from our Children” summarizes the idea behind
the concept well. It implies that sustainable development must for all purpose have the
endpoint of not only meeting present human needs and aspirations but also to include the
right of future generations to meet their needs and aspirations (Waas et al., 2011). Because
human needs and aspirations depend on natural resources, this principle includes the
requirement to act within the environmental limits of the Earth. The way to approach this
issue is strongly determined by the position one takes in regards to weak and strong
sustainability. One of the discussions revolves around the rate of discounting. For instance, a
higher discount rate implies a greater devaluation of distant future impacts (i.e. importance
of biodiversity conservation) (Gasparatos et al., 2008)8. Strong sustainability proponents
argue that that discounting rates should be set low, if not at zero for any project that spans
future generations and affects. Further, there are contexts where discounting of cost and
benefits is not a useful tool for incorporating future states at all.
A second dimension is intra-‐generational equity. Similar to the first dimension, it
however regards the present generations. "It refers to the realization of contemporary social
equity -‐the right of every human being of the present generations for a decent quality of life. 8 The discussion on this is however wide, and some authors suggest that the use of discounting is not suitable for all the cases it is being applied for (see Price, 1993; Daly:1994vz and see Spash, 2007 in regards to climate change).
Joshua von Gabain Entrepreneurship for Sustainable Development
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This distributional equity perspective builds on several dimensions" (p.1646, Waas et al.,
2011). One is the equity relation within a nation and another deals with the distributional
equity among nations, more particularly between those of industrial and developing
countries (or North-‐South divide). Haughton (1999) recognizes that different ontological
and epistemological perspective exists on what equity and justice implies. Hence he
emphasizes to focus should be on seeking to address the underlying causes of social
injustice, and not simply dealing with redistributive measures.
A third dimension refers to geographical equity or transfrontier responsibility.
Activity on local and regional levels must thereby be considered on a global scale in regards
to their impacts. For instance, feedstock crops (such as soy beans) for a chicken farm in
Austria may contribute to the emergence of unsustainable circumstances at the source of
their production (i.e. the deforestation of the Amazon rainforest for soy farms). Hence there
is a need for (informational) cooperation and exchange worldwide (i.e. social learning
process) to address issues of unsustainable activities and trade flows beyond local and
regional boundaries.
Procedural equity "refers to democratic and participatory governance systems, that
ensure that all affected stakeholders are involved in decision-‐making" (p.1646, Waas et al.,
2011). This is also essential due to the normative nature of sustainability.
Interspecies equity "stands for environmental stewardship and refers to the survival
of other species on an equal basis to human survival" (Waas et al., 2011). It highlights the
critical importance of preserving ecosystems integrity and maintaining biodiversity
(Haughton, 1999). As we have learned from the discussion of weak and strong sustainability,
this does not only concern utilitarian perspective but should also address the systemic
values of species as well as their intrinsic right to survival.
2.5.3 The Integration Principle
The idea of the integration principle stems from the central message of the Brundtland
report. The social dimensions of sustainability must be integrated with the biophysical and
economic dimensions and be applied together so that mutually supportive benefits should
always be sought (Robinson, 2004; Waas et al., 2011). Hence, solutions that address
environmental, social or economic concerns separately are seen as insufficient. Nonetheless,
(Barbier, 2009, p. 103,) writes that sustainable development implies: "to maximise
simultaneously the biological system goals (genetic diversity, resilience, biological
productivity), economic system goals (satisfaction of basic needs, enhancement of equity,
Joshua von Gabain Entrepreneurship for Sustainable Development
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increasing useful goods and services), and social system goals (cultural diversity,
institutionalsustainability, social justice, participation)." Munda (1997) highlights that this
definition correctly points out that sustainable development is a multidimensional concept,
however refers to the insights gained from multi-‐criteria decision analysis that shows that it
is impossible to maximize different objectives at the same time (Munda, 1996).
Hence, the integration principle also implicates the active engagement of the
community and their relative interests through methods of deliberation and decision making
(Robinson, 2004). Thereby, it must also involve the active participation of research and
educational institutions for elaborate on the issues for achieving sustainable development.
Building on this understanding, ecological economics (and strong sustainability) promote a
form of interdisciplinary (and to some extent transdisciplinary) thinking that focuses on the
connections among fields (Robinson, 2004). This also demands the development of new
concepts, methods and tools that are integrative and synthetic, and not only analytic within
its single disciplines (Robinson, 2004).
This principle also suggests that searching for pure technical fixes is not sufficient for
addressing issues of sustainable development as these do not necessarily translate into
improvements in the quality of life for all. Approaches and concepts such as industrial
ecology, dematerialization, eco-‐efficiency and biomimicry must therefore also consider the
social dimensions of development. These are issues of opportunity, distribution, material
needs, consumption and empowerment (Robinson, 2004). As a result the term socio-‐
technical innovation has to come to the forefront of discussion of innovating for
sustainability (see Geels, 2004). To conclude, there is a need for taking a system’s
perspective in order to integrate various traditional (including socio-‐economic and
institutional) development across fields, sectors and temporal scales (Waas et al., 2011).
2.5.4 The Dynamism Principle
The dynamism principle states that "the society, the environment and their interaction are
subject to a continuous flow of change" (p.1647, Waas et al., 2011). From a complex
adaptive systems perspective, Holling describes ecological and socio-‐ecological system as
interlinked "in never-‐ending adaptive cycles of growth, accumulations, restructuring and
renewal" (p.12, Holling, 2001). Going further, theses adaptive cycles take place in different
temporal, spatial and social scales and nested hierarchies where multidimensional
interactions take place in a state of uncertainty (Rammel et al., 2007). By recognizing
uncertainty to play a major role in the perception, evolution and perspectives of values (see
Funtowicz and Ravetz, 1994; Funtowicz et al., 1999; Farrell, 2007) it demands forms of social
Joshua von Gabain Entrepreneurship for Sustainable Development
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learning on the issues of sustainable development that involves all kind of stakeholders,
extended peer communities in a process of deliberation. This because "(1) shared social
values as well as shared meanings are created through effective social interaction, they do
not exist a priori, nor are they merely the intersection of individual values, instead, they are
created through social interaction; and (2) the only effective way to achieve this kind of
interaction is through open dialogue, where social learning is necessary for forming as well
as for changing shared social values." (p.55, Stagl, 2007). However, some authors also argue
that these processes need to allow for second order learning (Sterling, 2010)9. This "involves
the learner (or learning organisation) critically examining, and if necessary changing,
his/her/its beliefs, values and assumptions.... it raises questions of purpose and values; it
asks ‘efficiency and effectiveness in the service of what? Or to what end?’ Such change
involves bringing the assumptions to light that underlie first order learning, and critically
assessing them, invoking questions of values and ethics." (p.23, Sterling, 2010). Sustainable
development is thus "an open evolutionary process of improving the management of social–
ecological systems, through better understanding and knowledge" (p.1, Rammel et al.,
2007). Hence it "is not so much a reachable state ('being‘) but moreover a continuous flow
of actions ('doing‘)"(p.2, Reichel, 2007) where new forms of social learning structures play a
central role within a continuous process of adaptation.
2.6 Models of Sustainable Development
Following publications, reports, conferences and theoretical appraisals there have also been
numerous attempts to interpret and conceptualize the implications of sustainable
development in visual models. While the approaches incorporating Venn diagrams are
capable of providing visual illustrations of sustainability, they often do lack the capacity to
communicate the complexities of the debate (Davidson, 2011). Nonetheless, two most
frequent visual diagrams will be presented here for purpose of completeness (see also
'Visualizing Sustainability', a website dedicated towards collecting visual interpretations of
sustainable development10).
9 If not also third order learning that involves questioning the world view one adopts (Sterling, 2010) 10 http://computingforsustainability.com/2009/03/15/visualising-‐sustainability/
Joshua von Gabain Entrepreneurship for Sustainable Development
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2.6.1 Triple-‐Pillar Approach
One of the most prominent interpretations is that of the triple pillar approach which depicts
sustainable development in terms of three distinct but interrelated spheres. One of the
authors that introduced the three-‐pillar model was (Munasinghe, 1993). He thereby
differentiated between the economic, ecological and social dimension (see Figure 3). It is
also referred to as the P3 concept of “people, planet, profit". John Elkington (1998) also
popularized the term 'triple bottom line' for business and organizations (Springett, 2003).
Figure 3: The Triple-‐Bottom Line Approach; Source: own illustration
Building the notion of sustainable development on three pillars has gained great popularity
in business, governments, NGOs and academia (Parrish, 2008). Meadowcroft (2000)
enhanced the model by embedding a fourth pillar, referred to as democracy or governance,
into the model. This also highlights the significance of institutional change for sustainable
development as was pointed out in the Brundtland Report. Institutional change is here
understood as the activities that "merge environment and economics in decision making and
to enforce the common interest through greater public participation, locally and
internationally" (p.1651, Waas et al., 2011). However such a modeling approach of
sustainable development has also received criticism. Giddings et al. (2002) highlight that due
to the separation of the three dimensions, it gives the perception that issues of sustainable
development can be tackled in a compartmentalized manner. It thus may give the
Joshua von Gabain Entrepreneurship for Sustainable Development
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suggestion that trade-‐offs can be made between the three sectors (Hall et al., 2010). This
would be in line with the idea of weak sustainability where natural capital may be
substituted by man-‐made capital. Going further, this leads to an "insufficient attention to
overlaps and interdependencies and a tendency to facilitate continued separation of
societal, economic, and ecological analyses" (p.2, Kemp and Martens, 2007). This diverts the
“attention from asking questions that are important to getting to the core of sustainable
development such as those about the nature of our society, what the policy priorities are,
how decisions are made and in whose interest” (pp.189, Giddings et al., 2002). As such it
strengthens a conventional reductionism, while ignoring the need for an integrative and
holistic approach and integration between different sectors and actors (Waas et al., 2011).
Another criticism, albeit connected, is that such model places humanity outside the
environment. It thereby fails to recognize humanity’s place within the environment. By
adding concern for the sustainable carrying capacity of natural systems, any balancing and
trade-‐offs between environmental protection and development issues occur within the
carrying capacity of the planet. As a guiding ethic this idea is already gaining recognition and
one of its strongest formulations can be found in the Earth Charter (Waas et al., 2011).
Hence "the philosophy of the separation of mind and body is a fundamental conception of
alienation and of separation. Technology is often seen as separate from society yet it only
exists within social and cultural relationships" (Giddings et al., 2002). They thus argue that
there is a need to break down the boundaries of society and economy while interpreting the
interactions of human activity with the environment as fuzzy.
2.6.2 Nested Model
As an alternative of the triple pillar approach there has been the development a nested
approach (see Figure 4). This views the economy embedded into society, while both of these
are nested into the environment and thereby emphasizes the need for an integrative
outlook. This is better in line with strong sustainability perspective. Of course this is also just
a simple model. Human activity takes place in all three areas and a sharp distinctions in
thought or practice in relation to these areas is not possible (Giddings et al., 2002).
Joshua von Gabain Entrepreneurship for Sustainable Development
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Figure 4: A Nested Approach towards Sustainability; Source: own illustration
2.7 The Role of Enterprises for Sustainable Development
Since the focus of this thesis is to investigate theoretical approaches for explaining
sustainability driven entrepreneurship, it makes sense to give a brief introduction to the role
of enterprises for sustainable development. One of the early events that exclusively dealt
with a `business case` for sustainable development was the World Business Council for
Sustainable Development that was established in 1992 right before the Rio Conference. It is
a CEO led association of (now) 200 companies that are concerned with market-‐oriented
sustainable development and greater resource productivity (Lovins, 2008). Hence it may be
interpreted as a response to the Rio Conference by the larger business establishment. Its
main message is built around the idea of achieving increased eco-‐efficiency. "Eco-‐efficiency
is achieved by the delivery of competitively priced goods and services that satisfy human
needs and bring quality of life, while progressively reducing ecological impacts and resource
intensity throughout the life-‐cycle to a level at least in line with the earth’s carrying
capacity." (p.47, DeSimone and Popoff, 1997)
A update definition of eco-‐efficiency by the WBCSD is (Lovins, 2008,p.34):
• reduction in the material intensity of goods or services,
• reduction in the energy intensity of goods or services,
• reduced dispersion of toxic materials,
Joshua von Gabain Entrepreneurship for Sustainable Development
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• improved recyclability,
• maximum use of renewable resources,
• greater durability of products, and
• increased service intensity of goods and services.
As may become evident, this approach leaves out many of the facets of sustainable
development elaborated upon in the Brundtland Report. Nonetheless, the WBCSD continues
to advance/enhance their core principles, as can be seen as their latest report (Carreno et
al., 2011). However, the consortium is targeted mainly at large multinational corporations.
So while promoting innovation, it does not necessarily address new entrepreneurial firms,
which are the main focus of this writing. Further, a number of critical remarks can be made.
First, as can be seen from their last report, they still do not directly address issues of
distributional and social equity. Second, it has been met with a lot of criticism and been
stated as greenwashing. Third, it can be understood as applying the notion of weak
sustainability as described above. So how can entrepreneurship for sustainable development
theoretically be conceptualized when adopting a strong sustainability perspective, or more
specifically, a complex adaptive systems approach? In order to answer this question, the
following chapter will first look at the research stream of entrepreneurship so to merge that
field with ideas and concepts from sustainable development in Chapter 4.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Chapter 3 Dimensions of Entrepreneurship Research
This chapter intends to outline ideas and concepts that have been developed within
entrepreneurship research. We will begin with a short statement of the economic relevance
of entrepreneurial activity and a brief account of early historical contributions. This will be
followed by a presentation of the interdisciplinary dimensions that this research domain has
obtained. Second, we will explore the theoretical discourse on the functional role of
entrepreneurial activity within the grander economic system. This implies looking at ideas
and concepts developed by Frank Knight, Joseph Schumpeter and Israel Kirzner. Next we will
highlight some key themes and components that have emerged within modern economic
entrepreneurial research. This also involves a separate section that presents a most recent
discussion that deals with the epistemological roots of interpreting entrepreneurial activity
and hence research. After a short exploration on the development of entrepreneurial
typologies, this chapter ends with a reflection on the explored topics. While not all ideas and
concepts outlined in this chapter will be dealt with explicitly in the chapter on the
sustainability driven entrepreneurship, their introduction are nonetheless seen as vital for
framing any literature review, theoretical development and discussion of the sustainability
driven entrepreneurship.
3.1 Introduction to the Economic Relevance of Entrepreneurship
Entrepreneurial activity is as old as human history (Cooper, 2005) and is a fundamental
driver of economic evolution (Acs and Audretsch, 2010a; 2010b). Even the philosopher
Xenophon of ancient Greece had led a discourse on the importance of entrepreneurial
activity (Karayiannis, 2003). However, especially since the onset of the industrial revolution,
research suggests entrepreneurial activities to be a major driver of economic development
in many different ways. William Baumol states : "the revolutionary breakthroughs continue
to come predominantly from small entrepreneurial enterprises, with large industry providing
streams of incremental improvements that also add up to major contributions" (Baumol,
2004, p. 9,). Hence new ventures have played a major role in radical innovations, such as
software, semi-‐conductors, biotechnology and the information and communications
technologies (Acs et al., 2009). It has been recognized to be an important element in
explaining regional economic development in general (Stam, 2010).
However, the level of entrepreneurship is also a distinctly spatially uneven process,
that varies across both country and time (Acs and Audretsch, 2010a). It can thus also be
Joshua von Gabain Entrepreneurship for Sustainable Development
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seen as an important explanation for the uneven economic development of regions and
nations (Stam, 2010). For instance, there is a certain consensus within empirical research
that the rates of entrepreneurship (self employment) have experienced a long decline (in
terms of new foundings per time) until the late 1970s where a reversal in the trend can be
observed (Verheul et al., 2001). Beside economic growth and the creation of employment,
five further beneficial aspects of entrepreneurship can be mentioned: the creation of
wealth; the creation of enterprises; the creation of innovation; the creation of change; and
the creation of value (Morris, 1998; Urwyler, 2006). It is therefore to no surprise that
entrepreneurship has experienced a renaissance in recognition among supranational and
national institutions.
From a grander historical perspective, entrepreneurship was not always perceived
as a viable and socially recognized path for generating wealth as dominating institutions
often discouraged it. Functions of social control, regulations and institutions steered
entrepreneurial pursuit into either productive or unproductive (rent-‐seeking) activities
(Murphy et al., 2006). So while entrepreneurial activity may be perceived as always present,
its manifestation and impact was heavily dependent on varying dominant institutional set of
rules and reward systems of particular historical phases (Baumol, 1990). In the context of
sustainable development, it may be regarded as useful to explore main themes and frames
of discussion that can be found in the literature, especially in regards to economic
development but also in regards to the main themes within entrepreneurship research that
can be seen as vital for framing the discussion on the sustainability driven entrepreneurship
that will take place in Chapter 4.
3.2 The Historical Development of Entrepreneurship Research
While the history of entrepreneurial research can be taken into great depths, it is not the
main focus of this work. However a short resume helps in understanding the roots of this
field. The conceptual development of the field of entrepreneurship has followed a number
of paths, often not directly connected to each other (Cooper, 2005). The evolution of
entrepreneurship research can thus be structured in several ways. One of the most cited
publications (Hébert and Link, 1989) simply summarized the ideas from the most important
authors into twelve distinct themes. Barreto (1989) distinguishes between six explanatory
functionalities for entrepreneurship. Some researchers highlight the supply vs. demand side
perspective that has taken place in explaining entrepreneurship (Thornton, 1999; Verheul et
al., 2001; Hebert and Link, 2006). While it is not necessary to portray these attempts of
Joshua von Gabain Entrepreneurship for Sustainable Development
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'classifications' in detail for the purpose of this work, they will nonetheless always be
referred to throughout the chapter when discussing work of relevant authors.
3.2.1 Early Development -‐ What is an Entrepreneur?
The first significant writer to elaborate on the entrepreneur as an important actor in the
economy was Richard Cantillon (1680-‐1734) (Hebert and Link, 2006). Cantillon, an Irishman
who was an economist, businessman and financier who lived in France, classified economic
agents into three groups: (1) landowners (2) entrepreneurs and (3) hirelings. Whereas the
first and the third group are characterized as being rather passive, the entrepreneurs play
the central part in his “Essai sur la nature du commerce en général” (Grebel et al., 2003).
The entrepreneur thereby acts as the intermediary connector between landowners and
hirelings. They bear the risks and uncertainties associated with market judgments about
production and distribution. Going further, they acted as arbitrageurs by moving goods from
low-‐valued use to high-‐valued use in a different region or context (Hebert and Link, 2006).
Many of the distinct themes within today’s literature on entrepreneurship derive (more or
less) from the ideas proposed by Cantillion (Hébert and Link, 1989).
Other authors followed this approach. For instance Nicholas Baudeau (1730–1792),
a physiocrat, described the agricultural entrepreneur as a risk bearer and one with ability.
Thus he is “one who invents and applies new techniques or ideas in order reduce his costs
and thereby raise his profit” (Hebert and Link, 2006). Jeremy Bentham, J.H, von Thünen and
John Stuart Mill also highlighted a role for entrepreneurial activity, albeit all having different
interpretations regarding their role for economic activity (Landstrom, 2005 for their
differences; see Hebert and Link, 2006).
Jacques Turgot (1727-‐1781) was another early descriptor of entrepreneurship who
viewed it as a person who actually runs a business. Jean-‐Baptiste Say (1767-‐1832) built on
this idea and portrayed the entrepreneur as a key figure in economic life. The function of his
entrepreneur was to understand technology and to be able to transfer that knowledge into
a tradable product that meets the customers’ needs (Grebel et al., 2003). He/she is a
“broker”, who organizes and combines means of production with the aim of producing
goods. Say's entrepreneur was not just a coordinator, but someone who takes on risk to
carry out activities that “shifts economic resources out of an area of lower and into an area
of higher productivity and greater yield” (taken from Dees, 1998) which led to the
development of a good or a service that provides some form of value or utility (Dees, 1998;
Landstrom, 2005). Alfred Marshall then accounted for the role of the entrepreneurship
Joshua von Gabain Entrepreneurship for Sustainable Development
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within the formation of economic development and referred to them as “the best educators
of initiative and versatility, which are the chief sources of industrial progress.” (taken from
Landstrom, 2005). Hence, among Marshall’s four factors of production that were land, labor,
capital and organization, it was especially the latter element was being driven by
entrepreneurial activity.
The above classics can mainly be attributed to provide a supply sided theory of
entrepreneurship. A theory of entrepreneurship is supply-‐sided if it emphasizes the role of
the entrepreneur in production and distribution of goods and services for which there is an
independently determined demand. A demand-‐side theory of entrepreneurship emphasizes
the role of the entrepreneur in changing the nature of demand for existing goods and
services by introducing new goods and services or new combinations of existing goods and
services (Hebert and Link, 2006) Hebert highlights that known economists such as Gustav
Schmoller, Werner Sombart and Max Weber have made initial contributing ideas on a
demand side perspective of the entrepreneur (Hebert and Link, 2006). The German
historicists characterized the entrepreneurial process as a breaking away from the old
methods of production and the creation of new ones. This disequilibriating process was
particularly emphasized by Weber. Thereby entrepreneurs or charismatic leaders were seen
to play a vital role. However, Weber also described how religious doctrine provided the
cultural legitimation needed to shape the economic behavior of individuals in ways that, in
the aggregate, led to the rise of capitalism (Thornton, 1999). Thus it may be stated that
Weber was also aware of factors for entrepreneurship that arise out of supply side
dynamics.
3.2.2 The Emergence of a Highly Interdisciplinary Field
If we allow ourselves the freedom to fast-‐forward to the current state of the academic
research on entrepreneurship, it quickly becomes evident that the analysis and definition of
entrepreneurship and entrepreneurial activity has grown exponentially to become a
research field on its own. It has become a highly interdisciplinary, multidimensional and
crosscutting research stream. Bringing a definition or a coherent all-‐encompassing overview
to the table is thus much easier said than done, if not an impossible task. The phenomenon
of entrepreneurship is intertwined "with a complex set of contiguous and overlapping
constructs such as management of change, innovation, technological and environmental
turbulence, new product development, small business management, individualism and
industry evolution" (p.141, Low and MacMillan, 1988). Going further, scholars from the
Joshua von Gabain Entrepreneurship for Sustainable Development
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fields of economics, business strategy, organizational behavior, sociology, anthropology and
psychology have explored entrepreneurship from their respective angle (Peneder, 2009).
Especially sociology and anthropology have highlighted the role of entrepreneurs for
producing well-‐being in a society. One attempt to depict the different disciplines in regards
to their approach to entrepreneurship is the seminal work by Landström (Landstrom, 1999,
see Table 6). Another work that is worthwhile to mention is that of Swedberg (2000).
Discipline Levels of analysis
Focus Example of questions
Psychology Individual Entrepreneur What characterizes the entrepreneur? Who becomes an entrepreneur? What driving forces lie behind entrepreneurship?
Organizational behaviour
Individual/Firm Entrepreneur-‐ship
How are new operations established? Which factors are influential? How does the entrepreneur influence others?
Business administration
Firm Entrepreneurial ventures
How are limited resources managed with the view to creating and running new ventures? How are the new ventures managed and controlled?
Interorganizational theory
Relations between the firm and environment
Network How does the entrepreneur use his personal network in order to organize resources?
Population ecology theory
Industry Evolutionary processes of populations of firms
What characterizes the survival development and mortality of a population of new firms? What strategies may be used in order to survive? What environmental factors determine the survival changes of new firms?
Sociology Society The social system
How is value growth created in society? What role does the entrepreneur play? What role does the social context play in the individual's entrepreneurial decision?
Social Anthropology
Society The cultural system
What role has the entrepreneur in society? How is knowledge/information/ entrepreneurship transferred in society?
Economics Society The economic system
What happens on the market when the entrepreneur acts?
Table 6: Entrepreneurship within different disciplines; Source: Landström (1999)
In this context it must be said that field of entrepreneurship has become extremely broad.
The variety of disciplinary approaches often comes with inconsistent and partially
contradictory theoretical models and empirical insights (Short et al., 2009b). (Low, 2001)
Joshua von Gabain Entrepreneurship for Sustainable Development
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highlights that an attempt to categorize/classify articles on entrepreneurship by subtopics
quickly shows the difficulties to determine the boundaries of the field. In fact, Low
exclaimed in the 2001 article, that his pet “peeve about our field is the disproportionate and
unproductive time we spend trying to define entrepreneurship” (p.18, Low, 2001). Other
authors, like Acs and Audretsch, have welcomed the “pruning of the branches” since the
publication of their Handbook of Entrepreneurship (Acs and Audretsch, 2010b). But this also
points to the difficulties of bringing a more modern definition of entrepreneurship to the
table. A deeper investigation reveals that the variety of concepts also lies in the
interdisciplinary nature of the topic. Due to its continued lack of precise delineation (Cooper,
2005), the field of entrepreneurship research has since early on received a large amount of
interest from related disciplines (Landstrom, 1999). So, although the theme has always
played a certain role for describing economic dynamics, Cooper (2005) sees
entrepreneurship as a very young field of academic study.
While many of these different subfields are of interest for gaining a better
understanding of entrepreneurial activity within the context of sustainable development, for
the purpose of keeping the work cohesive, we will only present work that emerged out of
the economic sciences discourse here. Before moving on to modern themes and frameworks
for discussing entrepreneurship in an economic context, we will discuss the role ascribed to
the entrepreneur in regards to economic activity from a more systemic perspective. Can
entrepreneurial activity be explained within a framework of neoclassical formal modeling?
What impact do entrepreneurs have on markets for achieving equilibrium? Or do
entrepreneurs make the case for disequilibrium?
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3.3 To Equilibrate or not to Equilibrate. Is that the Question of the
Entrepreneur?
3.3.1 The Uncertainty in the Neoclassical Treatment of Entrepreneurship
With the emergence of the Walrasian general equilibrium model as major the analytical
framework for economic theory and analysis in the early 20th Century, the theoretical
discourse on entrepreneurship almost disappeared from economic theory. For instance,
Alfred Marshall’s early work that focused on equilibrium of perfectly competitive markets
saw little place for an entrepreneurial actor within such theory construct (Landstrom, 2005).
Root assumptions in equilibrium economics, such as perfect rationality assumption, perfect
information and perfect competition on markets renders the entrepreneur a non-‐vital
economic agent (Barreto, 1989; Connell, 1999; Grebel et al., 2003). For this reason, some
scholars also have come to criticize the approach for lacking realistic assumptions that takes
many important actors and collective (institutional) factors out of the equation (see Urwyler,
2006).
Frank Knight (1921) is an early and important contributor to the discourse of
entrepreneurship research. He criticized the neoclassical approach for especially neglecting
the role of uncertainty as a vital component for economic activity and their activity. He can
be recognized for describing in detail the difference between measurable risk and
immeasurable uncertainty (Brown and Thornton, 2011), and that this affects all economic
agents and processes (Grebel et al., 2003). For instance, Knight pointed out that some forms
of risk could be mitigated by insurance. However, in order to be insurable, a probability
distribution associated with risk must be known, either because of large numbers of
individuals that are exposed to risk or repeated exposures to the same risk by the same
individual takes place (Hébert and Link, 1989). However, there also exist instances of true
uncertainty where risks cannot be calculated. The entrepreneur is thus someone who is
capable and willing to take on this true uncertain environment while at the same time
controlling the other relevant factors of production (Venkataraman et al., 2010). Thus the
existence of unpredictable change that demands a need to address these
challenges/opportunities of uncertainty is a crucial dimension that gives space for
entrepreneurial activity within the economic system (Parrish, 2008). Thus, the entrepreneur
can be interpreted to receive a return for making decisions under conditions of true
uncertainty. Setting this in relation to sustainable development it becomes clear that if
Joshua von Gabain Entrepreneurship for Sustainable Development
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adopting such a interpretation of entrepreneurial activity it fits very well in to more complex
adaptive systems thinking models of sustainable development (i.e. strong sustainability).
3.3.2 Schumpeter -‐ Innovative Entrepreneurs as Disequilibrating Forces
Joseph Schumpeter can be seen as one of the authors who have made the most elaborate
contribution to entrepreneurship. While it has been recognized that his interpretation of
entrepreneurship was going through considerable changes throughout his writings (from
1912 to later important works) (Landstrom, 2005), it is nonetheless recognized that he
heavily emphasized the central role of entrepreneurially driven innovations in economic
development.
To Schumpeter, development is a dynamic process, a disturbing of the economic
status quo (Hébert and Link, 1989). Schumpeter thus distinguished between development
and quantitative economic growth. In his "Theory of Economic Development" he stated that
“Nor will the mere growth of the economy, as shown by the growth of populations and
wealth, be designated here as a process of development. For it calls forth no qualitatively
new phenomena” (p.63 Schumpeter, 1934). Later he proceeds "...development consists
primarily in employing existing resources in a different ways, in doing new things with them,
irrespective of whether those resources increase or not." (p.68, Schumpeter, 1934). In
reflection on the writings on sustainable development it becomes evident that this shows to
be of high resemblance to ideas developed by Herman Daly11.
Foster (2000) and Herbert (2006) highlight that a general equilibrium approach was
only a pedagogic starting point for Schumpeter. It was, however, not an analytical end point
in his depiction of economic evolution. Much more, he stressed economies to be in a non-‐
equilibrium process. The entrepreneur is a key figure for Schumpeter because it is "the
disruptive, disequilibrating force that dislodges the market from the somnolence of
equilibrium" (p.318, Foster, 2000). The entrepreneur is hence the persona causa of
economic development and “creative destruction” that unweaves existing structures,
technologies and industries (Hébert and Link, 1989). So while using an evolutionary outset
for his analysis, Witt (2002) points out that Schumpeter was not an evolutionary economist
in the classical sense. Foster (2000) highlights that Schumpeter ideas are incorporating
evolutionary process but however is more closely related to modern conceptions of self-‐
11 This should however not come to be a too big of a surprise. For Daly's mentor, Georgescu-‐Roegen, was a scholar of Schumpeter in Harvard.
Joshua von Gabain Entrepreneurship for Sustainable Development
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organization. Other authors place him to be viewing the economy to be consisting of
punctuated equilibriums (Chiles et al., 2007).
Further, Schumpeter defined entrepreneurs as innovators who implement
entrepreneurial change within markets. He defined innovation as a creative response, or
doing “something that is outside of the range of existing practice” (p.326, Peneder, 2010).
This creative response has five manifestations in Schumpeter’s work: 1) the introduction of a
new (or improved) good; 2) the introduction of a new method of production; 3) the opening
of a new market; 4) the exploitation of a new source of supply; and 5) the re-‐
engineering/organization of business management processes (Peneder, 2010). Schumpeter
contrasted this to the conduct of the manager, who follows an adaptive response that
mainly deals with incremental improvements. An adaptive responsive can be defined by the
mere reaction to changes in the exogenously given business conditions (i.e. CSR related,
fulfillment of standards albeit staying within a given trajectory) (Peneder, 2010). Further,
Schumpeter saw the adaptive response to be a follow up to the creative response. It can be
described as the process of imitation that is responsible for the widespread adoption in the
system (Yu, 2001).
To conclude, the Schumpeterian entrepreneur is an innovator (which he
distinguished from an inventor) who disequilibrates markets through new recombinations of
resources, thereby bringing forth a process of creative destruction that is endogenously
initiated. Interestingly, he did not really view entrepreneurs as risk-‐takers, a role that
Schumpeter attributed to the capitalist financier (Braunerhjelm and Svensson, 2010).
Schumpeter further prescribed the term entrepreneur only for the creative or innovative
phase of a firm’s development (where the new combinations of resources are explored and
put into practice). When the enterprise matures and operations become routine, he
becomes a manager (Foster, 2000; Courvisanos and Mackenzie, 2011).
3.3.3 Kirzner and the Austrian School -‐ Entrepreneurs as Equilibrating
Forces
Another approach that has come to be an influential voice in describing entrepreneurship
are the ideas developed by Kirzner who derives his perspective from the Austrian school of
economics (von Mises and Friedrich August von Hayek12). The Austrian School of Economics,
12 Schumpeter is also an Austrian economist, a student of von Wieser, Böhm-‐Bawerk, and was in contact with Hayek. He nonetheless distanced himself from their more formal approach during his later career.
Joshua von Gabain Entrepreneurship for Sustainable Development
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like Schumpeter, were skeptical of viewing the economy to be in a constant equilibrium.
However, they stood in stark contrast to Schumpeter’s interpretation of entrepreneurs
pulling markets away from equilibrium. Instead they view entrepreneurs as agents who
identify market disequilibria as opportunities for profit, thereby gradually bringing markets
back into equilibrium.
Von Mises viewed the entrepreneur as someone who is daring in the face of
uncertainty, imaginative, and speculative in identifying opportunities for pure profit in
constant changing market situations (Mises and Greaves, 1949; Urwyler, 2006). One of
Hayek’s more significant contribution is the idea that markets are composed of people who
possess different information due to dispersed knowledge (Hayek, 1945). Kirzner highlighted
the role of entrepreneurs to discover opportunities from this dispersed knowledge. The
entrepreneur is thus a person, who is alert to imperfections in the market thanks to
information about the needs and resources of the different actors and, with the help of this
information, is able to coordinate resources in a more effective way (Landstrom, 2005).
Thereby “the entrepreneur is the equilibrating force whose activity responds to the existing
tensions and provides those corrections for which the unexploited opportunities have been
crying out” (p.127, Kirzner, 1978). Thus in Kirzner’s view, the market tends towards
equilibrium as entrepreneurs correct market inefficiencies (Chiles et al., 2010).
To summarize, Kirzner highlighted the superior “alertness” of the entrepreneur to
act upon an “opportunity discovery” (i.e. of differences in prices). This differentiates the
entrepreneur from other actors within the economy (Khalil, 2006). Thus the entrepreneur
can be viewed as an arbitrageur (Barreto, 1989). In Kirzner’s initial work (1978), the role of
imagination to deal with uncertainty was highly neglected (although von Mises had
highlighted this point (Mises and Greaves, 1949)). His later work introduced multi-‐period
markets. In this case, imagination plays a more important role and entrepreneurial discovery
is extraordinary and brings a major technological breakthrough to the economy. Here his
interpretation comes closer to Schumpeter’s concept of entrepreneurship (Yu, 2001).
There has been a significant amount of discussion whether both views can be seen
as complimentary or not (see Mathews, 2006; Chiles et al., 2007). For instance, Loasby
asserts that "whereas Kirzner’s entrepreneurs respond to changing data, Schumpeter’s
cause the data to change" (Loasby, 2002). While I will not go deeper into the discussion
here, it is important to highlight that both approaches are influential starting points in
subsequent research that has emerged. Hence, Schumpeter and Kirzner clearly represent
two different views that will be taken into consideration when discussing the sustainability
Joshua von Gabain Entrepreneurship for Sustainable Development
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driven entrepreneur in the subsequent sections to come. For instance, Kirzner’s work has
become very influential in modern entrepreneurship research (especially the work by Shane
and Venkataraman (2000)) but Schumpeter's entrepreneur is more in line with the more
disruptive innovations that bring completely new dynamics into an economy. In relation to
the discussion on the sustainability driven entrepreneur, the disruptive entrepreneur may be
perceived as the more relevant. On the other hand, Kirzner's (or Schumpeter's adaptive
response) might be perceived as important for new innovations diffusing into the wider
economy. We will continue this discussion in Chapter 4. There, this work will also analyze an
approach that has a completely evolutionary core in its approach (i.e. see Section 4.4.2 for
(Potts et al., 2010)).
3.4 Exploring Modern Themes of Entrepreneurship Research
Here we will present some of the more recent work that emerged since the second half of
the last century. It must be noted, however, that it would be going beyond the purpose of
this work to explain all different new insights and approaches towards explaining and
investigating entrepreneurship. Rather we will describe often cited and acknowledged work
that is seen as relevant for the upcoming analysis of the sustainability driven entrepreneur in
the next chapter. This involves first looking at the role of psychological traits of
entrepreneurs, and the need to view entrepreneurial activity within contextual dimensions.
Then we will highlight the emerging discussion on entrepreneurial opportunities and their
interlinkages with the entrepreneur (individual or group). This section will end with concepts
that orient itself around "new value creation" and the social and environmental context of
entrepreneurial emergence.
3.4.1 The Psychological “Traits" of Entrepreneurs
While the early and groundbreaking research summarized in the previous sections can be
ascribed to answer the question of what an entrepreneur is, many of the classical authors as
well as Schumpeter and Kirzner also consistently mentioned entrepreneurs to be a special
type of actors with special qualities13. As a follow up, entrepreneurship research increasingly
focused on the actors of entrepreneurship. That is “who” the entrepreneur is as a person.
This approach can be described as the “traits approach” and investigates attitudes and
personality traits that could distinguish successful entrepreneurs from unsuccessful
13 although Kirzner often mentions that everyone can be an entrepreneur
Joshua von Gabain Entrepreneurship for Sustainable Development
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entrepreneurs and non-‐entrepreneurs. One work that is often cited is that of the
psychologist (McClelland, 1961). It highlights the entrepreneur’s high need for achievement
as a qualitative attribute of entrepreneurs. Other research followed, empirically assessing
their risk taking propensity (Brockhaus, 1980), internal locus of control (Ketz de Vries, 1977;
Hull et al., 1980; Bygrave, 1989), tolerance for ambiguity (Bygrave, 1989), previous work
experiences and age (Cooper, 1970; 1981), tendency for optimism (Krueger and Brazeal,
1994) and a certain intentionality in their operational activities (Vesper, 1980; Bird and
Jelinek, 2009) (Gartner, 1988 for a more detailed account; see Shaver and Scott, 1991;
Urwyler, 2006; Gan, 2010).
These approaches however came under increasing criticism as they produced
inconsistencies, little homogeneity, large variances among the samples investigated
(Gartner, 1988; Thornton, 1999), disregarded capabilities for learning (Deakins, 1998), the
role of external structural influences (Martinelli, 1994), and important temporal and
contextual events and processes (Thornton, 1999). Thus the evidence to support the idea
that a number of unchangeable characteristics or inherent traits of people exists that
differentiate (successful) entrepreneurs from non-‐entrepreneurs is only weak at most (Gan,
2010). As a consequence Gartner (1985, 1988) and (Low and MacMillan, 1988) challenged
the whole approach by arguing that the behavior of creating a new venture, and not the
personality of the founder, should be a fundamental to the research of entrepreneurship
stream (i.e. focus on what the entrepreneur does and not on “who the entrepreneur is”
(Gartner, 1988)).
3.4.2 The Context of New Venture Creation
In the search for a new focus of entrepreneurship Gartner developed a framework for
describing new venture creation. It integrates four major perspectives in entrepreneurship:
characteristics of the individuals who start the venture, the organization which they create,
the environment surrounding the new venture, and the process by which the new venture is
started (Gartner, 1985). Further he listed relevant variables (from literature) under the
appropriate dimension within the framework. This illustrates the potential for a high degree
of complexity in the interaction of the different variables within the multidimensional
venture creation process. Further it raised the attention of the importance of the
environmental context, structural and positional characteristics as well as the process of
creating new ventures (Ulhøi, 2005)
Joshua von Gabain Entrepreneurship for Sustainable Development
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Figure 5: A framework for describing new venture creation; Source: Gartner (1985)
As a result of this work, and in conjunction with the critique of the traits approach, the focus
shifted to more cognitive approaches, studying cognitive biases and heuristics in strategic
decision making (Busenitz, 1992; Busenitz and Barney, 1997) and the impact of prior
entrepreneurial exposure on the perceptions of new venture feasibility and desirability
(Krueger, 1993). A socio-‐cultural approach investigated features of society or culture, such
as ethnicity, gender, migration patterns, and occupational background on entrepreneurial
venture creation. This has been paralleled by a growing interest in the effects of social
capital, economic and political contexts on the process of entrepreneurial emergence
(Gartner, 1985; Anderson and Jack, 2002). These factors include new technology and
markets as well as the level of modernization, ecological niches, and organizational
populations (Reynolds, 1991). Still other environmental factors include governmental
policies and regulations, such as public policy guidelines and legal or institutional
frameworks (Audretsch et al., 2007). Nonetheless, research that solely focus on
characteristics of entrepreneurs continues to flourish (Shaver and Scott, 1991), while some
contextualist positions totally discredit any ascribed importance to the personal
characteristics for the success of new creation process (Shaver and Scott, 1991)
(Low and MacMillan, 1988) also made an important contribution by drawing out the
challenging, albeit guiding questions that need to be considered in the pursuit of
entrepreneurship research. This involves:
• Purpose — what is the specific as well as larger purpose of the study?
• Theoretical Perspective — what is the theoretical perspective adopted?
• Focus — on what specific phenomena shall the investigation be focused?
• Level of analysis — what level or levels of analysis will be considered?
• Time frame — what length of time frame will be considered?
• Methodology — what methodology will be adopted?
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They concluded by ascribing entrepreneurship to the “creation of new enterprise” and
propose that entrepreneurship research seeks to "explain and facilitate the role of new
enterprise in furthering economic progress" (p.141, Low and MacMillan, 1988).
3.4.3 The Crucial Role of Entrepreneurial Opportunities
Peter Drucker has become a widely recognized author with his book “Entrepreneurship and
Innovation” published in 1985. He defined the entrepreneur to “see change as the norm and
as healthy. Usually, they do not bring about the change themselves. But -‐ and this defines
entrepreneur and entrepreneurship -‐ the entrepreneur always searches for change,
responds to it, and exploits it as an opportunity” (p.27, Drucker, 1985). His work does not
directly connect with past authors, although their influence is apparent. Schumpeter was
also of a strong influence, but unlike Schumpeter, Drucker did not see entrepreneurs as the
“bearers of change”. Further, he paid special interest to the sources of opportunities. He
described four of these to exist within a company or industry: unexpected occurrences,
incongruities in demand and supply, process needs, industry and market changes. Three
additional sources of opportunities come about outside the company within its social and
intellectual environment: demographic changes, changes in perception, new knowledge
(Drucker, 1985). A further dimension of his work dealt with the process of developing a new
venture. In summary, his work can be described to be rather focused on the management of
(new) ventures.
Another influential author is Mark Casson who published “The Entrepreneur: An
Economic Theory” in 1982. There he makes the distinction between the functional and
indicative approach of explaining entrepreneurship. The former, mainly adapted by
economic theorists, simply describes “what an entrepreneur does”. Anyone who performs
this function is ascribed an entrepreneur. The indicative approach is adapted by economic
historians and sociologists who are more concerned with the description of real life situation
(such as legal status, contractual relations etc.) (p.19, Casson, 1982). He explains his attempt
to converge these approaches. Thus he first defines an entrepreneur as “someone who
specializes in taking judgmental decisions about the coordination of scarce resources.” (p.21,
Casson, 1982). While his work can be regarded to align itself to a neoclassical framework, he
nonetheless continues with a more indicative approach within the later chapters of his book.
Casson thereby sees entrepreneurial opportunities as those situations in which new goods,
services, raw materials, and organizing methods can be introduced and sold at greater than
their cost of production (Casson, 1982).
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Since the work of Peter Drucker and Mark Casson there has been a surge of the
work investigating entrepreneurial opportunities. Detailed reviews of this research are for
instance (McMullen and Shepherd, 2006; Casson and Wadeson, 2007; Plummer et al., 2007;
Shepherd et al., 2007; Short et al., 2009a). It also provides the core of one of the most cited
papers by Shane and Venkataraman (2000) within the entrepreneurship research
community (Landström et al., 2012). The ideas of this paper will be discussed next.
3.4.4 The Individual -‐ Opportunity Nexus Model
At the turn of the century, Venketaraman (1997) and Shane and Venkataraman (2000) laid
out a conceptual framework that helped to establish entrepreneurship research as an
individual discipline. It has become one of the most cited models for understanding
entrepreneurial activity (Shane et al 2000).
Among others, they stressed the need to deepen our understanding of
entrepreneurial opportunities and the sources thereof. Building on ideas by Hayek, Kirzner
and Casson they identified the so-‐called individual-‐opportunity nexus as a core theme of
their research. Thereby they said that “entrepreneurship is concerned with the discovery
and exploitation of profitable opportunities” and that it “involves the nexus of two
phenomena: the presence of lucrative opportunities and the presence of enterprising
individuals.” (pp.127, Shane and Venkataraman, 2000). Research questions of relevance they
identified to be: (1) Why opportunities exist? (2) What determines opportunity discovery?
(3) What factors are important in the exploitation of opportunities? (See Figure 6).
First, (Shane and Venkataraman, 2000) defined entrepreneurial opportunities as
“those situations in which new goods, services, raw materials, and organizing methods can
be introduced (1) and sold at greater than their cost of production (Casson, 1982)” (p.220,
Shane and Venkataraman, 2000), (2) through the formation of new means, ends, or means-‐
ends relationships (Eckhardt and Shane, 2003) or (3) for profit (Eckhardt and Shane, 2010)14.
They thus differentiate entrepreneurial opportunities from profit generating opportunities
that do not change the existing means-‐ends relationship. They further explain opportunities
to arise out of exogenous change, information asymmetry among actors, and due to the
different conjectures on the value of resources that people make.
14 I here have numerated the alterating definitions that Shane and Eckhardt put forth throughout the decade.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Figure 6: The Individual-‐Opportunity Nexus; Source: own illustration
The second element of their framework deals with the discovery process of opportunities. In
their initial work they explained that “an entrepreneurial discovery occurs when someone
makes the conjecture that a set of resources is not put to its “best use”” (Shane and
Venkataraman, 2000). Important determinants of the opportunity discovery are information
corridors, prior knowledge, networks, and cognitive dimensions and motivation. For
instance, people directly working within a certain discipline have access to specific
information, and are thus more likely to recognize the opportunities within this field. Two
other important factors are search processes and the social networks that are available in
those information corridors.
Going further (Shane, 2000) demonstrated the importance of prior knowledge for
entrepreneurial activities within the 3D Printing industry at the turn of the century. Each
case he evaluated approached and utilized different opportunities as a consequence of their
prior engagement with specialized and related fields of prior research. Hence prior
knowledge is derived from heterogeneous life experiences, including education and
employment, and is often very tacit in nature. Hence, individuals are unlikely to each have
the same prior knowledge (Eckhardt and Shane, 2010). Going further, prior knowledge is an
important component of a person's (or a firm's) absorptive capacity of evaluating and
realizing an existent opportunity (Cohen and Levinthal, 1990). Thereby, the
interconnectedness to diverse knowledge structures also plays an important role.
The third element/phase of their model regards the exploitation of opportunities15.
This involves the process of pursuing the opportunity. Shane and Venkataraman (2000) link
this to the question of why, when and how do some people exploit the opportunities that
they discover? This involves “taking action to gather and recombine the resources necessary
15 I would suggest using the term utilization instead of exploitation for rhetorical reasons.
Joshua von Gabain Entrepreneurship for Sustainable Development
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to pursue an opportunity, as opposed to the mental activities of recognition and
evaluation.” (Eckhardt and Shane, 2010). In short, they emphasized opportunity
characteristics, resources, entrepreneurial capabilities, social capital (trust and legitimacy),
financing and stakeholder networks as important determinants.
The model of Shane, Venkataraman (and later Eckhardt) has however not gone
uncriticized. First, it depicts the venture formation stage as a rather linear process while
research suggest that it is more of an iterative and dynamic process. Opportunity
identification may for instance first arise through a close interaction with customers and
markets, thus often going through constant dynamic reevaluation (Urwyler, 2006). Further,
empirical evidence suggests that opportunities are often created by the entrepreneurial
process itself (Sarasvathy and Venkataraman, 2011) or through the failed exploitative
attempts that are later picked up by others, nonetheless within a different context and/or
within a changed constellation/combination of resources. Second, it has been criticized for
undermining the role of the environmental factors and social context for the entrepreneurial
venture creation process (Zahra and Dess, 2001; Welter, 2011). Third, there has been an
increasing discussion on the epistemological underpinnings of the model (which will be
discussed in Section 3.5). However, a result of their work is that the nature of opportunities
and its relation to the individual has manifested itself as a central research concept within
entrepreneurship research (Short et al., 2009a). Hence, there has been a growing agreement
that opportunity recognition, resource mobilization, resource creation, and coordination of
resources are important and distinctive entrepreneurial processes (see Stam, 2003, p. 12,)
3.4.5 The Value-‐creation Perspective of Entrepreneurship
Another approach with a somewhat different take on entrepreneurship is that of (Bruyat
and Julien, 2001). They see entrepreneurs as responsible for the process of creating new
value in the form of innovation and/or new organization. This new value would not be
created without any entrepreneurial activity. It thereby constitutes a process
The scientific object studied here becomes the individual (I) ⇔ new value creation
(NVC) dialogic. This system is thus capable of learning and creating while also having an
intention. Thereby it interacts with the environment in a proactive manner such that it also
organizes and selects it. In contrast to Shane and colleagues, they thus take a constructivist
approach (see also Sarason et al., 2006; 2010). For instance, they cite Winston Churchill who
argues, “First we shape our structures, and afterwards they shape us” to make their
argument. By regarding entrepreneurship as intentional acts of new value creation, they
Joshua von Gabain Entrepreneurship for Sustainable Development
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attempt to outline the entrepreneurial research theme by excluding features that belong
into other fields (such as economic development or strategic management). Their main
point is that one needs to consider and examine the dimensions of the individual (the
entrepreneur), the project, the environment and also the links between them over time.
These are of complex nature. The entrepreneur is thus not “simply a blind machine
responding automatically to environmental stimuli (interest rates, subsidies, information
networks, etc.), but a human being capable of creating, learning and influencing the
environment” (p.1, Bruyat and Julien, 2001). Research building on their work hence
highlights a shift towards focusing on the interactive process between the entrepreneur and
his/her context. This involves an understanding of networks (Birley, 1986; Johannisson,
1995; Malecki, 1997; Anderson and Jack, 2002), embeddedness in cultural and social context
(Granovetter, 1985; Reynolds, 1991; Thornton, 1999) but also of the importance of
geographical and temporal context (Stam, 2003). But it also introduces a discourse on
whether entrepreneurial value creation should be merely perceived to be of economic
value. The creation of social and cultural values thus becomes a relevant perspective for
interpretations (see for instance Dees, 1998). This becomes especially relevant in regards to
the study of social-‐, eco-‐ and sustainability-‐driven entrepreneurship.
3.5 To Discover or to Create -‐ That is the Philosophical Debate
Due to the many approaches for describing entrepreneurship most recent research has been
begun investigating the epistemological underpinnings of these different explanations
(Sarasvathy, 2001; 2003; Alvarez and Barney, 2007; Schindehutte and Morris, 2009; Alvarez
and Barney, 2010; Alvarez et al., 2010; Edelman and Yli-‐Renko, 2010). For the purpose of this
discussion, we will first introduce the concept of effectuation as a mode of decision-‐making
process during entrepreneurial activity. This will give an introduction to a discourse on
worldviews that are being applied to describe entrepreneurial activity. Among many, one
can differentiate between a realist/critical realist and social constructivist perspective. Most
recently the approach of adopting an evolutionary realism has been suggested that places
itself between these two perspectives. While an in-‐depth discourse of this topic would go
beyond the focus of this work, a brief elaboration does make sense in order to make a better
connection to the discussion on sustainability, and hence the Sustainability-‐driven
Entrepreneurship in Chapter 4.
Joshua von Gabain Entrepreneurship for Sustainable Development
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3.5.1 Entrepreneurial Logic as Effectuation?
In 2001 Sarasvathy (2001) published an interesting work that highlighted that the
entrepreneurial decision making process follows reasoning principles that are not really in
line with those found in a managerial context. Stated in simple terms the reasoning process
that takes place during the creation of new entrepreneurial artifacts is not based on a
predictive logic. While the latter involves first selecting a goal and then choosing between
given means or seeking to acquire the means necessary to achieve the selected end, an
effectual logic begins with a given set of means and with these, focus on generating new
ends (effect) (Dew et al., 2009). Whereas a causation model consists of a many-‐to-‐one
(effects) mapping, an effectuation models involve one-‐to-‐many (effects) mappings
(Sarasvathy, 2001). A simple example of this is the chef who cooks from a recipe (causal)
versus one who imagines possible meals from ingredients available at hand (effectual).
Research suggests that such differences in logics are also evident in a managerial (and MBA)
vs. entrepreneurial context. Going further, in the case of confronting uncertainties of future
phenomena, the effectuation process becomes a highly relevant logic of organizing
(Sarasvathy, 2001). The effectuation logic indicates a way of making a new connection
among means, imagination, aspiration and action that helps generate intentions and
meaning in an endogenous manner (Sarasvathy, 2001)16. Hence, Sarasvathy's investigation
highlights a deeper philosophical question that deals with the nature of entrepreneurial
opportunities and their form of existence. The first approach is the discovery perspective
that pursues a realist/critical realist perspective (i.e. Shane and Venkataraman's Individual-‐
Opportuniy model described in Section 3.4.4). The second is the creation perspective that
pursues a social constructivist standpoint.
3.5.2 Critical Realism vs. Evolutionary Realism
The discovery perspective interprets opportunities to be objective phenomena. Since they
are not known to all parties at all times, the recognition of these entrepreneurial
opportunities is a subjective process (Shane and Venkataraman, 2000). Stated differently,
entrepreneurial opportunities are viewed as exogenous objective states that arise from
changes in technology, consumer preferences etc. (Kirzner, 1978; Alvarez and Barney, 2010).
That is, opportunities are real and exist independently of the perceptions and actions of
16 While not really taken into great depth in this writing, it is also important to highlight that Sarasvathy’s ideas spring from work by James March, Herbert Simon, Henry Mintzberg and Karl Weick.
Joshua von Gabain Entrepreneurship for Sustainable Development
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those seeking to generate economic wealth from exploiting them (Kirzner, 1978) taken from
Alvarez:2012hx}. These can be observed ex ante so as to recombine resources in a way that
generates a new means-‐end relationship. Business ideas are thus the entrepreneur's
interpretation of how to recombine a resource (Shane, 2012). Hence, opportunities can be
interpreted as a product of the environment that arise under conditions of uncertainty and
turbulence (Knight, 1921; Dew et al., 2004; Edelman and Yli-‐Renko, 2010). Going further, this
approach demands an evaluation of opportunities in the sense of forming expectations of
the future prices, costs and markets (Tether and Stigliani, 2012). Within such a frame of
reference, entrepreneurs can be regarded as applying risk-‐based decision-‐making tools
(Alvarez and Barney, 2010). This involves discounted present value techniques, real options
analysis, and scenario analysis to make decisions about whether or not to exploit an
opportunity (Alvarez and Barney, 2010). Hence opportunity costs can be evaluated and
determined.
In the creation theory approach, the environment is not taken as given but instead is
something that is “enacted” by entrepreneurs (Edelman and Yli-‐Renko, 2010). Hence it
adopts the assumption that opportunities are formed endogenously by entrepreneurs
themselves through an enactment process (Aldrich and Ruef, 2006; Alvarez et al., 2010).
Opportunities are thus seen "as social constructions formed through the entrepreneurs’
perceptions and effectuated through the interactions between the entrepreneurs and their
environments" (p.834, Edelman and Yli-‐Renko, 2010). "When entrepreneurs act to exploit
these socially constructed opportunities, they interact with an environment (i.e. the market)
that tests the veracity of their perceptions. Of course, the market is, itself, a social
construction, formed out of the perceptions and beliefs of numerous other individuals"
(Alvarez and Barney, 2007). New venture formation in this view "results not from fulfilling a
set of predetermined resource requirements but instead from an iterative “bricolage”
process of action and reaction" (p. 834, Edelman and Yli-‐Renko, 2010) as highlighted by
Sarasvathy (2001) . While a creationist approach may allow for adopting similar decision
making tools as in the discovery process, it places a stronger emphasis on the role of
uncertainty in the decision making process. The more novel an opportunity that is created
through this process, the more new knowledge and information have to be formed through
an iterative process of experimentation (Alvarez et al., 2010). Learning thus becomes an
essential element of the process. However, the social constructivist approach has also
received a lot of criticism as it fails to take into account any objective natural phenomena.
Joshua von Gabain Entrepreneurship for Sustainable Development
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As an alternative, (Alvarez and Barney, 2010) suggest the adoption of evolutionary
realism instead of social constructivism as a epistemology. It "incorporates many aspects of
social constructionism. In this perspective, individuals are still assumed to construct the
social conditions within which they operate. However, these social constructs — or beliefs
about the way the world works — may come into conflict with other phenomena. These
other phenomena may be objective in nature (as in realist or critical realist philosophy), or
they may be dominant social constructions created by other people." (p.564, Alvarez and
Barney, 2010). It is an approach that was developed by Donald Campbell (1974). The
strength of this approach over the critical realist perspective is that it gives more room for
the role of 'subjective' creativity, imagination and personal conjectures that are embedded
in collective, nonetheless evolving, social constructs that are bounded within objective
conditions of reality.
There is still strong debates on whether the two approaches are special cases (of
each other), mutually exclusive complementary or two approaches that are of relevance at
different times of industry maturation (Alvarez et al., 2010). In fact, the creation perspective
appears to be the more suitable perspective when discussing the theoretical underpinning
of disruptive entrepreneurial activities that bring totally new markets to emergence. Tether
et al. (2012) makes exactly this case in their investigation of a completely new service sector.
Nonetheless, it must be stated that the discourse on ontology and epistemology is of
complex nature. Authors carry different interpretations of terms like critical realism and
evolutionary realism. Hence, this work does not propose to be complete in regards to this
issue 17 . This brief analysis, however, gives the reader a good overview into
ontological/epistemological issues that find an overlap with the literature on sustainable
development. In regards to the study of the sustainability driven entrepreneur, an
evolutionary realism approach appears to make a better fit (1) for a strong sustainability
perspective and (2) for the current situation where totally new forms of sustainability driven
markets are needed. This does, however, not exclude a critical realist perspective. Going
further, an evolutionary realism perspective also seems to be more compatible with the
normative and dynamic principles described in Chapter 2 (especially in regards to second
order learning (Sterling, 2010)).
17 One in fact gains the perception that the discourse on this issue is increasing in intensity within academia. This might suggest that more interdisciplinary/transdisciplinary analysis on the ontology and epistemology of scientific interpretation and mode of interrogation is to come within the next decade.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Most recently Sarasvathy and Venkataraman (2011, p. 120,) propose
entrepreneurship to be interpreted as a method. As such it is "a form of reasoning and logic
the exercise of which would be as useful a skill as arithmetic, reading, writing, and basic
scientific reasoning" that can find its "uses beyond technology commercialization and
economic development and put it to work to build social innovations that make a positive
difference in human development". In the perspective of this work, this appears as an
interesting approach. Nonetheless, it must become vital that such method incorporates
reasoning and learning processes that are in line with a sustainable development.
Entrepreneurial Discovery View Entrepreneurial Creation View Epistemological Roots Critical Realism Evolutionary Realism and Social
Constructionism Historical Roots Austrian Economics Sociology, Evolutionary Theory (1) Opportunities (2) Environment
(1) Objective opportunities formed by exogenous shocks to existing markets and industries (2) Future environment is predicted
(1) Enacted opportunities formed endogenously by entrepreneurs in an evolutionary path-‐dependent manner (2) Future environment is constructed (within objective constraints)
(1) Information and (2) Decisions-‐making
(1) Knowledge & Information is useful and exists objectively in physical and social artifacts (2) is risk-‐based
(1) Knowledge & Information arise out of incremental, iterative and inductive process during the opportunity creation process (2) Contains uncertainties where probabilities are not known
Ex ante differences between entrepreneurs and non-‐entrepreneurs
Important ex ante differences termed “alertness” that enable entrepreneurs to be aware of objective opportunities
Differences may be the effect of enacting an opportunity
Resources Required in order to meet the resource needs of exploiting a given opportunity (predictive logic)
Matched with perceived opportunity in an iterative improvisation process, i.e. resource requirement co-‐evolve with opportunity definition (effectual logic)
Table 7: Comparison of Discovery vs. Creation View in regards to opportunities and exploitation
process; Source: adapted from (Sarasvathy, 2001; Alvarez and Barney, 2010; Edelman and Yli-‐
Renko, 2010; Alvarez et al., 2012)
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3.6 Typologies of Entrepreneurship
It becomes evident from this brief review that one may differentiate between two types of
entrepreneurial activities: The innovative (Schumpeterian) and the imitative (Kirznerian)
entrepreneur (see also Aldrich and Ruef (2006) as well as Baumol (1990; 2007) for a
differentiation that is in line with this suggestion). Both can be highlighted as important as
the innovative entrepreneur provides for new and novel resource combinations to the
economy, while the imitative entrepreneur assures the diffusion of these novel innovation
into the grander market and population. For the purpose of this work it may also be of
relevance to highlight that entrepreneurs may take the shape of new start-‐ups but also as
spin-‐off from incumbent firms. They may even take place within existing firms as a strategy
to adapt to a changing environment (Eckhardt and Shane, 2010).
Last but not least, the point has to be raised that a vast stream of literature within
entrepreneurship research has focused on proposing typologies or taxonomies of different
kind of entrepreneurs. This approach could be described to stem from the idea that instead
of classifying entrepreneurs from non-‐entrepreneurs, one could attempt to create a
taxonomy of categories within entrepreneurs (Sarasvathy, 2004a). However, a brief review
of this topic also reveals that that there has been a surge of attempts to classify different
types of entrepreneurs (see for instance Walley and Taylor, 2005). For the purpose of this
paper it is thus important to narrow the focus to the kinds of entrepreneurs that are
believed to be of relevance for the investigation of the sustainability driven entrepreneur.
These are the eco-‐preneur (or environmental entrepreneur), socio-‐entrepreneur,
institutional entrepreneur, and collaborative, community entrepreneurship. We will not
discuss these types of entrepreneurs in this chapter but leave it for the next chapter to
come.
3.7 A Summary of Ideas on Entrepreneurship
To conclude this chapter the following statements may be made: (1) Entrepreneurship can
be described to be equilibrating or disequilibrating; (2) The latter may be ascribed to the
innovative and disruptive entrepreneurs; (3) They induce a certain form of development in
the economy and thus can be regarded as creating new value; (4) An understanding of
entrepreneurial activity implies looking at individuals and environmental context in which
they emerge; (5) Entrepreneurship is highly connected to the formation and emergence of
opportunities, the process of discovery or creation, and the combination of resources; (6)
Joshua von Gabain Entrepreneurship for Sustainable Development
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More lately, and also in regards to different typologies of entrepreneurship, a value creation
perspective has become a relevant within research. This also highlights the need to focus on
interactions and process for new venture/value creation through entrepreneurial processes;
(7) Last but not least, there has a discussion on the epistemological perspectives of analyzing
entrepreneurial opportunities, activities, and new value creation/discovery.
This brief overview of entrepreneurship research it now makes it easier to
investigate the phenomenon in relation to sustainable development. Some points of
converging relations with sustainable development have already been highlighted
throughout this chapter; it must be noted however that not all dimensions presented in this
chapter will be thoroughly investigated in the next chapter. Much more, the focus will be on
exploring a theoretical explanation for the sustainability driven entrepreneurship within a
larger context while also embedding this into concepts, ideas and dynamics of sustainable
development. Nonetheless, many of the dimensions will be addressed where found useful.
This chapter thus served well the purpose to allow a more a more fluid discourse on
sustainability driven entrepreneurship.
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Chapter 4 Sustainability-‐driven Entrepreneurship
4.1 Introduction
What is Sustainability-‐driven Entrepreneurship? A short answer would be that Sustainability-‐
driven Entrepreneurship (SuE) is a term that emerged out of academic research to describe
entrepreneurial activity concerned with pursuing the goals of sustainable development. As
we have learnt from the chapter on sustainable development, one can differentiate
between two different views on sustainable development in regards to economics: weak
and strong sustainability. While these may be regarded to split the discussion and
theoretical perspectives one can adopt to explain sustainable development, both can also be
regarded as useful perspectives. From the chapter on entrepreneurship, we learnt that
interpretations of what an entrepreneur is, does and proceeds can be prescribed to different
theoretical worldviews (equilibrium -‐ disequilibrium -‐ non equilibrium) and epistemological
interpretations of entrepreneurship (are opportunities discovered or created?). The aim of
this chapter is to reconcile the insight from the previous two chapters to form an
understanding of the theoretical approaches for describing SuE. While the issues of
psychological traits, environmental context, opportunity discovery/creation and new value
creation will not be explored in separate sections, an elaboration on these will be made
whenever it is appears viable. Instead, the focus of this work lies in elaborating on the
theoretical frameworks that explain SuE in regards to the ideas of weak and strong
sustainability. We will then proceed with a deeper investigation of the systemic dimensions
of SuE when taking a strong sustainability framework into account. It must however be
stated that a considerable amount of work has already been published that discusses
sustainability driven entrepreneurship. The last decade has in fact experienced an
exponential growth in published material that relates to the topic. While it must be
recognized that not all dimensions of SuE can be discussed in detail, it does makes sense to
provide a brief overview of these to form a better understanding of what SuE research
entails. Hence this chapter is outlined as follows.
The first section introduces related typologies of entrepreneurship that have
emerged earlier or in parallel to the research theme of SuE. Entrepreneurial types like the
eco-‐entrepreneur or the socio-‐entrepreneur serve to gain a better understanding of what
research on SuE may encompass. Second, 'a birds eye view' onto the research domain of SuE
is presented. This also involves the task of defining the field, briefly reviewing the literature
and formulating a definition of SuE. Third we will investigate two theoretical approaches
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that explain SuE from an economic perspective. These can be regarded as representing a
weak and strong sustainability notion for explaining the phenomena. Thereby they also link
to the discussion of equilibrium vs. disequilibrium interpretations of entrepreneurship that
was framed in Chapter 3. Fourth, this chapter will discuss SuE in relation to principles and
concepts of sustainability. This involves an elaboration on the notion of eco-‐efficiency as a
'business case' presented in Chapter 2, and contrasting it to the ideas of resilience, equity
and sufficiency. Fifth, a discussion on the dynamic context of SuE will be framed. This
includes highlighting some challenges in regards to transitions, strategies and networks for
SuE diffusing into the socio-‐economy. Finally, the chapter ends with a summary of the
theoretical ideas and concepts that were investigated.
4.2 Entrepreneurial Typologies towards SuE
In the trajectory of research towards more sustainable modes of entrepreneurial activity,
literature addressing entrepreneurship that is concerned with solving environmental issues,
and separately, concerned with solving social issues has emerged. With the rising insight
that socio-‐technical systems are often locked-‐in, and rules and regulation often prevent the
emergence of new forms of organizations that can deal with environmental and/or social
issues, the role of entrepreneurs that strive to change such institutional barriers has also
come forth as an important driver in the transition towards sustainable development.
Another term that has emerged is that of the community-‐based entrepreneurship. It is a
research area aimed at understanding new forms of organization that base their locus on
raising community development. Hence it should be regarded as useful to first briefly
explore these relevant subfields of entrepreneurship before presenting the research field on
SuE.
4.2.1 Ecopreneurship
Within the last two decades, entrepreneurship research has experienced the investigation of
an entrepreneurial subtype named the eco-‐entrepreneurship. Other terms for the
phenomena are environmental entrepreneurship, enviropreneurship, ecological
entrepreneurship and ecopreneurship. While these terms are used interchangeably here, it
should be recognized that an inconclusive discourse on their differences can also be found
within literature. Eco-‐preneurship can be described as entrepreneurial activity that is
concerned with the environment (Hendrickson and Tuttle, 1997) or stated differently, that is
Joshua von Gabain Entrepreneurship for Sustainable Development
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concerned with the creation of value in the ecological sphere (Schlange, 2009b). In a special
issue of the Greener Management International (Schaper, 2002) describes that while the
root of the field can be traced to the 1970s, it first gained increased attention and explicit
examination in the 1990s (for instance Berle, 1991). Since then, the definitions of eco-‐
preneurship, like within traditional entrepreneurship research have become many and
diverse. For instance, (Dean and McMullen, 2007) define eco-‐preneurship as the process of
discovering, evaluating, and exploiting economic opportunities that are present in
environmentally relevant market. (Lober, 1998, p. 26,) considers environmental
entrepreneurship to be "the creation of new products, services or organizations to meet
environmental market opportunities". (Isaak, 1997, p. 80,) gives a somewhat broader
definition of the phenomenon as "system-‐transforming, socially committed environmental
businesses characterized by breakthrough innovation"
Much of the literature also highlights the component of innovation. The challenge
lies in innovation that aims to reduce the ecological impact while enhancing ecological
performance. "For instance, this may be a regeneration of natural systems by introducing
and advocating the adoption of eco-‐friendly ideas, products and processes, while the use of
environmentally sound technologies may foster the internalization of externalities." (p.19,
Schlange, 2009b). Hence it involves the restoration of degraded lands, cleaning the air,
building healthy and safe home, and devising clean, renewable energy sources (Holt, 2010).
From this perspective, "an opportunity may be regarded as the potential to create value in
the ecological sphere" (p.17, Schlange, 2009b). Schaper (2005) highlights that eco-‐
entrepreneurs “do not fit a mold”, coming in many different forms and consisting of
different kinds of business activities. Hence it is hard to profile eco-‐preneurs. More recently
many authors have been focused on classifying eco-‐entrepreneurs (Schaltegger, 2002;
Linnanen, 2005; Walley and Taylor, 2005).
• Linnanen (2005) differentiates between four types of eco-‐entrepreneurs: nature
orientated; producing environmental technology; providing environmental
management services; and producing environmentally friendly products. Further he
sets these in relations to drivers of these four types: geographical influence, reason
for market emergence, and degree of enforcement. Lastly, he creates a matrix that
relates these aspects to "Drive to change the world" in relation the "Desire to make
money".
• Similarly Walley and Taylor (2005) propose the typologies innovative opportunists,
visionary champions, ethical mavericks and ad hoc entrepreneurs.
Joshua von Gabain Entrepreneurship for Sustainable Development
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• Schaltegger (2005) sets the priority of environmental issues within the business (as
core or supplementary goals) and the target market (from alternative, niche and
mass market) to position eco-‐preneurship in relation to other forms of
environmental management (Holt, 2010).
• Isaak (2002) prescribes eco-‐preneurial activity to the private sector domain but also
embeds it into public and non-‐profit sector ventures.
Similarly to social entrepreneurship that will be investigated next, the early phase of green
entrepreneurship research was focused on conceptualizing the term. In contrast, progress of
empirical work has been reported to remain rather limited (Gan, 2010; Harbi and Anderson,
2010).
4.2.2 Social Entrepreneurship
Another highly relevant research stream is that of Social Entrepreneurship (SE). While a
theoretical elaboration of SE only took hold in the late 1990s (Leadbeater, 1997; Dees, 1998;
Bornstein, 2004; Nicholls, 2006), social venturing can, however, be described to be a crucial
component of society ever since (Dees, 1998). Hence Dees (1998) interprets the outcomes
of social entrepreneurship as social value creation. Mair and Marti (2006) give a definition
that suggests social entrepreneurship embodies entrepreneurial processes that are
concerned with identifying and exploiting innovative solutions to social problems. Zahra et
al. (Zahra et al., 2009a, p. 519,) propose that SE “encompasses the activities and processes
undertaken to discover, define, and exploit opportunities in order to enhance social wealth
by creating new ventures or managing existing organizations in an innovative manner".
Witkamp et al. (2011, 672) see social entrepreneurship as "a new way of doing business"
and thereby "solving a social problem driven by an emerging social group". From these four
definitions it can be inferred that social entrepreneurship goes beyond monetary value
creation (Schlange, 2009b). Thus it ‘‘is difficult to place a single value on the contribution
made by social enterprises because the benefits of the sector’s activities are frequently of a
non-‐monetary nature" (p.18, Smallbone et al., 2001)). Several research domains may be
seen as relevant for understanding SE. (Mair and Marti, 2006, p. 37,) highlight three general
clusters within the literature that we complement with one more:
• One cluster views social entrepreneurship as non-‐profit activities that apply for-‐
profit funding schemes or management ideas to create social value (Boschee, 1998;
Austin et al., 2006).
Joshua von Gabain Entrepreneurship for Sustainable Development
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• A second approach understands it as "socially responsible practice of commercial
businesses engaged in cross-‐sector partnerships" (Waddock and Post, 1995; Sagawa
and Segal, 2000)
• A third group "views social entrepreneurship as a means to alleviate social problems
and catalyze social transformation" (Alvord et al., 2004).
• Alternatively, Weerawardena et al. (2006) see SE as embedded in the dimensions of
innovativeness, pro-‐activeness and risk management. These operate within the
constraints of environment, sustainability and social mission. Here, “constraints in
the operations of social entrepreneurship are of two types. The first are identified as
static constraints: these are the drive for sustainability of the organization and the
achievement of the social mission. The second type of constraint is a dynamic
constraint: the influence of environmental dynamics.” (p.32, Weerawardena and
Mort, 2006).
As a follow up, Short et al. (2009b) suggests the domains of entrepreneurship,
public/nonprofit management, social issues in management and the context for social
entrepreneurship emergence (see for instance Robinson, 2006) to be of relevance. Hence it
makes sense to conceptualize social entrepreneurship as a multi-‐dimensional construct.
From a practical side, organizations such as the Schwab and the Ashoka Foundation
can be recognized to have made strong contributions for SE emergence in the last two
decades. In combination with a movement of social venture financing the field has emerged
to become a well accepted driver that is taught as a separate discipline from traditional
entrepreneurship within many educational institutions. Coming from a practical and
theoretical background, it is thus not surprising that the term has a different meaning for
different people. It has also reached the status of a catch-‐all-‐phrase of any entrepreneurial
activity not (strictly) driven by a profit motive (Parrish, 2008). Hence, an environmental
dimension is often incorporated into the term as well.
Similar to the early days of entrepreneurship research, "social entrepreneurship
research is still largely phenomenon-‐driven" (Mair and Marti, 2006, p. 36,). A recent review
of the literature by Short et al. (2009b, p. 169,) finds that “conceptual papers dominate
social entrepreneurship research" while "empirical articles are largely reliant on the case
study method with poor construct measurement” and that this “provides further evidence
that the field of social entrepreneurship is still in an embryonic state.” Hence the a variety
of conceptual lenses for describing SE have emerged while only few empirical studies of the
theme exist that allow for making broad conclusions about "the nature of social
Joshua von Gabain Entrepreneurship for Sustainable Development
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entrepreneurship". Thus Short et al. (2009b) encourages the use of a broad definition of
social entrepreneurship. Two recent empirical investigations that should be mentioned are
Hoogendoorn et al. (2010) and Hoogendoorn et al. (2011).
While socio-‐entrepreneurship is regarded as an important entrepreneurial type,
criticism for systemic perspective has also been raised. If many of the social problems that
SE proceed to tackle arise out of a range of negative externalities from normal market
activity (i.e. a market failure), it has been questioned if SE often serves the purpose to
sustain the status quo. As such it would imply an expansion of economic activity that is a
cause of social problems while also increasing the demand of SE. On a planet with a limited
capacity it may be questioned if this is a feasible strategy (see Cho, 2006). Hoogendoorn et
al. (2010) for instance do not find a direct empirical relation between market failure and
social entrepreneurship prevalence (i.e. the more market failure, the more SE). Bloom and
Dees (2008) on the other hand points to social entrepreneurs that are trying to tackle the
underlying problem and not just the symptoms. They must therefore seek to recognize and
alter the social system that has created and sustained the problem. This suggests that the
depth of socio-‐ecological integration may vary from case to case that is investigated. Zahra
et al. (2009a) thereby distinguish between the Social Bricoleur (addresses small scale social
needs), Social Constructionist (addresses market failures by filling gaps) and the Social
Engineer (induces systemic change instead of just treating symptoms).
In relation to SuE, the literature of SE offer an extremely diverse and valuable
resource for supplying a better understanding of what research on sustainability driven
entrepreneurship may entail. This work will take some of these insights account when
explaining different dimensions of SuE.
4.2.3 Institutional Entrepreneurship
The idea of institutional entrepreneurship stems to a large extent from work by (DiMaggio,
1988) who introduced the idea of institutional isomorphism and its implications for social
change. Institutional isomorphism 18 is the hypothesis that rational actors make their
organizations increasingly similar to each other as they try to change them(-‐selves)
(DiMaggio and Powell, 1983). In short, practices, routines, performance measures and
structures within public as well as private organizations have a tendency towards
18 Definition of Isomorphism: "similarity in organisms of different ancestry resulting from convergence"; Source: Merriam Webster Dictionary
Joshua von Gabain Entrepreneurship for Sustainable Development
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homogenization. They describe three mechanisms for isomorphic change that lead to the
homogeneity and its reproduction (pp.150, DiMaggio and Powell, 1983):
1. Coercive isomorphism -‐ resulting from both formal and informal pressures exerted
on organizations by other organization upon which they are dependent and by
cultural expectations in the society within which organization function (i.e. state
regulations and laws such as ISO Standards; standard operating procedures and
performance criteria in corporations).
2. Mimetic isomorphism -‐ resulting in the imitation of practices, routines, strategies
from business leaders. This is the response to the existence of uncertainty and
results in the adoption of prevalent collective standard responses (in regards to
technology, products and processes). This also occurs in public institutions and
policy. As a consequence, an evolution towards less variety of options to imitate
occurs.
3. Normative isomorphism -‐ resulting mainly from professionalization of institutions.
Practices and norms of hiring, organizing and organizational culture etc., are
homogenized in a process. Sources of this are formal education, legitimation of a
cognitive base, and the growth of networks that span across organizations in which
new models diffuse rapidly (see also Spence et al., 2011).
As a consequence, the authors argue that principles of ever increasing rationality,
understood here as increasing efficiency, must not always be the case. While single cases of
differentiation may emerge and exist, their embeddedness into the larger structural field of
organization mostly implies an adaptation to existing structures. The result of this process is
a lack of innovation for the emergence of variety and diversity of organizational design.
These can, however, be regarded as crucial in the case of social change (DiMaggio and
Powell, 1983; DiMaggio, 1988).
As a follow up to this, 'agency of change' has become an important research focus
that attempts to connect ideas of institutional change with entrepreneurial activity
(DiMaggio, 1988; Maguire et al., 2004). Especially Institutional economics has dealt with
investigating the antecedents and outcomes of institutional entrepreneurship. In contrast, a
sociology-‐based institutional theory has focused on the processes and mechanisms that
drive such change (Pacheco et al., 2010b). Institutional entrepreneurs can thus be described
as actors that are interested in modifying, transforming and/or creating new institutional
structures (Fligstein, 1997; Maguire et al., 2004; Mair and Marti, 2006). Research on
institutional entrepreneurship hence tries to understand “how opportunities for institutional
Joshua von Gabain Entrepreneurship for Sustainable Development
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change are recognized, discovered, and created, as well as by providing insights on the
antecedents and mechanisms of such activity” (p.975, Pacheco et al., 2010b). Thus it also
involves studying the strategies that entrepreneurs pursue in order to influence their
institutional environment (p.19, Alkemade et al., 2011). It also raises the importance of
understanding the circumstances under which institutional entrepreneurship can take place.
This once again raises the significance of social networks surrounding entrepreneurial
activity (Dubini and Aldrich, 1991) that also act as a legitimization for the entrepreneurial act
(Aldrich and Fiol, 1994). For instance, Meijerink and Huetema (2010) present 16 case studies
on policy entrepreneurs19 attempting to realize transition of water policy and regulation.
These cases highlight the relevance of collectiveness of several agents and stakeholders
participating in the act of driving such a transition (see also Wijen and Ansari, 2007).
In regards to sustainability driven entrepreneurship, the institutional entrepreneur
must be recognized as an important subtype (Alkemade et al., 2011) that is crucial for
sustainability driven change to occur.
4.2.4 Community Entrepreneurship
Another stream of research that is deemed relevant for SuE are ideas and concepts
that build on the notion of community-‐based entrepreneurship (CBE). This concept was
coined by Paredo (2006) who describes community-‐based entrepreneurial activity that
deviates from the standard model of entrepreneurs in a number of ways. First, CBE is more
concerned with raising a community out of poverty than with creating an organizational
mode that mainly focuses on pursuing economic goals. Second, it highlights the corporate
activity of several stakeholders to solve a problem. As a consequence they suggest their
model to be useful for the context of less developed economies. Third, their model
highlights grassroots efforts in a variety of settings to deal with social and ecological issues
that arise in a community. CBE can thus be described as a phenomenon that takes several
dimensions into account for achieving its purpose. Social, ecological and cultural goals as
well as community participation (of different skills and resources) are examples of such
elements. Profit is thus only a means for achieving the purpose of leveraging the community
out of problems such as poverty. The authors highlight that these are important change
agents that need to be recognized for policy purposes. Further they may raise opportunities
for individual entrepreneurship as a by-‐product. The authors also suggest that this special 19 While policy entrepreneurship can be interpreted as a different phenomenon from institutional entrepreneurship, they do have very similar attributes ascribed to them (Van Der Steen and Groenewegen, 2009)
Joshua von Gabain Entrepreneurship for Sustainable Development
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kind of CBE might have a certain spillover effect on surrounding communities to organize
themselves in similar ways (i.e. “Transmissibility of CBE") (Peredo and Chrisman, 2006).
"Their model also suggests that social and economic stress, incremental learning, the level of
social capital or resources, and community size are key determinants of the emergence of
community-‐based enterprises" (p.166, Short et al., 2009b). Other authors have developed
similar ideas (Johnstone and Lionais, 2004; Tencati and Zsolnai, 2008). To summarize, CBE
and grassroots initiatives present an interesting perspective on what SuE might actually look
like. Hence it is an important component for understanding SuE as a research theme.
4.2.5 Concluding thoughts on the converging types
To conclude from the brief review it becomes evident that the main topic of this work,
Sustainability-‐driven Entrepreneurship, builds on insights from several subtypes of
entrepreneurship. In fact, all of the above often claim to incorporate dimensions of
sustainable development in one way or the other. For instance, Holt (2010) sees the
incorporation of 'sustainability' into eco-‐preneurship as an implicit commitment to a social
dimension. Ivanko and Kivirist (2008) also incorporate a social dimension and mission for
eco-‐preneurs beside to their more explicit ‘Earth mission’. As highlighted earlier Isaak (1997)
defines eco-‐entrepreneurship as “system-‐transforming socially-‐committed environmental
business characterized by breakthrough innovation” (p.80, Isaak 1997). Thus, in some cases,
"social values and pro-‐environmental behaviors may be seen intertwined within the vision of
the owners and the operation of the business, though one may dominate" (p.241, Holt,
2010). In accordance, within social entrepreneurship research the environment is often
treated as a social issue (see Mair et al., 2006). Yunus and Weber (2009) also incorporate a
triple bottom-‐line objective of people, planet, and profit in their notion of social enterprises.
While the historic trajectories of these types differ, one gains the impression that the
underlying motivations for their activities are similar. Hence a convergence of these research
fields might take place (see also Schaltegger and Wagner, 2011).
On the other hand, some authors highlight that the exclusive focus on only one
dimension of sustainable development is not sufficient for sustainable development to take
place. For instance, if a factory picks up production processes that are environmentally
friendly, but still demands labor conditions that negatively impact the employee health,
capabilities for learning and development, opportunities for participation, or unfair income
levels (i.e. all factors of well-‐being), the venture is unlikely to promote sustainable
development. These may be extreme examples. But they make it clear that production and
Joshua von Gabain Entrepreneurship for Sustainable Development
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service processes need to consider both the ecological and social dimension for achieving
sustainability. Hence eco-‐preneurship is therefore "part of sustainable entrepreneurship but
it is not synonymous because it does not explicitly cover, for example, sustaining
communities, and the development of non-‐economic gains for individuals and societies"
(Shepherd and Patzelt, 2011). Conversely, for profit organizations that build on more equity,
participation opportunities and satisfaction among employees may be interpreted to
consider the social dimension but as long as it still builds its main practice on exploiting the
environment in a non-‐regenerative manner, or builds upon consumption transactions of
non-‐degradable high material intensive non-‐durable goods (i.e. a lot of waste), it cannot
really be considered as being promotive of sustainable development. Shepherd and Patzelt
(2011) thus claim that research on social entrepreneurship "investigates the development of
(non-‐ economic) gains for individuals or societies, but it does not include sustaining current
states of nature, sources of life support, and community". From this it may be concluded
that a separation of the types might provide useful. Hence this justifies the idea of taking a
closer look at the research stream of the sustainability-‐driven entrepreneurship.
Institutional entrepreneurship is a wide field. It may also apply to activities that are
concerned with expanding, promoting and transforming institutional settings for activities
that are not really concerned with sustainable development. But the institutional
entrepreneur must be recognized as an important subtype (Pacheco et al., 2010a; Alkemade
et al., 2011) that is crucial for sustainability driven change to occur. Their connectedness to
sustainability driven motivation is an important factor in the creative processes of
developing and transforming institutional structures that allow for the emergence of
sustainability driven activities. As a consequence, they are another subtype that is essential
to regard when trying to answer the question on what sustainability driven
entrepreneurship entails. Conversely, SuE may give a better perspective for what is to
consider for institutional entrepreneurship in regards to sustainable development.
Community-‐based entrepreneurship is stream within literature that aims to cover a
new mode of social organization. Its ideas are build on a timely dynamic that is currently
being observed. While it certainly does cover economic goals, its goals are primarily to
ensure the development of the community. Sustainability driven thinking certainly is a
component of this phenomena, it may however not be a primary motive. So to say, SuE can
be seen to represent the set of CBE that exclusively deal with those community
development initiatives with sustainability as a primary goal. Based on case study research
Middlemiss et al. (Middlemiss and Parrish, 2010) derive this as a strategy to raise well-‐being
Joshua von Gabain Entrepreneurship for Sustainable Development
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in a community while introducing practices and routines that are aim for a low-‐carbon
community. Work by Seyfang and colleagues (Seyfang, 2007; see Seyfang and Smith, 2007)
has been translated into a research program at the university of East Anglia that deals with
grassroots innovation, sustainable modes of consumption and lifestyles. Community-‐based
action can thus be seen as a meaningful way to tackle global challenges for sustainability
while providing a possibility for renewing social relations at the local level (Peters, 2010).
From a practical perspective, it is evident that many sustainability-‐driven community based
initiatives are emerging phenomena. Real world examples like Fair-‐Trade Towns, Eco-‐
villages, etc., highlight the dynamic capacity that CBE is currently experiencing. It thereby
also "challenges fundamental aspects of social organization in the modern economy" (p.4,
Peters, 2010). Hence, these can be interpreted as a form of institutional entrepreneurship
that challenge current isomorphic structurural dynamics. In regards to policy support for
entrepreneurial activity it further gives room for new interpretations what sustainability
driven entrepreneurship entails. It may challenge the traditional process of starting up new
ventures, and the relation in how they are aligned to (common-‐pool) resources, networks,
place and different stakeholders (Berkes and Davidson-‐Hunt, 2009). It also highlights the
multiple dimensions that come to bear in defining sustainability driven success criteria.
In the context of this brief review of related entrepreneurial activities, it was hoped
to gain an initial understanding on what sustainability driven entrepreneurship might entail.
Going further, the last paragraphs also made the case that it does make more sense to call
those ventures that consider all dimensions of sustainable development sustainability-‐driven
entrepreneurs (instead of just calling these social or ecological or community
entrepreneurship). There are a number certain advantages for doing this. The first is for
rhetorical reasons as it would educate on differences and similarities but also highlight the
existence of the special case of SuE. Second, it would allow a better empirical treatment.
Thereby, it would highlight the gray areas for sustainable development (i.e. the areas where
the fulfillment of all three dimensions are not (yet) possible). Fourth, it is important to
understand how the different dimensions of sustainability driven entrepreneurship stand in
relation to each other from a theoretical perspective. Hence the following chapter will
introduce Sustainability-‐driven Entrepreneurship (SuE) as a separate discipline to be
investigated.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Figure 7: SuE incorporates social and ecological dimension; Source: own illustration20
4.3 Sustainability-‐driven Entrepreneurship -‐ A birds eye view
4.3.1 Reviewing the Research Domain of SuE
Here we will provide a brief review of the research domain of what has come to be termed
Sustainability-‐driven Entrepreneurship (SuE). Within the research streams the terms
sustainable entrepreneurship, sustainability entrepreneurship or sustainability-‐driven
entrepreneurship are often used in synonym. In comparison to socio-‐entrepreneurship, the
term has stronger roots in theoretical development than in practice. It is thereby an attempt
to conceptualize any entrepreneurial and venture activity that integrates both the social and
ecological dimensions into its core mission, while the pursuit of an economic gain only
becomes a means to achieve those purposes. This chapter will give an introduction to the
research domain of sustainability-‐driven entrepreneurship. After attempting to explain some
boundaries of the field, we will give a brief review of the field. This includes relating to some
of the themes of entrepreneurship suggested in the chapter on entrepreneurship as well as
introducing a broad overview of the research dimensions that can be found in literature.
Next, a brief definition of SuE is attempted before portraying the wide veracity of definitions
that have emerged in the literature so far.
The research field of SuE can be interpreted to be a relatively young field of
academic enquiry 21 . However, it also becomes evident that the research stream has
20 I thank Prof. Sigrid Stagl for suggesting this visual.
Joshua von Gabain Entrepreneurship for Sustainable Development
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experienced an exponential growth trajectory in recent years (Levinsohn and Brundin,
2011). Among others, it clearly shows that the frame of focus in regards to SuE have become
manifold and diverse. A simple attempt to describe the research area of sustainability driven
entrepreneurship, and thereby differentiating from the above streams is the recent
publication of Shepherd and Patzelt (2011). Here they make several categorizations to set
the boundaries of the field (see Table 8). Their analysis separates the activities of the
sustainability driven entrepreneurship into the domains of what it tries to sustain and what
it attempts to develop. As a follow up they also set the boundaries of the research theme by
clarifying what SuE research does not entail.
Question Suggestions What is to Be Sustained in SuE? Nature is to Be Sustained
Sources of Life Support Are to Be Sustained Communities Are to Be Sustained
What is to Be Developed in SuE? Economic Gain Non-‐Economic Gains to Individuals Non-‐Economic Gains to Society (Q: What about Non-‐Economic Gains to Nature?)
What “Sustainable Entrepreneurship” Is Not
-‐ research that investigates what is to be sustained without simultaneously considering what is to be developed -‐ research that investigates development without simultaneously considering what is being sustained -‐ research that simultaneously considers what is being sustained and what is being developed but the link between the two does not involve the discovery, creation, or exploitation of future goods, processes, or services may be considered as sustainable development research -‐ entrepreneurship research that focuses exclusively on the economic outcomes of entrepreneurial action (individuals, firms, and/or society) and do not also simultaneously consider sustainability outcomes
Table 8: Outlining the boundaries of SuE; Source: Adapted from Shepard and Patzelt (2011)
Further they make the remark that any particular model captures the system only partially,
and, hence, the use of a single model can be misleading. For example, two studies might be
explaining different aspects, each driven by different theoretical roots, but each contributing
to the emergence of the field (Shepherd and Patzelt, 2011). Thus they embrace considerable
variety in terminology, data, methods and multiple theoretical perspectives. That is, at least
for the time being, diversity, within a broader framework, can be viewed as beneficial.
21 first publications related to the topic already emerged shortly after the Rio Conference and the Brundtland report in 1987 (see Gladwin et al., 1995a; 1995b).
Joshua von Gabain Entrepreneurship for Sustainable Development
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Early publications were mainly concerned with the issue of defining sustainability-‐
driven entrepreneurship as well as describing its distinguishing features as a phenomena
(Birkin, 2001; see Janssen Groesbeek, 2001; Bos, 2002; Keijzers, 2002; Crals and Vereeck,
2004; Parrish, 2005; Young and Tilley, 2006; Schlange, 2009b). Other empirical and analytical
studies highlight certain differentiating aspects of sustainability driven entrepreneurs that
cover many of the relevant dimensions of entrepreneurship research that were reviewed in
the previous chapter: (1) their holistic, ethical and cognitive motives (Seelos and Mair, 2005;
Dunham, 2009; O'Neil and Ucbasaran, 2010); (2) the effect of the cognitive motives on SuE
and stakeholder identification (Schlange, 2009b); (3) reasoning processes within the
organizational design (Parrish, 2010); (4) the role of the social and cultural context (O'Neill et
al., 2009), social norms (Meek et al., 2009) and firm embeddedness into the local/national
economic context (Spence et al., 2011). Going further, it is suggested that the local and
global networks that emerge can be seen as sustainable community entrepreneurship
(Levinsohn and Brundin, 2011). Boons and Roome (2005) also recognize the importance of
networks for sustainability innovation. In a narrow sense, sustainability driven
entrepreneurship can be understood as innovative start-‐ups or spin-‐offs that supply
environmentally and socially beneficial products and services with the potential to conquer a
large part of the market (Schaltegger and Wagner, 2011). This was a just a short review. A
more thorough but certainly not complete listing of research results and dimensions is
displayed in Table 9. Many of these contributions will be discussed in detail in the coming
sections and chapters. As mentioned in the introduction of this chapter, the focus of this
work will be to investigate two theoretical approaches in the light of weak and strong
sustainability. Before we proceed, it does nonetheless make sense to also review some of
the definitions that have emerged throughout the literature.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Dimensions/Topics/Characteristics of SuE Reference Psychological traits, ethical and cognitive motives
(Gray and Balmer, 2003; Seelos and Mair, 2005; York, 2008; Dunham, 2009; Koe Hwee Nga and Shamuganathan, 2010; O'Neil and Ucbasaran, 2010)
Social and cultural context plays a vital role in shaping opportunities and capabilities for SuE
(Gray and Balmer, 2003; Marsden and Smith, 2005; Dixon and Clifford, 2007; Meek et al., 2009; Spence et al., 2011)
Networks & stakeholder engagement play vital role within SuE
(Boons and Roome, 2005; Marsden and Smith, 2005; Wheeler et al., 2005; Schlange, 2009b)
Performance measures of SuE are vital. They go beyond monistic measures, nonetheless are still in an infant stage of development
(Cohen et al., 2008)
Different theoretical frameworks for explaining SuE
(Parrish, 2005; Cohen and Winn, 2007; Dean and McMullen, 2007; Hofstra, 2007; KatsikisKyrgidou, L.P., 2007; Potts et al., 2010; Tilley and Young, 2010; Shepherd and Patzelt, 2011)
SuE and Innovation are highly interlinked (Vollenbroek, 2002; Gerlach, 2003; Boons and Roome, 2005; Hellström, 2007; van Kleef and Roome, 2007; Berchicci, 2008; Bos-‐Brouwers et al., 2010; Molenaar et al., 2010; Schaltegger and Wagner, 2011; Wagner et al., 2012)
Typologies for SuE (Dean and McMullen, 2007; Potts et al., 2010; Schaltegger and Wagner, 2011; Spence et al., 2011)
Issues of financing in relation to SuE (Matthews and Rusinko, 2010) SuE as creating new value (Gray and Balmer, 2003; Hart and Milstein, 2003;
Parrish, 2005; Choi and Gray, 2008; Tilley and Young, 2010)
New venture formation process (Choi and Gray, 2008; Molenaar et al., 2010) Opportunities for SuE (Krueger, 2005; Cohen and Winn, 2007; Dean and
McMullen, 2007; Jenkins, 2009; Patzelt and Shepherd, 2010)
Education for SuE (Bridges and Wilhelm, 2008; Stephens et al., 2008; Basu et al., 2010; Nadim and Singh, 2011)
Business Models & Strategy (Gray and Balmer, 2003; Lüdeke-‐Freund, 2009; Moore and Manring, 2009; Klein Woolthuis, 2010; Nazarkina, 2012) and many more.
Barriers for SuE orientations and legitimacy
(Crals and Vereeck, 2004; 2005; Kuckertz and Wagner, 2009; De Clercq and Voronov, 2011; Hoogendoorn et al., 2011)
Community based SuE (Seyfang and Smith, 2007; Davies, 2009; Middlemiss and Parrish, 2010; Peters, 2010; Seyfang and Haxeltine, 2012)
SuE are active Transition and Change Makers
(Gibbs, 2009; Parrish and Foxon, 2009) among others
Organisational Design of SuE (Parrish, 2007; 2010) Literature review on SuE research (Parrish, 2008; Hall et al., 2010) (Levinsohn and
Brundin, 2011) Table 9: Dimensions of SuE Research; Source: own compilation
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4.3.2 Defining Sustainability-‐driven Entreprenership
Similar to other streams of entrepreneurship, the definitions for Sustainability-‐driven
Entrepreneurship (SuE) are also numerous and diverse. The diversity of definitions also
stems from the existence of different theoretical approaches for investigating the topics (see
Table 10). A consolidated definition would describe SuE to be an activity that aims to
combine “economic, social and environmental value creation” (Hockerts and Wüstenhagen,
2009). It is a value creation process that is „based on the principle of meeting the needs of
present stakeholders without compromising the ability to meet the needs of future
stakeholders“(Schlange, 2009b). Sustainability-‐driven entrepreneurs thereby holistically
integrate the economic, social and environmental dimensions of wealth generation into
their organization and innovation processes. As such SuE is also concerned with social
Innovation within firms to tackle challenges such as aging work population and stress and
work activity induced health issues (Young and Tilley, 2006). It is “focused on the
preservation of nature, life support, and community in the pursuit of perceived
opportunities to bring into existence future products, processes, and services for gain,
where gain is broadly construed to include economic and non-‐economic gains to individuals,
the economy, society” (Patzelt and Shepherd, 2010) and nature. As a result, sustainability
not only takes shape in the products and services and in the organizational form such firms
encompass, but also in the (business) culture and socio-‐ecological networks it embodies.
Whereas all entrepreneurs deal with bridging activities between suppliers and customers to
create and change markets, sustainability-‐driven entrepreneurs differ from conventional
entrepreneurs in that they also build integrative bridges between environmental and social
progress, and market success (Schaltegger and Wagner, 2011). As such they act as agents of
educators for sustainability (Rodgers, 2010). And finally, profit, while an essential criterion, is
only a means for pursuing social-‐ecological sustainability-‐driven objectives, and not a goal in
itself (Parrish, 2008). Sustainability-‐driven Entrepreneurship is thus "the discovery, creation,
and exploitation of opportunities to create future goods and services that sustain or
enhance the natural and communal environment and provide development gain" (p.632,
Patzelt and Shepherd, 2010) for current and future generations.
Joshua von Gabain Entrepreneurship for Sustainable Development
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Author(s) Definition -‐ Sustainability-‐driven Entrepreneurship is...
(Patzelt and Shepherd, 2010) "the discovery, creation, and exploitation of opportunities to create future goods and services that sustain the natural and/or communal environment and provide development gain for others."
(O'Neill et al., 2009) "a process of venture creation that links the activities of entrepreneurs to the emergence of value-‐creating enterprises that contribute to the sustainable development of the social-‐ecological system. An enterprise resulting from this process can be referred to as a sustainability venture."
(Shepherd and Patzelt, 2011) "is focused on the preservation of nature, life support, and community in the pursuit of perceived opportunities to bring into existence future products, processes, and services for gain, where gain is broadly construed to include economic and non-‐economic gains to individuals, the economy, and society."
World Resources Institute (TNO, 2006)
“a firm that aligns its operations and growth with providing solutions to the world’s pressing social and environmental problems."
(Hockerts, 2003) "the identification of a sustainability innovation and its implementation either through the foundation of a start-‐up or the radical reorientation of an existing organization’s business model so as to achieve the underlying ecological or social objectives."
(Crals and Vereeck, 2004) (1) "a spin-‐off concept from sustainable development that can be defined as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families, local communities, the society and the world at large as well as future generations. This definition is applied to existing businesses. It does not apply to individuals seeking to start up a sustainable enterprise from the outset."
(2) "is a nexus of responsibilities towards the shareholders, but also towards nature, society and future generations. When the interests of these stakeholders are part of the decision making process in a company, we can genuinely speak about a whole new type of a company with a new type of operational management."
World Business Council for Sustainable Development (from Crals et al. (2004))
"the continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families, the local and global community as well as future generations."
(Hockerts and Wüstenhagen, 2009)
" about a combination of economic, social and environmental value creation."
(Gibbs, 2009) Sustainable entrepreneurs "pursue opportunities with potentially positive social, environmental and economic returns by combining the goals of sustainable development with entrepreneurship and economic growth."
(Parrish, 2010) "a successful sustainability-‐driven enterprise must be able to sustain
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its own activities while contributing to sustainable development of the larger social–ecological system of which it is part."
(Schlange, 2009a) "value creation based on the principle of meeting the needs of present stakeholders without compromising the ability to meet the needs of future stakeholders"
(Young and Tilley, 2006) "the sustainability entrepreneur, who holistically integrates the goals of economic, social and environmental entrepreneurship into an organisation that is sustainable in its goal and sustainable in its form of wealth generation."
(Cohen and Winn, 2007) "as the examination of how opportunities to bring into existence ‘future’ goods and services are discovered, created, and exploited, by whom, and with what economic, psychological, social, and environ-‐ mental consequences. We suggest that the addition of environmental consequences offers an expanded and significantly modified definition for the field of entrepreneurship."
(Munoz, 2011) "the scholarly examination of how and by whom opportunities to create future goods and services are recognised, evaluated, and exploited, while improving the development of society, the economy and the environment, allowing future generations to meet their own needs"
(Dean and McMullen, 2007) "the process of discovering, evaluating, and exploiting economic opportunities that are present in market failures which detract from sustainability, including those that are environmentally relevant."
"represents a specific class of entrepreneurship which addresses, among other areas, the capturing of opportunities present in environmentally relevant market failures wherein the exploitation of the opportunity alleviates the market failure and reduces environmental degradation."
(Schaltegger and Wagner, 2011)
"Whereas all entrepreneurs deal with bridging activities between suppliers and customers to create and change markets, sustainable entrepreneurs differ from conventional entrepreneurs in that they also build bridges between environmental progress and market success."
Table 10: Table of Definitions of SuE; Source: own compilation
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4.4 SuE in the Eye of Weak and Strong Sustainability
Here we will introduce two theoretical approaches for explaining sustainability driven
entrepreneurship. This will involve an equilibrium based approach and a co-‐evolutionary
approach. These approaches have different theoretical roots, units of analysis, strengths and
weaknesses in regards to explaining SuE. It becomes apparent that they fit well into
dichotomy of weak and strong sustainability. However, it should be noted that these
approaches do overlap in their explanations to certain degrees. Nonetheless, their
examination helps to perceive SuE from different angles. We will end this section with a
comparative table to portray the dimensions and differences of these two approaches.
4.4.1 Market Imperfections -‐ Equilibrium-‐based Approaches for Explaining
SuE
A number of recent papers argue that challenges for sustainable development can be
interpreted as market failures that open up opportunities for entrepreneurial activity (Hall et
al., 2010). Such an approach views sustainability driven entrepreneurship through a lens
inspired by an equilibrium based framework. We will here review two often cited articles
that describe the SuE from such a perspective (Cohen and Winn, 2007; Dean and McMullen,
2007).
The first by Dean and McMullen (2007) builds on the idea of market failures. As
already stated in Section 2.2.1 the idea of market failure stems from welfare economics, but
has also found a widespread use within the stream of environmental economics. The
principal argument is that "environmentally relevant market failures represent opportunities
for simultaneously achieving profitability while reducing environmentally degrading
economic behaviors” (p.58, Dean and McMullen, 2007). Thus the “key to achieving
sustainable and environmental entrepreneurship lies in overcoming barriers to the efficient
functioning of markets for environmental resources” (p.52, Dean and McMullen, 2007) and
this can be achieved by so called sustainable entrepreneurs. Further they define sustainable
entrepreneurship as "the process of discovering, evaluating, and exploiting economic
opportunities that are present in market failures which detract from sustainability, including
those that are environmentally relevant." (p.59, Dean and McMullen, 2007, emphasis
added). They thereby highlight five forms of market failures that “detract from
sustainability”: public goods, externalities, monopoly power, inappropriate government
intervention and imperfect information. These can be corrected by entrepreneurs that
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exploit these market failures for entrepreneurial rents. Going further, each of these market
failures can be attributed to a different entrepreneurial types: the coasian, institutional,
market appropriating, political, informational (producer vs. customer focused) entrepreneur.
While they recognize that entrepreneurial activity can also be responsible for the
externalization of cost and thereby contribute to environmental degradation, they however
argue that sustainable entrepreneurship represents “a specific class of entrepreneurship
which addresses, among other areas, the capturing of opportunities present in
environmentally relevant market failures. Therein the exploitation of the opportunity
alleviates the market failure and reduces environmental degradation” (p.73, Dean and
McMullen, 2007). While they highlight that their approach can also be applied to solving
issues within the social dimension, they do not really discuss this in detail. Neither do they
discuss the need to approach social and environmental issues in an integrative manner.
A similar approach is that of Cohen and Winn (2007). They identify four market
imperfections that impact environmental degradation. They then explore these as sources
for entrepreneurial opportunity. Not only do they see sustainable entrepreneurship as a
mechanism to slow down environmental degradation, but also as a mechanism to improve
the earth’s eco-‐systems. Their four sources of market imperfections in relation to
environmental degradation are: (1) inefficient firms; (2) the existence of externalities; (3)
imperfectly working pricing mechanisms; and (4) imperfect distribution of information. As
becomes evident, they attempt to explore how violations of neoclassical assumptions
provide a framework for understanding where entrepreneurial opportunities come from
(see Table 11 for a more detailed account). They define sustainable entrepreneurship
(research) as "the examination of how opportunities bring into existence ‘future’ goods and
services are discovered, created, and exploited, by whom, and with what economic,
psychological, social, and environmental consequences." (p.35, Cohen and Winn, 2007,
italics in original).
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Market Imperfections Concept and Entrepreneurial Implications 1. Inefficient firms The authors argue that until now markets have been operating well below
the perfect efficiency expected in equilibrating perfect markets (i.e. neoclassical view). Taking a transaction cost economics perspective (Williamson, 1991) the authors stress the primary importance of seeking efficiency gains (through first order economizing22). Strategies are eco-‐efficiency, cycling economy, recycling, biomimicry, “waste equals food”. Innovating entrepreneurs who ‘discover’ these efficiency potentials (i.e. to reduce that waste) will assist markets in moving towards a sustainable trajectory.
2. Externalities Externalities exist when costs or benefits are not accurately reflected in the prices of products and services. Cohen and Winn (2007) ascribe the cause of these to be due to the so called downstream and upstream effects of a firm’s behavior. Entrepreneurs who discover and create opportunities for environmentally benign processes (such as biomass, fuel cells and e-‐waste reduction, or through creating new emissions trading markets), achieve two results: "(1) they facilitate the reduction of negative externalities, moving markets towards a more sustainable trajectory, and (2) they expand the overall pool of entrepreneurial opportunities"
3. Flawed pricing mechanisms
"Violations of the perfect pricing assumption have contributed towards an unsustainable trajectory in leading markets". Innovative entrepreneurs can contribute by spotting entrepreneurial opportunities that bring to bear the full cost of products and services. These triple bottom line solutions can displace underpriced, unsustainable technologies.
4: Imperfectly distributed information
"Information asymmetry is a primary cause of market failure" (i.e. Akerlof, 1970). The persistence of imperfect information across markets has contributed significantly to unsustainable production and consumption patterns. On the other hand, Information asymmetry "is also a main driver of entrepreneurial opportunities" (Kirzner, 1978; Sarasvathy:2005vt and Venkataraman, 1997). Entrepreneurial rents are thus available to ventures discovering opportunities that reduce information asymmetry with respect to environmental degradation. "As the collective knowledge of environmental degradation caused by unsustainable practices continues to grow, a shift to sustainable practices and innovation are likely to occur through increasing pressure from policy makers, consumer groups, environmental activists, employees and others." (p.44, Cohen and Winn, 2007)
Table 11: Market imperfections as entrepreneurial opportunities; Source: adopted from Cohen and
Winn (2007)
22 First-‐order economizing is a concept developed by the transaction costs theoretician Willamson in 1991. It refers to the conscious effort to craft adaptive internal coordinating mechanisms, such as efficient production processes and technology while minimizing bureaucracy, slack and waste. It thus focuses on the streamlining of organizational processes
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4.4.1.1 Strength and Weaknesses of the Approach
The above approaches connect opportunities for sustainability driven entrepreneurs
with the perspective of market failures. The strength of the neoclassical approach is its
formalism and mathematical rigor. It is a useful form for abstracting different challenges in
relation to efficient market allocation in equilibrating markets. It thus serves as a basis for
many discussions, also within the Sustainability-‐driven Entrepreneurship literature. That is,
many authors 'describe' that market failures need to be addressed in order to overcome
social and environmental issues. For instance Williamson (2006) and Elkington (2008)
describe environmentally oriented entrepreneurs to be addressing negative environmental
externalities. Austin et al (2006) and Zahra et al. (2009b) ascribe market failures to induce
socio-‐entrepreneurial opportunities. Thus a market failure (or market imperfection)
approach serves well as a pragmatic outset of a discussion and interpretation of SuE a
system level perspective (see Patzelt and Shepherd, 2010; Kury, 2012).
However, from a theoretical viewpoint, it delivers a static perspective of "what is" in
regards to a perfectly efficient market model that is derived from unrealistic assumptions. It
thereby fails to explain many facets of real economic dynamics (Arthur, 2006). Further it
omits many aspects of socio-‐ecological life that are also relevant for a systemic analysis of
the challenges for sustainable development in regards to entrepreneurship. First, while the
dynamics of competition dictate a reduction (and eventual cessation) of entrepreneurial
rents in a specific markets (thereby reaching market equilibrium), it is questionable whether
the achievement of efficient market allocation is a credible direction in the search for new
(disruptive) entrepreneurial economic activity. As was presented in Chapter 3, the
Schumpeterian (disruptive) entrepreneur can be regarded as a disequilibrating agent23.
Going further, "uncertainty and ignorance are such ubiquitous obstacles to market efficiency
that they could be considered market failures in their own right" (p.180, Daly and Farley,
2010). These are responsible for the impossibility of perfect information, and at the same
time both are essential realities for driving entrepreneurial activity and economic
development24.
23 It is better to associate the direction of market equilibrium with the introduction of imitative/replicative entrepreneurs. (See comparison between Schumpeter and Kirnerian approach in the Chapter 3) 24 A relevant anecdote to mention is that while the famous Arrow–Debreu general equilibrium model (1954) "is still cited as proving the desirability of competitive markets, Arrow has always maintained that the model is most useful in demonstrating the inefficiency of real-‐world markets" (p.209, Gowdy and Erickson, 2005)
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Cohen and Winn (2007) acknowledge this critique. They make the statement that
“the further away a market is from perfect, the further is it away from equilibrium, and the
more entrepreneurial the opportunities that exist.” (p.37). They also acknowledge the
unrealistic assumptions inherent in equilibrium economics. This includes the rationality of
actors (I.e. the existence of bounded rationality), the role of short-‐term (non-‐equilibrium)
dynamics, and institutions (such as norms and culture) and the existence of fundamental
uncertainty in decisions. Nonetheless, (Cohen and Winn, 2007, p. 37,) still choose to "focus
on its potential to use deviations from its principal components to help explain the
pragmatic reality of diverse economic systems".
So while the approach adopted by above approaches (Cohen and Winn, 2007; Dean
and McMullen, 2007) of assigning entrepreneurial opportunities to important market
failures can be regarded as useful for the purpose of pragmatism, it also has a number of
shortcomings. First, it cannot explain many facets of economic dynamics beyond markets
that can be regarded as important for understanding and explaining unsustainable vs.
sustainable ventures and activities. For instance, many of the negative externalities (i.e.
environmental degradation) are long acknowledged (at least since 1970s). Nonetheless, the
entrepreneurial rents from these opportunities have never appeared to be large enough in
comparison to unsustainable modes of venturing. Or framed in the form of a question: What
factors could contribute to a dynamics that would favor rents of sustainability driven
ventures instead of the pursuance of unsustainable business practices? In line with this, it
cannot investigate complex interwoven rules and behavioral relations, as well as self-‐
organizational dimensions that may induce or hinder change in an evolving economy.
For instance, Kuckertz and Wagner (2009) highlight that while motives for
sustainability-‐driven ventures are high in students, their orientation for sustainability
diminishes with business experience. As they acknowledge the issues of sustainable vs.
unsustainable new ventures, in relation to market failures as described above, they suggest
the need to integrate sustainability thinking (such as the triple-‐bottom line) into every
entrepreneurship and MBA curricula in order to resolve market imperfections (Kuckertz and
Wagner, 2009). Hence, education for sustainability is another important dimension that
needs to be addressed for policy purposes.
Meek et al. (2009, p. 506,) investigate the role of social norms in overcoming market
failures. Their results "indicate that social norms do have an impact on the founding rate of
environmentally responsible new ventures....especially...areas with higher norms of
environmentally responsible consumption have higher levels of entrepreneurial foundings in
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support of environmental practices." Hence "scholars should more closely examine the
interaction of policy with social norms in addressing market failures such as environmental
degradation" (p.507, Meek et al., 2009). They thus highlight that in fact non-‐market
processes also play a vital role for addressing issues of sustainable development within and
for market related business activities.
Also Hockerts and Wüstenhagen (2009) begin with linking sustainability-‐driven
opportunities with market failures and externalities, nonetheless point out that the
exploitation of these opportunities involve both market and non-‐market strategies. Here
they define non-‐market strategies as "the set of activities that firms use to influence social,
environmental and political stakeholders" (Hockerts and Wüstenhagen, 2010). In this light,
the static neoclassical framework must also be regarded as limited in its capability for
explaining path-‐dependence, technological lock-‐ins, and institutional barriers (Foxon and
Pearson, 2008). Going further, the development and diffusion of innovations may be
hampered by the so called “double externality” problem (Rennings, 2000). That is, socially
and desirable pro-‐environmental innovation is challenged by the fact that private return on
R&D investments is less than its social return (Oltra, 2008). Hence one needs to regard
dimensions that go beyond the market as well as other forms of regulation (Vickers et al.,
2009) for overcoming such dilemmas.
According to Baumol (2005), the reasons why neoclassical theory has been excluding
the entrepreneur is because it deals with economic states where the entrepreneurial activity
is rendered irrelevant (Baumol, 2005). So while their approach provides useful information
regarding entrepreneurial opportunities in relation to market failure, their framework runs
in danger of providing insufficient understanding (and policy recommendations) in regards
to entrepreneurial activity (see Bianchi and Henrekson, 2005). In fact, many studies on
innovation and systems of innovation (Lundvall, 2011), do not make use of the neoclassical
framework for policy analysis. By focusing on economic dynamics resulting from innovation,
selection and accumulation, evolutionary economics may offer new insights in the framing
of environmental policies25 (van den Bergh, 2007; van den Bergh and Kallis, 2009). Last but
25 Dean and McMullen (2007,p.72) recognize that economics systems evolve where “foundational
institutions (including property rights) which drive economic behaviors are subject to change over
time”, and thereby may align “social goals and private incentives"..."social and private costs"…"and
resolve social and environmental ills”. They here speak from a new institutional economics
perspective (NIE) based on the work of Douglas North (1991), that loosen some of the rigid
assumptions of the neoclassical perspective.
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not least, issues of scale and distribution are of secondary importance in mainstream
economic analysis. These have however been stressed to be of relevance for sustainable
development (if one adopts a strong sustainability perspective).
So the take away of this analysis is that the approach depicting market failures is
useful for ascribing opportunities for sustainability driven entrepreneurs to these market
failure and market imperfection perspectives. At the same time it does not give room for
explaining how the dynamics of future economic development takes place. That is, the
methodology of equilibrium economics is confronted with limitations for analyzing aspects
of economic phenomena that take place out-‐of-‐equilibrium and beyond the market. This
would involve asking question of “how agents’ behavior might not just be consistent with
the aggregate pattern it creates, but how actions, strategies, or expectations might in
general react to—might endogenously change with—the patterns they create” (p.2, Arthur,
2006). Further it raises two more questions to investigate. First, is the focus on efficiency
and market allocation sufficient for understanding SuE? Second, what are the dynamics of
value generation induced by sustainability driven entrepreneurship? As we will see, the
following approach and subsequent section might provide a more suitable framework for
incorporating these dimensions and questions.
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4.4.2 A Co-‐evolutionary Model of Entrepreneurship
The following approach builds on the perspective of viewing the economy as an open and
evolving self-‐organizing complex system. As such, it consists of irreversible evolutionary and
dissipative hierarchical interconnected structures compromising of various levels and
subsystems that are interconnected together through strong feedback mechanisms (Potts,
2000; Foster, 2005; Safarzyńska and Bergh, 2009)26 . Going further, this approach seems to
fit very well with the notion of strong sustainability that also bases its premises on complex
and evolutionary thinking. Within the last two decade, more work has begun to investigate
entrepreneurship from an evolutionary framework. Early work is Nelson and Winter's "An
Evolutionary Theory of Economic Change", but also Hannah and Freeman's publication "The
Population Ecology of Organizations" from 1977. The latter described how populations of
(similar) firms evolve and adapt to change. Recent work on evolutionary models for
entrepreneurship includes Grebel et al. (2003), who perceive a model of entrepreneurial
behavior as an evolutionary process. Another well recognized work is that of Aldrich et al.
(2001; 2005; 2006). The different studies focus on different levels and units of analysis
(cognitive, behavioral, action level; see Breslin (2008)). Alternatively, Chen and Vinig (2007)
offer a thermodynamic theory on entrepreneurship, McKelvey (2004) as well as Fuller and
Moran (2006; 2008) offer a complexity perspective on entrepreneurship and firms.
Goldstein et al. (2009) attempts to connect complexity science and social entrepreneurship
in their most recent contribution.
Most recently (Potts et al., 2010) present a co-‐evolutionary perspective of the
economy and the environment where they discourse upon on the relevance of
entrepreneurial activity within this dynamic interaction. Co-‐evolution is a concept that was
introduced by Ehrlich and Raven (1964) to describe the genetic change of one species (i.e.
butterflies) in response to the evolution of a second species (i.e. host plant). Since the 1980s,
this concept has experienced ever more use for describing causal feedback interactions of
socio-‐economic phenomena. This involves co-‐evolution between technology and industrial
structure and institutional settings but also for studying many other inter-‐relationships
between human behavior or organizations and social institutions. For a detailed a account,
Rammel et al. (2007), Kallis (2007), Kallis and Norgaard (2010) as well as van den Bergh and
Stagl (2003) are good starting points for gaining an overview of studies that are applying this
concept. Giorgos Kallis (2007) thereby also discusses definitional issues of co-‐evolution.
26 For an introduction to evolutionary economics, please see Dopfer (2001; 2005), Foster (2004) and van den Bergh (2007).
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Potts et al (2010) apply this concept to study the role of entrepreneurial disruptive
innovations for the co-‐evolution between the environment and the economy. They thereby
acknowledge the fact that entrepreneurial activity has the dual effect of introducing
innovations and generating economic growth while the diffusion and imitation of their
activities can just as well also induce environmental stress in an unintended manner. They,
however, also highlight the relevance and capacity of entrepreneurs to respond to the
"value creating opportunities" that such stresses offer. In contrast to an equilibrium model,
the approach views economic activity as a evolutionary, far-‐from-‐equilibrium process. This
perspective also takes recent insights on thermodynamic principles into account. Thus this
model is like a general model of entrepreneurship but they apply it directly to the case of
environmental degradation. It thus proves to give a viable alternative model to the
equilibrium based model just presented. A brief review of their approach will now be made
in order to allow for a comparison with the market failure approach. It must however be
stated that this is a very simplified portrait of their model and its elements27.
4.4.2.1 Introduction to the Evolutionary Model
Before discussing the role of the entrepreneur, it makes sense to highlight a
differentiation between three levels of analysis in their model: the micro, meso and macro
level. Micro refers to the individual carriers of rules and the systems they organize. A carrier
can here be individuals but may also be organizations. "Each meso consists of a rule and its
population of actualizations"(p.1, Dopfer et al., 2004). Macro consists of the population
structure of systems of meso. The micro structure is further interpreted as being between
the elements of the meso, while the macro structure as situated between the meso
elements. Such an ontological framework allows for the "analysis of economic evolution as
change in the meso domain – in the form of what they call a meso trajectory – and a way of
understanding the micro-‐processes and macro-‐consequences involved" (p.1, Dopfer et al.,
2004). See also Dopfer (2005), and Dopfer and Potts (2008) for a deeper elaboration on
their core ideas.
The economic system is hence viewed "as having at its core an interconnected
system of shared rules. The application of these rules in a diverse range of microeconomic
contexts results in the generation of value which can be aggregated at the macroeconomic
27 The following four subsections build strongly on Potts et al. (2010). Wordings an phrases are very identical to their writing. This is not however to be misunderstood as plagiarism. A rephrasing of many concepts and ideas would fail the purpose of transmitting their idea coherently. They are nonetheless cited as accurately as possible.
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level of inquiry." (p.378, Potts et al., 2010). Going further, economic systems are seen as
going through an evolution by origination, adoption and retention of a new set of "generic
rules" (meso rules M -‐-‐> M') (Potts et al., 2010). Thus economic evolution is a process by
which a new “generic rule”, forming from a new idea, institutional constellation, technology,
or business model, results in the transformation of the generic structure of the economic
order to M' (Potts et al., 2010). Thus M is a vector of shared (meso) rules of at any point in
time by a population A (also a vector denoting the population for each meso rule). Many
meso rules are interdependent on other meso rules in a network structure of an economic
order. Accordingly, individuals can belong to more than one population, which again may
strengthen the connective network of different meso rules and their populations. Hence,
such an approach can also account for institutions and lock-‐ins that may impact the
selection of future rules (Potts et al., 2010). At the same time, some rules fall out of favor
and decline in importance. In addition it is important to also mention that rules tend to be
hierarchical, "with long-‐lived ones providing platforms for short-‐lived ones" (p.5, Potts et al.,
2010).
4.4.2.2 Energy and Knowledge -‐ Key Dimensions of Meso Rule Evolution
Their model however goes beyond this simple abstraction by introducing the role of energy
and entropy processes as well as knowledge into the model. They thereby recognize that the
growth and development of complex adaptive systems, including the socio-‐economic
system, are dependent on continuous low entropy (exergy28) degradation in order to
prevent degradation of itself to occur (i.e. a life must continuously feed itself from low
entropy matter and energy to sustain itself, and so do ecosystems and socio-‐economic
systems). This arises from work on thermodynamics, entropy and the discovery that
ecosystems, living and socio-‐economic systems are open dissipative structures. Ecosystems
grow and develop by degrading and dissipating solar energy, mainly through photosynthesis.
Added to this, Schneider and Kay (Schneider and Kay, 1994a) made the hypothesis "that
more mature ecosystems will re-‐radiate a lower amount of energy than less developed
ecosystems by creating dissipative structures that capture and utilize more of the solar
28 "The term energy as used in most discussions (including economic literature) is technically incorrect, since energy is conserved (the first law of thermodynamics) and therefore cannot be ‘used up’ but only converted from available to unavailable forms. The correct term in this context is exergy, which is roughly speaking, available energy or potentially useful energy" (Warr and Ayres, 2012). Exergy is definable for all materials not only fuels. Formally it can be defined as "the maximum amount of work that a subsystem can do on its surroundings as it approaches thermodynamic equilibrium reversibly." (Ayres, 1998)
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gradient" (p.356, Raine et al., 2006). It must be highlighted that their ideas are not just a
theoretical hypothesis but build on empirical observations of ecosystems. Similarly socio-‐
economic systems currently grow and develop by degrading and dissipating mainly earth-‐
bound exergy (including non-‐renewable and renewable stocks provided by current and past
ecosystems)29. While neoclassical models interpret the role of energy to be negligible for
economic growth, more recent models within ecological economics give the role of energy
in the form of exergy a much higher analytical relevance (see Ayres and van den Bergh,
2005; Ayres et al., 2007; Ayres and Warr, 2009; Warr et al., 2010; Warr and Ayres, 2012).
Going further, systems have a directional tendency to increase in complexity. That is, they
"develop more complex structures with more energy flow, increase their cycling activity,
develop greater diversity and generate more hierarchic levels, all to abet energy
degradation" (p.25, Schneider and Kay, 1994a). This, however, also recognizes the existence
of limits for that process. Connectivity and complexity can thereby reach boundaries, where
structural discontinuities can occur [see (Tainter, 1990; Tainter et al., 2003; Tainter, 2006)
for an elaboration on this in regards to socio-‐economic systems, and (Gunderson and
Holling, 2001; Holling, 2001; Fath et al., 2004; Schneider and Sagan, 2005) in regards to eco-‐
systems].
Another important dimension in the case of socio-‐economic systems is the role of
(new) knowledge (Loasby, 2001). While ecologists argue that ecosystem growth and
development are associated with an increase in information, analysis of socio-‐economic
growth and development also has to recognize the importance and inherent increase in
knowledge accumulation (see Raine et al., 2006) (this does not mean that knowledge cannot
be destroyed). For every meso rule has knowledge attached to it. By knowledge they here
understand a rule structure in the form of connections between elements that exist both
within and beyond the system in question (p.266, Dopfer et al., 2004). Knowledge is thus not
"a commodity-‐like input" as it often is in constrained optimization models. It is "a virtual
network in which the rules that connect observed elements" are "intimately connected to
the set of behavioral routines that we adopt." (p.431, Foster and Metcalfe, 2011) When
meso rules changes, so does the content of knowledge relevant for the economic action.
This takes place qualitatively in M and quantitatively through the population A that adopts
it.
29 Recommended readings for a more elaborate explanation are (Schrődinger, 1944; Prigogine and Stengers, 1984; Schneider and Kay, 1994b; 1994a; Raine et al., 2006; Foster, 2011; Foster and Metcalfe, 2011)
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4.4.2.3 Entrepreneurs as Key Drivers of Meso Rule Evolution
Within such a evolutionary process the entrepreneurial innovation process is a
driving mechanism for introducing an applying new knowledge into the economic process in
the forms of rules. (see also Loasby, 2007). Potts et al. (2010) relate this to the process of
Schumpeter’s "creative destruction". Rules are adopted and abandoned by populations,
depending on their "usefulness". This occurs through a process of competitive selection of
goods and services. Hence this model ascribes entrepreneurial activity to be responsible for
the introduction and diffusion of new rules in the economy (i.e. when adopted by a wider
population it becomes a meso rule). They however highlight that entrepreneurial activity
should not only be understood in terms of an economic entrepreneur. Instead they deduce
four classes of entrepreneurial responses (Potts et al., 2010,p.378 see also Figure 8):
• political entrepreneur -‐ who see political gains from being seen to be solving
problems;
• socio-‐ cultural entrepreneur -‐ who induce behavioural or socio-‐cultural change (i.e.
changed preferences induced by changed models of behaviour that are then
adopted)
• creative entrepreneur -‐ inventors, scientists and writers who seek the joys of
discovery and recognition—adding to the stock of knowledge which can be
employed in the wider system and
• economic entrepreneur -‐ who are engaged in seeking to create value by the
discovery, origination and realization of new market opportunities created by a
changing situation
By adopting such a perspective they also suggest that "we are dealing with a complex
system which cannot be captured in conventional economic analysis." (p.378, ibid.) They
thereby highlight that the socio-‐economic system consist of several co-‐evolving
subsystems30. These are again embedded in the ecological system. As economic systems
evolve they produce feedbacks through multiple interactions with the ecological system.
This again feeds back to political, socio-‐cultural and creative systems that respond on this
change (Potts et al., 2010). Within such a system, ecological degradation through economic
(and entrepreneurial) activity is clearly evident. However, with this they like to emphasize
30 that I will not discuss in greater detail here.
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that entrepreneurial response can also ameliorate an environmental constraint, rather than
just being limited by it (for this they refer to (Rammel, 2003)).
Figure 8: Four modes of entrepreneurial response to environmental problems/opportunities;
Source: Potts et al. (2010)
Within the adopted meso rules M, there are particular rules that deal directly (or indirectly)
with the exploitation of the natural environment. So, their argument goes, entrepreneurial
activity (in the form of innovation) may be responsible for the development of rules. The
adoption of this rule by a population changes the structure and level of resource use (this is
termed a “meso trajectory”) that degrade the environment beyond the capacities of the
ecosystem. Hence when the environment is perceived to be suffering significant damage
(through so-‐called signals), entrepreneurs may just as likely see this as opportunities to
develop rules that, once they are adopted on a meso level, can reverse the degradation
pattern (by for instance through the substitution of a meso rule that is more compatible
with eco-‐system growth and development). However, they also state that as new actions
emerge to resolve any problem, new problems are, in turn, created (Potts et al., 2010; see
also Arthur, 2009, p. 200). Hence this "co-‐evolutionary process can continue as one of
emergent cumulative causation with many possible end states". "Economic growth and
associated environmental consequences are thus outcomes of a co-‐evolutionary process
whereby there is an increase in energy flow that is driven by an increase in the application of
new knowledge." (p.377, Potts et al., 2010). Nonetheless, since the co-‐evolutionary
dynamics takes place in a state of uncertainty it can lead to unintended environmental
effects. However, when these are revealed, this may stimulate entrepreneurial activity that
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mitigates such effects (Potts et al., 2010). This is an 'entrepreneurial loop', "with each new
solution inducing new and different environmental problems that in turn create new
economic opportunities" (p.376, see also Figure 9).
Figure 9: Economic and environmental co-‐evolution; Source: Potts et al. (2010)
Going further they discuss the way negative environmental impact may be
determined/detected by so-‐called signals. They refer to (at least) five pathways through
which such signals may occur. They hence make it clear that price signals is only one of many
types of signals within such a framework (p.380, Potts et al., 2010):
• via direct observation, as for example through observation of environmental
degradation or deforestation.
• theory-‐based observation through scientific concepts and measuring technologies,
as for example, pesticides, air pollution, global warming or the ozone depletion.
• via media and social networks as for example, global warming (see Potts et al.,
2008).
• via market operations due to: (1) supply changes, in which price changes signal
changes in scarcity conditions; or (2) demand changes where preferences have
endogenously changed (see Earl and Potts, 2004 for an elaboration on this)
• via expectations.
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4.4.2.4 Implications of their Approach
Their paper also discusses many implications of their model on how to interpret
entrepreneurial responses in regards to the environment. First, with their co-‐evolutionary
model they would like to raise a certain skepticism of exogenously imposed "hard" resource
constraints (i.e. i.e. a known non-‐renewable stock of x, or of a maximum flow of
environmental services of y) (Potts et al., 2010). This implies "that the value of a resource,
and indeed the very notion of what even 'counts' as a resource, along with how it is
distributed and owned are less fixed from the entrepreneurial-‐evolutionary economic
perspective" (p.381) (see also DeGregori (1987) for a institutional account of such a
perspective)31 .
Second, the authors highlight the important role of uncertainty in this co-‐
evolutionary model (see Foster and Metcalfe, 2011). Here economic agents are viewed as
reducing the uncertainty that they face by adhering to a bundle of rules for achieving
(economic) goals. "The formation of radically new bundles of rules is “genuine novelty” and
can take the form of: capital goods (technological rules), productive networks
(organizational rules), contracting systems (institutional rules) and human skills (procedural
rules)" (p.421, Foster and Metcalfe, 2011). From the perspective of a different author, "such
rules may have a synchronous dimension, relating to what must be combined at a point in
time (for example, a set of products to make up a lifestyle, or set of characteristics or
technologies to make up a product), or they may have a diachronic dimension, relating to
the sequence in which system elements should be combined (for example, as in a cookery
recipe, when assembling a degree from a series of subjects, or buying a TV before buying a
DVD player)" (p.180, Earl and Wakeley, 2009). In contrast to a focus on price incentives (in
mainstream economics) this highlights a stronger focus on the networks and connections
that take place in a socio-‐economy. These socio-‐economic connections are viewed as rules
and can be interpreted to hold the key for explaining patterns of substitution (Earl and
Wakeley, 2009). The adoption of their approach also opens up the possibility to investigate
and interpret such connections, in the form of practices (Shove, 2003; Røpke, 2009; Pantzar
and Shove, 2010).
Going further, due to the existence of different kinds of uncertainty in their model
(see also Meijer et al., 2007 for a detailed list of these), and not just quantifiable risk, it
raises the important role of expectations within entrepreneurial processes. That is, the
31 It is definitely possible that this point might be met with a certain disagreement and discourse within the ecological economics community.
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formulation of expectations, in the form of beliefs, aspirations and common understandings
play an equally important role as price incentives and price information from markets (Potts
et al., 2010). The authors thus highlight that the formation of expectations, in the form of
"future-‐oriented, connection-‐establishing behaviour" (p.381) is a vital process that takes
place beyond markets and "have to exist before any economic incentives can have a
significant impact" (p.382)
Third, entrepreneurial action should properly be understood "as making conjectures
about the value a new idea might create, and then putting that into action in pursuit of
some kind of value. This is not necessarily a pecuniary profit, but may include identity, social
attention, power or favours." (p.381, Potts et al., 2010). The authors also stress that rent-‐
seeking can thus just as well operate to prevent "positive" environmental entrepreneurial
responses.
As a consequence, the four types of entrepreneurial responses are embedded in
global dynamics and networks of existing socio-‐cultural, economic, political and creative
meso rules (i.e. the belief in maximal growth) that are in a "struggle" with emerging meso
rules. Due to the interwovenness of rules, individuals cannot drastically "change their
behavioural patterns in any fundamental way due to the “locked in” nature of the rule
structured system in which they have to operate" (p.379, Potts et al., 2010). Hence it can be
recognized that a much larger set of rules might be required to bring institutions and
practices into existence that are in line with environmental protection (i.e. fundamental
meso rule shifts) (Potts et al., 2010). This may require the interaction of a diverse range of
entrepreneurs. Hence, the four entrepreneurial mechanisms should not be understood as
taking place in isolation, but in interaction with each other in order to have an effective
action (Potts et al., 2010). This point also highlights that "the meso rules embodied in
existing institutions that determine the nature and extent of connections between economic
and environmental systems need to be evaluated in terms of their adaptive flexibility and
openness to change" (p.379). This relates to the understanding of sustainable development
that is promoted by a complex adaptive systems perspective that highlights the importance
of resilience (as was explained in Section 2.1.1, but will also be discussed in more detail in
the next section).
Fifth, this model also advocates an entrepreneur-‐led adaptation rather than an
expert-‐led optimization. This implies that "the key to environmental protection is not finding
ways to make supposedly failed markets work but discovering ways to allow and encourage
entrepreneurs to devise and apply rules to reverse environmental degradation" (p.379, Potts
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et al., 2010) that are in some form profitable and can be adopted by a larger population (i.e.
become meso rules). The authors thereby point out that the market failure oriented
approach fails when regarding markets that do not yet exist. Going further, many markets
may be destroyed in the process. As a consequence, the key role for government should not
be to focus on a “picking winners” intervention policy but on the careful nurturing and
formalization of facilitating meso rules (Potts et al., 2010). While this also involves the
provision of an incentive structure in markets, it speaks at a much broader and multi-‐faceted
level. Hence market related entrepreneurial responses must not always be the most
adequate response. Other domains of entrepreneurial response also need to be taken into
consideration.
4.4.2.5 Strength and Weaknesses of the Approach
To summarize, this is a general model that prescribes entrepreneurial activities as a driving
element in the co-‐evolution of environment and economy. "What the micro– meso–macro
framework does, is depict the economy as a network structure where “creative destruction”
is concerned with the coming and going of rules" (p.379, Potts et al., 2010). Economic
evolution occurs when new rules to generate value are applied successfully at the micro-‐
economic level by novel entrepreneurial actions. These rules spread as they are taken up by
a population of adopters, and hence become meso rules (Potts et al., 2010). This approach
thus portrays an alternative to market oriented approaches for explaining entrepreneurship.
It stresses that meso rules, their connections and interwovenness are more important to
consider from a process-‐oriented perspective. Going further they take insights of energy
gradients for the evolutionary development of complex systems into account. The ideas
presented by Potts et al. (2010) are very new, complex and contain many dimensions that in
my honest opinion should be critically assessed and questioned. Nonetheless, their core
model regarding entrepreneurship in relation to the environment-‐economy co-‐evolution
provides a valuable perspective of entrepreneurship that can then be put into the context of
sustainable development. Their model also gives room for studying trajectory path patterns,
lock-‐ins and non-‐market rules that play a vital role for forming expectations. It also allows
for adopting more complex (inductively explored) assumptions on how rules shape
individual preferences and vice versa (i.e. going away from assumption of rational and utility
maximizing individuals).
An implication of their model is that policy should focus on the facilitation of the
right kind of meso rules, instead of just focusing on market failures and price incentives.
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However, they do not really discourse on what meso rules that are in line with a sustainable
development might entail. What are the right kind of meso rules? Their argument highlights,
however, that it is the task of the entrepreneur to formulate, utilize and diffuse such rules
into the larger population. At first glance, their model thus appears to be very general, if not
attempting to be neutral. On the other hand, in related papers, the authors explicitly claim
that what "seems to be driving processes that use free energy of some kind is not ‘objective’
knowledge but rather subjective knowledge that is hypothetical, i.e., it involves patterns of
imagined novel connections that yield uniquely framed aspirations that are aimed at using
actions of various kinds" (p.91, Foster, 2011). Thereby imagination, ignorance, creativity and
value conjectures play a role in the production of new knowledge gradients. Foster et al
(2011) also highlight that value conjectures are related to societal units of identification
which again are connected with the behavioral routines that we adopt.
Going further, (Potts et al., 2010) highlight that entrepreneurial opportunities are
not to be interpreted as exogenous within their co-‐evolutionary model. Due to the feedback
that economic systems have on ecological systems, that then again feedback on the socio-‐
cultural, political and creative systems and respective opportunities are thus interpreted as
endogenous. When investigating the theoretical footings of their evolutionary micro-‐meso-‐
macro model it becomes evident that they apply an ontology of evolutionary realism (see
Dopfer and Potts, 2004; 2010). Hence the value conjectures about future expected
"usefulness" of a rule is a consequence of the feedback mechanisms of signals from
environmental degradation onto the creative, socio-‐cultural and political system that in turn
may feedback into the economic domain. Their model hence fits well with entrepreneurial
models that propose a value creation perspective (see Section 3.4.5 and 3.5, Bruyat and
Julien, 2001; Alvarez and Barney, 2010). Their idea is also in line with the concept of
emergent complex systems that was described in Chapter 2 in regards to strong
sustainability and the normative principle. For instance, in a related paper the authors
concluded, with "If the energy hypothesis is, indeed, relevant to our behavior, in the co-‐
evolutionary sense discussed here, and we cannot just abandon entropy debt-‐ridden
structures and migrate to another planet, there is a good chance that measures to use free
energy in a way that promotes environmental sustainability will eventually be enacted on a
global scale." (p.99, Foster, 2011). That can be interpreted as an energy degradation process
that is in line with an increasing energy gradient of the whole socio-‐ecological system.
However, it must be remarked that, similar to Dean and McMullen’s work, they apply their
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model to the issue of environmental degradation but leave the social dimension of
sustainability entrepreneurship undiscussed.
If one adopts their perspective, this writing is thus an act of creative (scientific) and
socio-‐cultural entrepreneurship by attempting to explore some meso rules that are more in
line with eco-‐system capacities and social sustainability. This work will hence expand their
idea by exploring principles and ideas introduced in the chapters on sustainable
development in connection with entrepreneurship in order to gain a better understanding of
what such meso rules for sustainability might entail. To conclude this section, a table is
depicted that compares the two approaches just investigated (see Table 12).
SuE addressing "Market Failures" SuE in a co-‐evolutionary model of environment-‐economy
Theoretical roots of approach
Equilibrium economics; Welfare Economics Kirznerian Entrepreneurship; Neo-‐Intstitutionalism
Co-‐Evolutionary Economics; Complex adaptive systems & Thermodynamic far from equilibrium economics
Opportunities Exogenous (Opportunities are discovered)
Endogenous (Opportunities are discovered/created)
Unit/Focus of Analysis
Market imperfections; Market failures; Opportunities
Meso Rules; (Networks & Interconnectivity, Routines, Rules); Energy and Knowledge Gradients;
Entrepreneurial Classification
Coasian; Institutional; Market appropriating; Political; Informational (producer vs. customer focused)
Political; Socio-‐Cultural; Creative; Economic
Recommendation/ Implications
Different entrepreneurial opportunity types; SuE as overcoming barriers to functioning markets
Facilitation of entrepreneurial activity that create meso rules that are in line with environmental protection (and sustainable co-‐existence with nature)
Strength Explains SuE and in relation to market failures and market imperfections for achieving optimal allocation of goods and services; Assigns opportunities and entrepreneurial activities to specific market failures Differentiates entrepreneurial types in relation to markets
Explains the role of entrepreneurial activity in a co-‐evolutionary dynamics between economy and nature Raises emphasis to rules (practices; routines; habits; institutions etc.) instead of just price driven markets Highlights the role of feedback mechanisms Differentiates entrepreneurial types within a complex system
Weaknesses Rather static Failure to consider dynamics and non-‐market dimensions for sustainability Equilibrium orientation lacks explanatory power for disruptive innovations (uncertainty)
Missing elaboration on value embeddedness Little discussion on meso rules considerations for sustainability
Table 12: A Comparison of Approaches for Explaining SuE Activities; Source: own compilation
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4.5 Organizational Principles for SuE -‐ Going beyond Eco-‐efficiency
In the discussion on sustainable development (Chapter 2) we introduced some main
principles of sustainable development that are often found in the literature: Normative,
equity, integrative and dynamic principles. Further we briefly discussed the concept of eco-‐
efficiency that has emerged as a strategic anchor within the business community for
achieving sustainable development. This section will present academic contributions that
critically assess eco-‐efficiency as a 'business case' for sustainable development. More
specifically, eco-‐efficiency will be set in relation to the concept of resilience, equity and
sufficiency and be applied to the context of the SuE. Then we will discuss SuE from the
perspective of value creation while embedded in a multidimensional hierarchy. This will end
with discussion on the organization design of sustainability driven entrepreneurship.
4.5.1 Resilience, Adaptive Capacity, Equity and Sufficiency
One discussion that experienced increased intensity within literature is the need for firms to
go beyond eco-‐efficiency towards incorporating concepts of sufficiency and resilience in
enterprise goals (Senge et al., 2001; Dyllick and Hockerts, 2002; Korhonen, 2005a; Young and
Tilley, 2006; Korhonen and Seager, 2008). It explicitly deals with the discourse on the term
eco-‐efficiency as suitable management guidance for achieving sustainable development.
Although the discussion on eco-‐efficiency is rather old, the World Business Council for
Sustainable Development (WBCSD) popularized the idea in their 1992 publication “Changing
Course”. Therein the WBCSD see eco-‐efficiency as the business link to sustainable
development (DeSimone and Popoff, 1997; Dyllick and Hockerts, 2002). As we learnt from
Chapter 2, an enterprise can be considered eco-‐efficient “when it is able to offer products
and services at a competitive price, fulfill human needs, increase their life standard,
progressively reduce environmental impact and intensity in the use of resources throughout
its life cycle to at least the planet’s charge capacity level” (p.47, DeSimone and Popoff,
1997). It is still today a guiding principle in the movement towards sustainable development.
It is also a key strategic principle within the EU Lisbon Agenda (for instance C.O.T. EU, 2009;
S.P.O.T. EU, 2009) and is often regarded as a win-‐win situation as it provides opportunity for
creating more wealth while using less natural resources and causing less negative impact on
the environment (Coenen and López, 2010). However, many authors have asserted that eco-‐
efficiency is a necessary, but not a sufficient prerequisite for achieving sustainable
development.
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Dyllick & Hockerts (2002) (see also Hockerts, 2003) take a somewhat abstract, albeit
necessary, step to argue that firms need to fulfill criteria that go beyond eco-‐efficiency and
socio-‐efficiency (see also Korhonen, 2008). Eco-‐effectivity, socio-‐effecticity, equity and
sufficiency are also important criteria for achieving sustainable development. Their
discussion thus highlights scopes where a pure focus on eco-‐efficiency fails, and in some
regards even hinders the emergence of sustainability. This will now be explored in more
detail. The section will end with a presentation of a framework developed by (Young and
Tilley, 2006; Tilley and Young, 2010) that is based on some of the dimensions that were
explored.
4.5.1.1 From Eco-‐efficiency towards Resilience and Adaptive Capacity
Eco-‐efficiency can, in simple words, be understood as producing more with less. It can be
defined as the ratio of an economic (monetary) measure to a physical (ecological) measure
(Schaltegger et al., 2006). Hence it is the ratio of value added to units of environmental
impact added. Here environmental impact added denotes the sum of all environmental
impacts that are generated directly or indirectly by a product, service or activity. An example
would be value added (in $ or €) per ton of emitted CO2. It could also be calculated in its
marginal terms. That is the marginal contribution of a product relative to its contribution to
greenhouse effect (in C02) equivalents (see Schaltegger et al., 2006). It thus has become a
widely used tool to assess the performance of processes throughout whole economic value
chains. It has also served as the basis for the discussions on desired productivity increases of
factor-‐four (Weizsäcker et al., 1997) or factor-‐ten (Schmidt-‐Bleek, 1994). Life Cycle Analysis
(LCA) and Life Cycle Cost (LCC) measurement have thereby become popular methods for
accounting for product efficiency. As such it has become a driver of companies worldwide
for realizing cost savings (i.e. from the elimination of waste or increase in energy efficiency)
during different phases of industrial development (Senge et al., 2001; see Warr et al., 2010;
Warr and Ayres, 2012). However, solely relying on this simple measure omits many issues of
sustainable development, especially when considered from a systemic perspective. Most of
all, the strong emphasis in environmental management on improving eco-‐efficiency
measures may be counter-‐productive from a resilience perspective (Korhonen and Seager,
2008). For in "complex, qualitative, uncertain and dynamic coevolving economic–ecological
systems, eco-‐efficiency might actually increase risk, vulnerability and unsustainability"
(p.416, Korhonen and Seager, 2008). An elaboration on this is clearly useful.
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As we learnt in Chapter 2, resilience and adaptive capacity are vital components for
sustainable development. Ecological resilience emphasizes "non-‐linear dynamics, thresholds,
uncertainty and surprise, how periods of gradual change interplay with periods of rapid
change and how such dynamics interact across temporal and spatial scales" (Folke, 2006) in
a system that is far from equilibrium embedded in multiple basis of attractions. Here,
resilience can in simple terms be understood "as the capacity of a system to absorb
disturbance and re-‐organize while undergoing change so as to still retain essentially the
same function, structure, identity and feedbacks" (p.259, Folke, 2006). It must be remarked
that there are many different definitions, all of which vary to some extent (Gunderson and
Holling, 2001; Rammel, 2005; see for instance Folke, 2006). However, the general point is
that complex systems can be investigated to the extent they are able to adapt in case of
disturbances (i.e. survive) whether this implies a drastic change or not (Holling, 2001).
Thereby, the alternatives that exist in the form of diversity provide the opportunity
for adaptive capacity. These are "the opportunities that disturbance opens up in terms of
recombination of evolved structures and processes, renewal of the system and emergence
of new trajectories" (p.259, Folke, 2006). At the same time all complex adaptive systems
exhibit the propensity to increase in efficiency (or ascendency). However, this also comes at
the expense of overhead (Ulanowicz, 1997). Overhead stands for the redundancy of agents
and pathways. This is analogous to the diversity of a system (Matutinović, 2002). However,
when a market selection takes on a trajectory path of aligning its processes to a narrow
meaning of efficiency (for instance eco-‐efficiency), thereby inherently decreasing any cost-‐
intensive functional diversity, it also lowers its potential to respond to any perturbations or
exogenous and endogenous disturbances or shocks (Rammel and Staudinger, 2004). In other
words, the less diversity for fulfilling important pathways exist in a system, the less
opportunity exists for a system to adapt in case of an exogenous or endogenous shock. Thus
for complex systems that are also adaptive, diversity (i.e. overhead) is a functional property.
Consequently all complex adaptive systems "face an implicit trade-‐off between short term
local optima (based on specific criteria of efficiency) and maintaining the evolutionary
potential of diversity to achieve adaptivity" (Rammel, 2005). This trade-‐off is however a
necessary strategy for long-‐term survival under permanently changing environmental
conditions (p.241, Ring, 1997) (see also Giampietro and Mayumi, 1997; Matutinovic, 2001;
Matutinović, 2002). This thus raises the question of the "the balance between organized
complexity and overhead, the harmony between efficiency and adaptability" (p.241,
Matutinović, 2002). "So heading for the objectives of sustainable development is not simply
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solving a given set of existing problems at particular scales, but rather a dynamic capacity of
entire socio-‐ecological system to keep pace with emerging new conflicts and crises and
maximizing the systemic problem-‐solving capacity" (p.18, Rammel, 2005). As more and more
pathways become aligned with a single process (i.e. resulting in certain over-‐connectivity),
the less alternative streams are available for assisting in upholding the system functions in
case of an external shock. Thus it has also becomes necessary to distinguish between (p. 16,
Rammel and Staudinger, 2004):
1. innovations along current development trajectories which are driven by market
selection and efficiency gains at the margin and
2. pathway innovation or system innovations which open up complete new
opportunities.
Coming from a management perspective, Hart and Milstein (1999) make the case that eco-‐
efficiency measures are in line with a paradigm fostered by the industrial society (see also
Senge et al., 2001). Hence, the focus on eco-‐efficiency may distract companies from
pursuing radically different products and business models (Senge et al., 2001). Empirical
studies support this argument by showing that the fulfillment of standards, such as the ISO
14001, do not contribute to overall reduction in pollution (Könnölä and Unruh, 2007; Gomez
and Rodriguez, 2011) as profits obtained from cost savings are likely to be re-‐invested in
expanding current production and consumption patterns. Hence pollution prevention
strategies may support the sustenance of processes that demand extremely high throughput
and the consequential environmental degradation in the first place.
Added to this, measures for increasing efficiency are well known to be countered by
the rebound effect (Binswanger, 2001; Sorrell:2009wh , for Austria see Kratena et al., 2009).
Economic efficiency improvements result in price reductions that encourage increased direct
or indirect consumption (Herring, 2006; Korhonen and Seager, 2008). Many authors argue
that systems outlined for achieving ever increasing (economic) growth are inherently
coupled with this issue (Ayres, 2008; Jackson, 2009; Sorrell, 2010). Thus it is highly
questionable if the sole strive for an eco-‐efficiency, especially focused on incremental
innovation along current trajectories, will provide a panacea for achieving an absolute
reduction of material throughput of economic systems in relation to economic growth.
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4.5.1.1.1 Implications for the SuE and Enterprises
As ecosystems evolve and mature, more and more efficient ways of using locally available
resources have been developed. That is, while "growth occurs when the system adds more
of the same types of pathways degrading imposed (energy) gradients", "development occurs
when new types of pathways for degrading imposed gradients" (p. 17, Schneider and Kay,
1994a) are discovered. Thereby "the spatial limits favour increases of the internal efficiency
of the system with respect to the local environment and represent naturally set limits to
growth" (p.242, Ring, 1997). In the seminal work of Ulanowicz (1997), he showed that "a
high level of diversity also promote an extended and improved use of resources as these are
associated with different and complementary single-‐use efficiencies" (p.14, Rammel and
Staudinger, 2004). Hence, eco-‐systems have developed symbiotic structures and mutual
interactions between species that increase system resilience while also increasing the
capacity of the whole system to degrade and conserve energy (Stachowicz, 2001; Schneider
and Sagan, 2005). Thereby ‘waste’ production such as nectar by flowers that serves to
attract insects so that these will pollinate other flowers, or simple side effects such as trees
casting a shade thereby providing a 'cool' niches for live species to evolve habitats
(Schneider and Sagan, 2005), contribute to the growth and development of the whole
system.
From the perspective of the firm, "investments in quantitative inefficiency may
enable qualitative transitions from technologies that are currently optimal from an efficiency
standpoint to those that are suboptimal from a narrow perspective" (p.415, Korhonen and
Seager, 2008) but more consistent with socio-‐ecological sustainability. Hence the production
of 'waste' (i.e. a certain non-‐optimization) can provide the space for the qualitative
development of involved stakeholders (individual, regions, partners, eco-‐system). In other
words, the "suboptimization of eco-‐efficiency measures at the scale of a single firm may thus
result in improved measures at the scale of the entire system" (p.415, Korhonen and Seager,
2008). The pursuance of short-‐term inefficient behavior as structural principles by firms can
thus contribute to an efficient (and adaptive) system in the long term.
However, this does not mean that firms should be doing all things inefficiently.
Instead, the enterprise should strive to promote (and balance) multiple objectives instead of
optimizing for a single objective (i.e. profit). For the diversity of interactions also implies a
diversity of information (Ring, 1997). In contrast, the use of a one-‐dimensional monetary
value in economic systems reduces the diversity of information feedbacks and this cannot
capture the reality and qualitative diversity of socio-‐ecological systems. Going further, this
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may lead to suboptimal policy solutions in terms of ecosystem well-‐being (Korhonen,
2005b). It may be concluded that any eco-‐efficiency definitions must therefore integrated
with, or better termed, stand in parallel to temporal, social and cultural dimensions and
measures (Korhonen, 2008 for deeper discussion on this; see Korhonen and Seager, 2008).
It can be concluded that achieving eco-‐efficiency alone cannot provide for achieving
an absolute reduction of material and energetic dependencies, while also sustaining and
enhancing the adaptive capacity of ecosystem services. Due to the problem of non-‐
substitutability of certain capital, non-‐linearity and irreversibility and rebound effects one
also has to consider absolute thresholds. For example, "it is important whether an emission
is released into a system that is still largely unpolluted or whether the receiving system is
already so close to its carrying capacity that the extra emission will cause the whole system
to break down" (p.136, Dyllick and Hockerts, 2002). Only when putting the complex
interconnections into relation to each other, the sustainability of eco-‐system functions can
be comprehended. But this implies stepping away from achieving single unit efficiency
optimization. For example, producing solar cells with increased exergy efficiency is useful,
but if one neglects the impact of used materials, metals, production processes (and
consequent social structures) on the environment it falls short to raise total system
efficiency. Another obvious example is industrial agriculture. While output efficiency per
capita has drastically increased, so has the energy and material input per unit output.
Thereby soil degradation is an often neglected cost. While internalization of such costs is
relevant, so is the development of the social practice that integrates these considerations
when we produce food for the market. Organic farming, or permaculture, are examples that
consider a systemic efficiency in the production process. Approaching this from a different
perspective: While regional specialization and trade may induce greater efficiency in the
allocation of resources (i.e. cost savings), these gains may come at the expense of reduced
adaptability, diversity and resilience of regions, communities and individuals (Matutinovic,
2001; Matutinović, 2002). Added to this, incorporating diversity for adaptive capacity into
management practices also implies going beyond standard management procedures of risk
(Park et al., 2011). Hence, resilience thinking indicates a mental shift in the mental models of
industrial and economic organization towards regarding systemic efficiency of socio-‐
ecological systems. Or stated differently, it involves regarding short-‐term inefficiency as an
important pillar for providing systemic efficiency of resilience and adaptive capacity for the
socio-‐ecological system in the medium and long term. Subsequently, it needs to integrate
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socio-‐economic systemic efficiency with the systemic efficiency of ecosystems. As a
consequence of this insight, the term eco-‐effectiveness has also gained in popularity.
4.5.1.2 Eco-‐effectivity
This notion of eco-‐effectivity was introduced by authors such as McDonough and Braungart
(1998; 2002). They introduced the term cradle-‐to cradle as an alternative way of designing
industry and business built upon the notion processes designed to be healthy and
renewable. The central principle is that “waste equals food”. With this they suggest that
business solutions should be life sustaining, restorative and regenerative in addition to being
efficient. In doing so, the now conventional cradle-‐to-‐grave approach to product design,
development and analysis is replaced by a renewing cycle of cradle-‐to-‐cradle analysis,
transforming the industrial capitalism model for linear thinking to a closed loop system
(Young and Tilley, 2006). Other trademark ideas that follow similar pursuits are Biomimicry,
Blue Economy (Pauli, 2010) and Natural Capitalism (Hawken, 2010). However, the extent to
which these integrate concepts of resilience and adaptive capacity differ. For instance,
closed loop system thinking might just as well disregard the pursuance of diversity so to
provide opportunity for adaptive capacity. Another academic stream that must be
mentioned as a root for many of the above streams is that of Industrial Ecology. Developed
in the early 1990s it applied eco-‐system loops to designing industrial systems. (Korhonen
and Snäkin, 2005) show that the in the case of a forestry industrial park in Finland, the
industrial park has gone through an evolution towards ever increasing intervowenness and
complexity of (re-‐)using resources. They, however, highlight the lack of radical diversity
within the system. More recently Ehrenfeld (2007), one of the founding fathers of the field
makes the remark that industrial ecology has so far failed to make the integrative case with
the ecosystem. A broader definition of sustainability, away from reductionist models, must
be applied by adopting more complexity-‐oriented perspective of living systems in order to
make a broader integration. He also raised the importance of also needing to integrate the
social dimensions in the process.
4.5.1.3 From Socio-‐efficiency to Socio-‐effectivity
When regarding the social dimension of sustainability, similar to ecological dimension, there
are concepts like socio-‐efficiency and socio-‐effectivity. Socio-‐efficiency may be defined as
"the ratio of value added to social impact added, where social impact added represents the
sum of all negative social impacts originating from a company, product, process or activity"
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(p. 11, Schaltegger et al., 2006). Examples of socio-‐efficiency measures would for instance be
value added (in $ or Euro) relative to the number of staff accidents, or relative to the
number of days lost due to employee illness. Socio-‐effectiveness may be defined as "the
positive social effects or the social value created by company (and not only by the reduction
of its negative social impacts), socio-‐efficiency can also be expressed in terms of social and
economic value created" (p. 11, Schaltegger et al., 2006)32. However defining and measuring
social impact is difficult. The development of accounting methods is still in its infancy. Going
further, relating to measures, such a Social return on Investment (SROI), may inhibit, just like
in the case of eco-‐efficiency, social innovation towards modes of organizational design that
raise socio-‐effectiveness (Schaltegger et al., 2006; Cucuzzella, 2007).
From a socio-‐ effectiveness perspective, business conduct should be judged not on a
relative scale but rather in relation to the absolute positive social impact a firm could
reasonably have achieved (Dyllick and Hockerts, 2002). Socio-‐effectiveness also implies that
organizations have a social mission that is meant to have a sustained positive impact on
society (Young and Tilley, 2006). Thus socio-‐effectivity may also be seen as the contribution
to a larger (temporal and spatial) social resilience and adaptive capacity of individuals and
community (by for example addressing poverty, social exclusion and raising stakeholder
engagement). Thus one might reach a high level of socio-‐efficiency through measures such
as the number of staff accident, days of illness, but first with the strive for socio-‐effectivity a
firm actually contributes to the social capital and well-‐being among the community and
stakeholders with whom firms interact. This may also apply to the case of individuals. With
an ever more dynamic socio-‐economic system that comes with shortened industrial life
cycles, it becomes ever more important that certain opportunities are held open (in the
form of diversity of knowledge and capabilities) at the cost of specialization. That is, there is
a trade-‐off between specialization and the adaptive capacity among individuals as well. SuE
can be regarded as enterprises that out of their organizational design build social value that
support the adaptive capacity of individuals, community and regions. This may also raise the
adaptive capacity of the organization as it nurtures social capital within the communities in
which they operate. Going further, one may integrate socio-‐effectivity with ideas and
concepts on capabilities for development (i.e. Sen, 1999). Gladwin et al (1995b, p. 37,) for
instance, argue that sustainability demands "a radical redefinition of the social contract that
business maintains with society". Socially sustainable enterprise can therefore be
conceptualized as behaviors which serve to communalize civic order and decision-‐making, 32 See Knoll (2009) and Lefeber et al. (2007) for a detailed discussion on the roots and academic use of the term 'socio-‐efficiency'.
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democratize both external and work environments, humanize both capital creation and
world employment as well as vitalize societal and employee need fulfillment (Gladwin et al.,
1995b).
4.5.1.4 Ecological Equity
“Ecological equity stands at the nexus of the relationship between the management of
natural capital and social sustainability” (p.138, Dyllick and Hockerts, 2002). Here the
challenge is two-‐fold. First, there is the unequal distribution of access and use of natural
capital between industrial and non-‐industrial countries. Although it may be argued that this
inequity is due to different stages of development, it is also this inequity that causes large
development conflicts (this is the view of academic promoters of political ecology
(Srinivasan:2008va and Giljum and Eisenmenger, 2004; but see also Martínez-‐Alier et al.,
2010). Added to this, industrialized countries appropriate more then their fair share of earth
resources. Second, while current generations consume large parts of the earth’s natural
capital, the bulk of the damage is likely to be borne by future generations (Dyllick and
Hockerts, 2002; Tilley and Young, 2010). Thus, if social sustainability is to be achieved,
equitable solutions for the distribution of natural capital (Dyllick and Hockerts, 2002; Tilley
and Young, 2010) have to be incorporated into sustainability-‐driven business models. They
also need to address issues of equitable access to opportunities for development as
discoursed upon within the 'capabilities approach' developed by Amarty Sen (1999).
Sustainability-‐driven Entrepreneurship can thus be interpreted to strive for developing
processes where inequity dynamics are alleviated, and given the current challenges
establishes (meso) rules that help to mitigate current problems. Johansson et al. (2005) for
instance highlight that this demands the need to shift away from large-‐scale centralized
production structures (i.e. large scale solar plants or nuclear plants) towards more
distributed structures. Hence "a selective share of production is distributed to regions where
a diverse range of activities are organized in the form of small-‐scale, flexible units that are
synergistically connected with each other and prioritize quality in their production"
(Johansson et al., 2005). This would support a more resilient and adaptive region on a socio-‐
ecological scale.
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4.5.1.5 Sufficiency
Sufficiency is an approach preferred by the organized ecology movement. That is, reducing
demands to sufficient levels of biophysical dependence. Daly said; “We should strive for
sufficient per capita wealth – efficiently maintained and allocated, and equitably distributed
– for the maximum number of people that can be sustained over time under these
conditions.” (italics by author p.220 Daly 1996). Sufficiency can also be seen as “doing well
on less” (Herring 2006). Sufficiency can also be understood as "a social organizing principle
that builds upon established notions such as restraint and moderation to provide rules for
guiding collective behavior" (p.1793, Sorrell, 2010)33. Thus "most advocates see sufficiency
as more consistent with behavioral modification measures as conducive to sustainability,
and it to be an issue of individual choice rather than a single firm’s responsibility" (Dyllick
and Hockerts, 2002).
However, one might as well argue that products and the processes that are involved
in the creation thereof need to consider the goal of sufficiency in regards to biophysical
limits of the earth’s carrying capacity. Although these limits are not explicitly known, it
makes sense to reduce demands and supply on resources according to the precautionary
principle. Firms should thus target to produce well-‐being through their pro-‐active role within
the society without relying on increasing biophysical resources per capita. As Hockerts
(2003, p. 30,) phrases it: "the business world has at least an indirect responsibility.
Marketing and corporate advertisements have an increasing influence on consumer trends
and life-‐style developments. Rather than fuelling the demand for more unsustainable
products, firms might try to channel demand towards less problematic areas." Hence
“sufficiency strategies correspond to a circular or loop economy [which the reader might
view as similar to managing the level of a lake]. They focus producers on the sale of
performance and optimization of extended producer responsibilities. Emphasis on
performance and the sale of utilization value creates demand for competence in managing
the value of the assets retained in material products. It shifts focus from production to
production and consumption” (p.39, Roome and Anastasiou, 2002).
It should also be stated that sufficiency should not be seen as a constraint for
pursuing well-‐being. Rather it can be seen as an opportunity. As we have learnt from the co-‐
evolutionary approach by Potts et al. (2010), constraints must not always be seen as hard.
They can also be ameliorated towards new opportunities. Two important pathways may be
33 Steve Sorrell derives his notion of sufficiency from the book "The Logic of Sufficiency" by Thomas Princen (2005).
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highlighted here. First, as we learn about biophysical limits it may animate for research and
development of new modes of generating biophysical resource flows that are less scarce,
portray less of a limitation and enhance integration of socio-‐economic activity with
ecosystem functionings (i.e. disruptive socio-‐technical innovation). Pauli (2010) makes this
case when looking for radical eco-‐innovation. Second, opportunities for taking sufficiency
into consideration provide for consumption and productions activities that are less material
intensive. For instance, socio-‐economic research building on insights on psychology suggests
that activities connected with intrinsic values provide for more well-‐being than activities
based on extrinsic values ((Kasser, 2003; Jackson, 2008). While not discussed in more detail
here, the relation between less material intensive consumption and well-‐being highlights an
interesting field of research in regards to sustainability driven entrepreneurship (i.e. the role
of the prosumer).
4.5.1.6 Portraying an Integrative Model
Tilley and Young (2006) attempt to apply many of the above concepts to the idea of
sustainability-‐driven enterprises. They highlight that there is a tendency that companies may
concentrate on one of the cases such as the natural case. In contrast, they state that “all
elements are intractably linked” and that there is a need to incorporate “all three
components of sustainable development into organizations in a holistic way” (p.411, Young
and Tilley, 2006). For instance, the strife for only one element might have the danger of
producing a large negative impact in another area of sustainable development. Going
further, they expand their model to include a total of 12 elements that need to be
recognized and be operated in unison for sustainability driven entrepreneurship to take
place (see Figure 10). The new variables involve: intergenerational equity, economic equity,
ecological stability and sustainability, social responsibility and futurity. In their most recent
collaborative work Young and Tilley argue, "that in order to recognize, and promote, the role
of sustainability driven entrepreneurship, there is a need to shift to a much broader
definition of wealth creation that underpins our model of sustainability entrepreneurship."
In this context, sustainable wealth means contributing a holistic net benefit to the economy,
community and the natural environment.
Nevertheless, the authors also highlight that SuE is confronted with trade-‐offs
needed to survive in the market-‐based economy. Hence, sustainability-‐driven
entrepreneurship cannot be achieved within the current economic and regulatory
frameworks. They thus propose the need for substantial incentives and rewards, such as ‘tax
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haven’ status. This goes in line with ideas proposed by transition management who
elaborate on the need for creating protected arenas where new ideas can emerge (see
p.168, Loorbach, 2010; Loorbach and Rotmans, 2010). Going further, they also see the lack
of adequate measures of the contribution to the social and ecological wealth of the
community as a barrier for such a development. The only thorough exploration on a set of
dependent variables that take social and ecological values for SuE into account is the work
by (Cohen et al., 2008). However a deeper elaboration on metrics for sustainability would by
far exceed the intent of this thesis. It would however be a fascinating endeavor as a follow
up to this work.
To conclude on their model, it can be said that while it is a useful model for
conceptualization, it still remains a highly theoretical and abstract construct. What one can
learn from this section is that a more holistic and integrative approach is needed by
organizations for achieving all components of sustainable development. This demands a
certain system thinking for the considering of multiple forms of value and performance
criteria within an organization. What does this look like for organizations? For answering this
a model of sustainability driven enterprise design that takes multiple dimensions of value
into account will be presented.
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Figure 10: The Sustainability Entrepreneurship Model; Source: Tilley and Young (2010)
From this one might gain a better understanding of the systemic components that are
important to consider for a theoretical concretization of sustainability driven
entrepreneurship (within a strong sustainability approach). Another point is that although
we see this approach as a great overview of different dimensions of sustainability-‐driven
entrepreneurship and firm activity, it is still a rather static picture. First, It must be
highlighted that achieving all 12 criteria for sustainability as portrayed is unlikely to occur in
isolation. It is much more likely that networks of stakeholders play an essential role
(Schlange, 2010) for SuE. Second, one needs to incorporate these ideas into more dynamic,
co-‐evolutionary and systemic approaches to gain a better understanding of how these
elements work with each other in constancy of change. We will thus briefly discuss these
issues as a follow up after next section.
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4.5.2 Towards an Organizational Design for SuE
Last but not least, another research stream that builds on the idea of entrepreneurial
activity as value creating will be investigated here. As mentioned in the chapter on
entrepreneurship, the last decade has begun interpreting entrepreneurship as a process of
new value creation (Bruyat and Julien, 2001). From the last section, we learnt that social and
ecological dimensions of sustainability need to be integrated. As elaborated in the discussion
on eco-‐, socio-‐, and community entrepreneurship, these can be interpreted as creating
social, ecological and community value. These arguments are thus in line with models that
enhance capital models that see the importance of regarding the contribution of ecological
capital for economic (manufactured) and social capital as suggested by (Ekins and Newby,
1998; Ekins et al., 2003). Here we will review some of the literature that places
entrepreneurial and enterprise activity in multiple dimensions of value creation. Especially
research conducted by Robert Parrish has extensively dealt with the role of value for
enterprise design. He thereby approaches the topic from a systems approach, nonetheless
embeds its insights with ideas from value oriented organization theory.
4.5.2.1 Multiple Dimensions of Value from a Systemic Perspective
Robert Parrish (2005) has developed a value-‐based model for conceptualizing
sustainable enterprises. For this, the author incorporates (1) spatial and temporal scales, (2)
social and ecological well-‐being, and (3) conflict and concord among choices and
perspectives into the model (Parrish, 2005). The sources of ideas stem from research on
organizations from a sociological perspective, albeit systemic and evolutionary in
orientation. His publication shows very useful for the purpose of this work of connecting
dimensions of sustainable development (and ecological economics) with that of
entrepreneurship.
He begins by emphasizing that organizations are embedded in a socio-‐ecological
system. "It is a meta-‐system which includes an ecological system that consisting of a web of
complex relationships between biotic and abiotic elements, and a social system, consisting
of humans and the artifacts of human interaction" (Parrish, 2005). Parrish then elaborates
on three aspects of system theory that he considers relevant for understanding
sustainability-‐driven enterprises.
First, he introduces the idea that organizations are nested in a web of hierarchical
streams and flows, where “higher levels operate with a lower frequency of change, and
thereby serve as filters for the higher frequency activities of lower levels" (p.617, Giampietro
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and Mayumi, 1997). The ideas of hierarchical levels stem from Herbert Simon's "The
Architecture of Complexity" published in 1969. His ideas have had wide influences for
ecologists, system theorists, ecological economists and transitions researchers (especially
work presenting the concept of Panarchy (Holling, 2001)). Sarasvathy's work on effectuation
as discussed in Chapter 3, also builds on Simon's work. The idea of hierarchical relationships
applies for functional units within organizations as well as organizations embedded in larger
industries, and these again in the larger economy, ecosystem and so on. Each level of
organizations thus “operates at its own process rate, and serves to filter out much of the
variation found at lower levels of organization. The scope of lower level processes is
therefore bounded by the higher levels.” (p.6, Parrish, 2005). The second aspects relate to
viewing organizations as open systems that are experiencing a constant exchange (flows) of
material and immaterial resources beyond its boundaries (i.e. its environment). “The
important point here is that as a system seeks resources from its environment to ensure its
own survival, it runs the risk of destabilizing the larger system of which it is part" (p.6,
Parrish, 2005). If a system appropriates too many resources, or returns too much waste that
cannot be recycled, reused, or transformed the overall system, it degrades the systems as a
whole. This is also the background of an ecological economics interpretation that stresses
the need to regard sources and sinks of ecosystems services within the economics discipline
(Common and Stagl, 2005). Hence there needs to be a healthy balance in regards to the
resource flows throughout the hierarchical system (Giampietro, 1994). The third aspect
connects these two points by deducing that the flows that take place beyond the boundaries
of the organizational system can be interpreted as functional relationships. In ecosystems
these are flows of nutrients, energy, materials, and information (Levin, 1998). In social
systems, socio-‐cultural, economic and human dimensions also highlight the important role
of communication networks in terms of symbolic signals, such as language, visual cues and
money. Within organizations, human motivation, goals, and shared aspirations can also be
regarded as constituting a flow. Going back to the co-‐evolutionary model, meso rules
provide the shell in which these transmissions take place. These relationship that are
embodied in rules, in the connections between rules, and contribute to the existence of a
system can thus also be regarded as services that provide a certain value to that system.
Parrish remarks that “regardless of the constituent nature of the flow or service connecting
two entities, relationships always involve the transmission of value. Relationships that
contribute to the existence of a given system are beneficial and are therefore of value to
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that system. Alternatively, relationships that destabilize a system’s pattern of organization
are detrimental and are of disvalue.” (p.7, Parrish, 2005).
With these insights in mind, we will now look at Parrish's elaboration on the
principles of sustainable enterprise design. "To understand the contribution an enterprise
makes to the sustainable development of the socio-‐ecological system, attention must be
directed to the interaction between the enterprise and other components of the meta-‐
system, at both the same hierarchical level and at higher and lower levels" (p.8, Parrish,
2005). By taking a open-‐system approach, human enterprises can be viewed as a mechanism
of human coordination that “consist of the patterned activities of a number of individuals”
((Katz & Kahn 1978, p. 20) cited by Parrish (2005)). From an evolutionary and co-‐
evolutionary perspective of organizations, these can be regarded to be involved in resource
interactions, strategic choice, enterprise internal and external stakeholders and
environmental/contextual influences (among others Parrish cites Lewin et al., 1999; Van Den
Bosch and Volberda, 1999; Volberda and Lewin, 2003)34) An implication of such an open-‐
system approach is that enterprises can be interpreted to have an active and coevolving
relationship with the surrounding environment (Parrish, 2005). Parrish also connects this
with work by (Etzioni, 1964; Perrow, 1974) among other authors that investigate
organizations from a sociological perspective who view enterprises as purposeful, goal-‐
directed entities that create some form of value (see Chapter 3 on Bruyat and Julien (2001)).
Hence “enterprises can be viewed as intentional human coordination mechanisms for the
goal-‐directed purpose of value creation. They are neither master nor slave to the
environment, but an active and semi-‐autonomous component of it. The value they create is
expressed through relationships with other components in the socio-‐ ecological system of
which the enterprise is but one part.” (p.8, Parrish, 2005).
These interactions can be defined by value relationships. Thereby it becomes clear
that enterprises face hierarchically dependent conflicts in values. For instance, lower labor
costs is useful for the enterprise but is not necessarily advantageous or good for the workers
(lower level). Similar conflict can be found on a higher lever (i.e. cheap and abundant fossil
fuel is not good for the eco-‐system if the CO2 is released into the air). On a temporal scale,
short-‐term maximization of profits can stand in conflict with long-‐term savings (and
adaptability). Hence, the value of a relationship is highly dependent of the spatial and
temporal context and hierarchical viewpoint one applies. Once again, Parrish draws on the
work of Giampietro to make the case for a holistic perspective where value creation must 34 Here Parrish relies on authors that investigate firms from a co-‐evolutionary and knowledge based perspective. A deeper elaboration would go beyond the focus of this thesis.
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concord among hierarchy levels and values (i.e. between stakeholder value -‐ enterprise
value -‐ socio-‐ecological value). Parrish here refers to functional value. It can be defined as
the contribution made by one entity to another. Its form is determined by the needs of the
system in contrasts to subjectively held and ascribed values (see also Parrish, 2007) for an
elaboration on this). To understand what is of value to each system in the hierarchy it
becomes necessary to examine the needs of those systems.
Here Parrish (2005) differentiates between two types of needs: survival needs and
higher-‐level purposive needs (see Table 13 and Figure 11). He discusses these in regards to
each level, showing that it is possible to make distinction of the two on the levels of
individual, organization and socio-‐ecological system. For instance, individual needs can be
interpreted in terms of Maslow's hierarchy of needs whereby survival needs connotes those
that are necessary for physiological requirements, safety and security, belongingness and
self-‐esteem. Higher purpose needs of individuals are higher in Maslow’s hierarchy. While I
will not go into great detail of each of the survival and purposive needs of all levels here, it
must be stated that Parrish builds on the principles of needs that may be described as a
fundamental root principle of sustainable development (Quental et al., 2010, see Section
2.1.1). Parrish's (2005) work also integrates some concepts from a complex systems
approach of sustainable development as well as integrating strong sustainability concepts
from ecological economics (i.e. sustaining eco-‐system functions). He thereby defines the
sustainable enterprise as "a human organization that contributes to sustainable
development, where ‘sustainable’ is understood as a future of the planet Earth with
humans, and ‘development’ is understood as a qualitative improvement in the human
condition." (p.3, Parrish, 2005).
Level Survival needs/value /(Sustainability)
Purpose needs/value (Development)
Individuals Relationships that satisfy basic material and psychosocial requirements,
Relationships that allow people to give back to surrounding systems in ways that are meaningful, creative, and expressive.
Enterprises Relationships that sufficiently maintain the inducement-‐contribution balance, and
Relationships that promote the enterprise’s capacity for value-‐creation.
Socio-‐Ecological Relationships that maintain ecologically and socially sustaining functions, and
Relationships that promote the system’s qualitative improvement.
Table 13: Principles of Survival and Purpose needs on different levels; Source: adapted from Parrish
(2005)
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From these ideas, Parrish then understands a successful sustainable enterprise to be one
that fulfills both principles of concord. "The process and outcome of its activities contribute
to both survival and realization of purpose at multiple hierarchical scales of organization. In
this way the enterprise ensures its own capacity to survive and thrive while contributing to
the capacity of its stakeholders and the socio-‐ecological system to do the same." (p.15,
Parrish, 2005).
Figure 11: A model of sustainable enterprise design. Source: Parrish (2005)
Parrish further derives a typology of enterprises from this conceptualization, and suggests a
simple analytical diagnostic tool to differentiate these types. We will not go deeper into
these here. It suffice to state that typologies consist of a character mix of fulfilling the
survival and purpose needs. Here he states that organizations can be interpreted to act
synergistically if they can fulfill both needs at all levels of the hierarchical system. That is
"the principles of survival and sustainability are mutually supportive and serve to reinforce
one another. As a result of the synergies that emanate from structural alignment, the
organization is secure and operates true to its intended purpose." (p.18, Parrish, 2005).
What may become evident for the reader is that this is an ideal type model. It
disregards levels of socio-‐cultural and political interests and needs who are embedded in a
international dynamics of trade, competition, information, knowledge flows and value
articulating institutions (Vatn, 2005). From a co-‐evolutionary perspective these all may be
interpreted as a constraint for achieving such a synergetic organization. In short,
organizations are embedded in socio-‐economic evolution that may give emergence of
constraints for sustainability that needs to be overcome. However, as we perceive SuE as the
creation of new value, it may just as well change system (meso) rules that strive towards
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sustainability. While keeping this in mind, a brief look inside the design of sustainability
driven enterprises in now made. While there has been a lot of work in regards to the Robert
Parrish succeeding work has proceeded by examining this issue in more detail. This brings us
a step closer towards understanding what meso rules for sustainability at an organizational
level might look like.
4.5.3 Organizational Design within a Multi-‐value Spectrum
"Organization design can be understood as a formal, guided process for integrating the
people, information and technology of an organization. It is used to match the form of the
organization as closely as possible to the purpose(s) the organization seeks to achieve"35.
However, organization design is also "an organic, emergent process of negotiated human
action produced and reproduced over time, involving both intentioned and contingent
behavior” (p.857, Parrish, 2007). Hence, organizations can be seen as “an outcome (however
unexpected or novel) of serious design, motivated and negotiated by particular aspirations
forged in entrepreneur-‐stakeholder networks that evolve over time”. (p.522, Sarasvathy,
2004b). In the context of sustainable development, organizational systems, such as newly
emerging enterprises, "need to be able to deal with different temporal, spatial and social
scales, nested hierarchies, irreducible uncertainty, multidimensional interactions and
emergent properties" (p.1, Rammel et al., 2007). Hence, it cannot be translated into the
narrow terms of static optimization nor is it conducive to strategies based on direct control,
fixed goals and predictability (p.1, Rammel and Staudinger, 2004). In this context, and
building on work by Parrish (2007; 2010) and other authors, an attempt is made to dissect
components of organizational design that are important to consider when pursuing
innovation for sustainable development. In the case of SuE, the initial outset of the
entrepreneurial activity is not the pursuance of profits. Rather it is only a means for
achieving the ends of social and ecological sustainability. Thereby the organization of
enterprises can be seen as embedded in a co-‐evolution of physical and social technologies
and the business plans that combine these for the goal-‐directed purpose of creating wealth
(Beinhocker, 2006; Parrish, 2007).
In recent decades, the study of organizational design for sustainability has
experienced increased attention within the academic research community. For instance,
Hock (1999) introduced the concept of chaordic organizations (see also Kira and Eijnatten,
2008; Kira and van Eijnatten, 2010), and Senge (2006) who used the notion of learning
35 Roy H. Autry , http://www.inovus.com/organiza.htm -‐ Ph.D in Organizational Psychology
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organizations to highlight the dynamic context for sustainability. Gibbs (2009) highlights that
the concept of sustainability-‐driven entrepreneurship is still a bit of a “black box”. By “simply
stating that economic, social and environmental aims are combined within the firm's
organizational logic and practices does not get at how (and if) this is achieved, nor how this
connects to any subsequent or wider social changes.” (p.65, Gibbs, 2009).
Research by Shani et al. (2008) suggests that achieving a sustainability-‐driven
working environment (and system) requires a multi-‐stakeholder approach. This strives to
achieve a multiple of values as to “promote the concurrent development of various
resources in the work system” (p.1, Docherty and Shani, 2009). Sustainability thus grows
from intertwined “individual and collective learning processes taking place within and
between organizations in collaboration” (p.1, Docherty and Shani, 2009). Thus a “dialogue
with stakeholders is necessary for understanding sustainability…and needs integration and
synthesis from different disciplines, perspectives and, thus, open discussions so that
solutions can emerge” (p.504, Hofstra, 2007). This implies that firms are to recognize
themselves as stakeholders. They are in continuous dialogue with their environment and can
consider themselves as part of that environment. This is a shift from a firm-‐centered to an
environment-‐centered approach that entails a focus on interactions (Hofstra, 2007). Further,
Hofstra (2007), compares the allocation of the traditional firm towards the allocation of the
sustainable firm (see Table 14).
Table 14: Traditional Firm Allocation vs. Sustainable Firm Allocation; Source: Hofstra (2007)
While it is a simplified and abstract model that highlights some interesting points, it
nonetheless needs to be investigated how well it can be integrated with co-‐evolutionary
models described above.
More recently Parrish (2010) tackles this issue by deriving five heuristic generative rules
from in-‐depth case studies of successful SuE. From an evolutionary economics perspective
these may be regarded as organizational meso rules for sustainability. Here he differentiates
five areas of organizational design requirements: Purpose, Efficiency, Tradeoffs, Criteria, and
Inducements. He further shows that an organization built on principles of “perpetual
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reasoning” are different in their approach to the organization design requirements than
organizations that follows principles of “exploitative reasoning”. The latter follows goals of
resource exploitation, least-‐cost economizing (reduce inputs without a parallel reduction in
outputs), single-‐objective maximizing, quantitative management, and claims of power (see
Table 15).
It is interesting to see that Parrish (2010) highlights complementary ideas of
organizational design. This is going away from least-‐cost economizing (reduce inputs without
parallel reduction in outputs) towards benefit stacking (stack as many benefits as possible
onto each operational activity). It also implies going away from single-‐objective maximizing
towards strategically identify satisfactory outcomes of multiple (non-‐commensurable)
objectives (see table below). Thus technological innovation for production needs to
integrate the ecological-‐ and social-‐effectivity, albeit at the cost of (further) economic
efficiency. This raises the question of how such organizational behavior can be incentivized
over least-‐cost economizing modes of production organization. Or stated differently, how
such meso rule may be facilitated. Further it is evident that such a mode cannot take place
without the necessary partners and stakeholders that are impacted by such a process of
innovation and organizational design. Parrish (2007) once again highlight the challenge of
meeting the values of several actors and stakeholders. While Parrish's model gives a very
good idea of what a meso rule for SuE organization might encompass, these heuristic rules
shall by no means be taken as absolute. They may however infer some reflective guidance
for future research on the issue.
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Organization design requirement
Principles of 'perpetual reasoning'
Principles of 'exploitative reasoning'
(1) Purpose -‐ justifying existence
Resource perpetuation Produce benefit streams by enhancing and maintaining quality of human and natural resources for the longest time possible
Resource exploitation Produce profits by using human natural resources to generate maximum financial return in the shortest time possible
(2) Efficiency -‐ achieving synergies
Benefit stacking Stack as many benefits as possible onto each operational activity
Least-‐cost economizing Reduce inputs without parallel reduction in outputs
(3) Tradeoffs -‐ balancing competing objectives
Strategic satisficing Strategically identify satisfactory outcomes of multiple objectives
Single-‐objective maximizing Maximize the outcome of a single overriding objective
(4) Criteria -‐ prioritizing decision choices
Qualitative management Use expected quality of outcomes and processes as decision criteria
Quantitative management Use expected quantity of outcomes as decision criteria
(5) Inducements -‐ allocating benefits
Worthy contribution Structure benefit streams to privilege worthy recipients by providing opportunities for contributing to the enterprise
Claims of Power Structure benefit streams such that claims by recipients with more power are privileged over those with less power
Table 15: Comparison of exploitative and perpetual reasoning in a organizational design; Source:
Parrish (2010)
4.5.4 The embeddedness of SuE in a dynamic context
Here we will reflect upon the last two sections in regards to their active role in the larger
economic transition, the role of networks and stakeholders for achieving SuE, and a short
review on SuE strategies in the process of niche construction. In contrast to the previous
sections of this chapter the elaboration is only brief. A deeper investigation would make this
section a chapter on its own. On the other hand, leaving this out completely would derail
the attempt to gain a dynamic understanding what sustainability driven entrepreneurship
and its emergence actually implicates.
4.5.4.1 SuE as Change Agents in the Economic Transition
As highlighted in Chapter 1, the past decade has also experienced an intensifying
discussion on the role of the sustainability-‐driven entrepreneurship (SuE) in complementing,
and to some extent, driving a transition to a more sustainable economy (Parrish and Foxon,
2009; York and Venkataraman, 2010; Shepherd and Patzelt, 2011). For instance Pacheco,
Dean and Payne (2010) go as far as stating that entrepreneurs are “the engine of sustainable
development”. Especially publications in the Harvard Business Review and the MIT Sloan
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Management Review advance the idea that entrepreneurial activities may provide solutions
for many of the social and environmental concerns at the bottom of the pyramid (Hart and
Milstein, 1999; Hall and Vredenburg, 2003; Brugmann and Prahalad, 2007; Senge et al.,
2007; Hall et al., 2010). Disruptive innovations face the challenge of competing with
incumbents and fixed sunk costs (in the form of infrastructure) within industrialized nations.
At the bottom of the pyramid, in less developed regions there is more room for innovations
that cannot yet compete with standards in industrialized countries, still yet provide more
sustainable solutions (I.e. biodegradable solar cells with efficiency levels too low for
developed country use but still sufficient for improving living standards in less developed
regions). Hence these may pose as a viable strategy for SuE. One argument that supports
this view is that small-‐scale entrepreneurs (also in the form of spin-‐offs) are better suited to
provide innovative experiments for potential creative destruction when facing high
uncertainty (York and Venkataraman, 2010). While taking charge in a transition, they also
incentivize incumbents to adapt more sustainability-‐oriented practices. Hence it has been
suggested that "it should be easier to 'infect' founders of new businesses with the idea of
sustainability than to rebuild the established corporate cultures of existing companies"
(p.151, Schick et al., 2005). Hence promoting sustainability-‐driven entrepreneurship can be
seen as a vital driver for a transition to gain momentum.
Robinson (2006) presents an interesting discussion on opportunities in regards to
social entrepreneurs, while Patzelt and Shepherd (2010) discuss opportunities in relation to
sustainable development. They both raise the importance of the local nature of
opportunities. That is, the perception of social, ecological and communal issues and stresses,
and the identification of potential opportunities are related to both knowledge and
motivation of the entrepreneurial agent (i.e. the closeness to the issue in conjunction with
the motivation of the entrepreneur). This builds on ideas by Shane (2000; 2003) presented in
Section 3.4.4). However, from the discussion on sustainable development it also becomes
clear that knowledge and learning for sustainability demands an interdisciplinary, if not
transdisciplinary, mode in order to approach social and ecological issues from an integrative
perspective. This implies that technological innovation cannot exclude the social dimension
and vice versa. Interconnected participation and thinking may thus be regarded as vital for
detecting barriers and the opportunities that these harbor. As was emphasized by (Kuckertz
and Wagner, 2009), education for sustainability in entrepreneurial education becomes a
vital component for these to recognize and realize sustainability-‐driven opportunities. This
should be directed not just at socio-‐, eco-‐ or sustainability-‐driven entrepreneurs but also at
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those just planning to create a more conventional enterprise (Gibbs, 2009; Nadim and Singh,
2011).
4.5.4.2 Towards Strategies of Niche-‐construction
However, since we are in a transition from an unsustainable business paradigm towards a
sustainability-‐driven business paradigm it must be acknowledged that SuE is a highly
idealistic view of how firms are to behave. Although there is the need to integrate all of the
12 components presented by (Tilley and Young, 2010), we need to recognize that (1) we are
in a phase of experimentation where all components often cannot be integrated from the
beginning on, and (2) that first through the emergence of networks for sustainability
processes, all components of SuE can be achieved.
First, just as previous transitions where heavily carried out by hybrid organizational
forms and hybrid socio-‐technical systems (see Geels, 2002), it is likely that social and
ecological aspects of sustainability need some form of individual experimentation and
reconfiguration that emerges out of the given context, before larger integration may take
place through learning and experimentation. Dijkema et al. (2006) highlight that thinking
and acting in relation to sustainability within firms is likely to go through different phases of
development. Early adopters thereby play a crucial role. Niche constructions entail that
ecological inheritance plays a vital role for future selection pathways. That is, prior niche-‐
construction influence subsequent selection, not only for the niche constructing agent, but
also for intentional and unintentional stakeholders (see Luksha, 2008; Hench, 2009). This can
be regarded as especially relevant for SuE activities embedded within the socio-‐ecological
system. The model by Potts et al. (2010) raised a similar remark when referring to recent
work by Arthur (2009) who showed that innovation (meso rules) provided niches for new
kinds of innovation to occur in succeeding steps. This highlights the important point that
activities of SuE and their networks play a vital role in the co-‐evolutionary dynamics of
constructing niches of meso rules that provide the opportunity for succeeding meso rule
constellations to emerge.
Going further, a number of plausible development strategies may be portrayed in
the transition process by sustainability-‐driven entrepreneurs. For instance, Klein Woolthuis
(2010) discusses strategies of interactions of SuE within the Dutch construction industry.
They come to the conclusion that one can distinguish between system-‐building and system-‐
following entrepreneurs. The former they describe as aiming at building a new system to
challenge the old one, whereas the latter rather makes use of existing structures to build a
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business (Klein Woolthuis, 2010). Their result highlights an interesting point. Hockerts and
Wüstenhagen (2009) discuss the interactions of incumbents (Goliath's) and new
entrepreneurs (David’s) from a analytic perspective, while Adrian Smith (2007) investigates
these interactions in the context of organic farming and sustainable housing in the UK. In
contrast, the system builders, however, makes an interesting theoretical case (see also Belz,
2004 for Switzerland). O'Hara (1995, p. 31,) applies the term socio-‐diversity that she
describes as "the diverse ways of social and economic arrangements by which peoples have
organized their societies, particularly the underlying assumptions, goals, values and social
behaviors guiding these economic arrangements and processes." Thereby it is asked if the
diversity of socio-‐economic constellations raises the resilience and adaptive capacity of the
whole socio-‐ecological system. System building entrepreneurship may thus be perceived as
a process that diversifies the larger system. This is also in line with Rammel and Staudinger
(2004) who suggested two pathways of innovation, the latter entering entirely new
pathways of reconfigurations. Can a diversity of socio-‐economic networks (based on
different intentional goals) provide a potential path for raising the resilience and adaptive
capacity of nations (and regions)? It is clear that a certain diversity within industry networks
and global industries are already an important attribute of the global economy. On the other
hand, it can be questioned if not the lack of diversity in a region's (and their firms) trade flow
may be a contributor of the sustenance of high unemployment level in many regions of
Europe today?
Second, while there might be some good cases discussed in literature (Choi and
Gray, 2008; i.e. Parrish, 2010), it must be recognized that sustainability-‐driven processes are
highly network dependent processes (especially in urban areas).. Lone firms or individuals
are thus extremely limited in their ability to sustain innovation and growth over time
(Larson, 2000). As we learnt from the literature on entrepreneurship, the understanding of
"entrepreneurship as a process that unfolds through a network of ties is fundamental to its
definition" (p.307, Larson, 2000). Arguments for this are gaining ground in the literature for
SuE (Wheeler et al., 2005; see Moore and Manring, 2009). Thereby it is the pursuance of
social and ecological capital in a sustainable form that plays a vital role. Furthermore,
Lundvall (Lundvall, 2011) highlights that firms do not innovate in isolation but through the
interaction with its stakeholders. Hence, opportunities for innovation may thus arise during
any of the processes of research, development, marketing and diffusion (OECD, 1997).
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4.5.4.3 The Role of Networks and Stakeholders
For sustainability-‐driven enterprises this also implies stepping away from an organization-‐
centric approach of stakeholder interaction process that mainly builds on bilateral, and
short-‐term relationships (Svendsen and Laberge, 2005). "These are often driven by push
factors such as the need to comply with regulation, the challenge of solving operational
problem, and the desire to respond to public pressures in regards to social and ecological
responsibility and accountability" (p.96, Svendsen and Laberge, 2005). However, with
increasing complexity of socio-‐economic growth, where costs often exceed the benefits, the
issues as well as the solutions for sustainability are no longer of linear character. Instead
multiple layers within the socio-‐ecological system form the pathways in which sustainability
driven solutions need to emerge. Shove und Walker make the point that "the key idea is
that change takes place through processes of co-‐evolution and mutual adaptation within
and between the layers" (p.764, Shove and Walker, 2007). Issues of sustainability are thus
often too complex and interconnected to be addressed by single organizations. Rather, their
they are embedded in receptive techno-‐, eco-‐ and socio-‐centered environments and
governance structures (Baas, 2008). This involves the process of actively building
"information flows across multiple actors to ensure that important data about the local
ecological system and built environment effectively enter into decision making” (p.263,
Whiteman et al., 2010). As a result, "firms, government, scientific institutes, NGOs and
individuals need to participate in open experimentation across a range of actors” (Loorbach
et al., 2010). This implies a network focused stakeholder approach for co-‐creating solutions
towards sustainability in a collective learning process (Svendsen and Laberge, 2005, see also
Figure 12).
Recent work by Senge and Lichtenstein (Senge et al., 2007; Lichtenstein, 2011) emphasizes
from longitudinal case studies that the 'locus' of action plays a vital role in this process (in
contrast to the focus of action). That is, the locations or contexts out of which sustainability
initiatives emerge is an important dimension (Lichtenstein, 2011). Cross-‐sectorial
collaboration in the form of learning communities thus become increasingly vital for
sustainability-‐driven entrepreneurial opportunities to emerge that can address social and
ecological objectives at a profit (i.e. profit is only a mean). Their studies would thus suggest
that, from a meso rule perspective, opportunities for sustainability-‐driven entrepreneurial
activities could find facilitation through providing spaces where such interdisciplinary and
multidimensional stakeholder interaction and learning can take place. Due to
incommensurability of many values and factors in the ecological and social dimension, it
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demands a multivariate stakeholder approach in the process of decision-‐making. Non-‐
commensurable performance metrics need to be integrated into the decision making
process. Going further, these spaces must allow for elaboration of problems, issues and
most of all barriers for sustainability driven value generation to occur. The detection and
overcoming of barriers also implies that sustainability-‐driven entrepreneurs are to be
understood as change makers in that they take an active part of changing “the rules of the
game” (Hockerts, 2006; Munoz, 2011).
Figure 12: Shift to Systems View in Stakeholder Engagement; Source: Svendsen et al. (2005)
Pacheco et al. (2010a) highlight that a complete understanding of the sustainable
entrepreneur requires embracing both the discovery and creation views of
entrepreneurship. In contexts where sustainable actions are rewarded by extant economic
systems, the process of discovery entrepreneurship is sufficient to account for the
phenomenon (Pacheco et al., 2010a). However, they then present the problem of achieving
sustainability driven entrepreneurship and firm activity within the framework of a green
prisoner’s dilemma. They thereby argue that a creation approach is necessary to account for
the ability of entrepreneurs to alter the economic institutions that drive incentives and
sustainable behavior. Thus they suggest the need for entrepreneurial activity that strives to
transforming the institutions of the game. They list norms, property rights and legislation as
being such institutions and provide examples and a list of reference for each of these
different types. As such they also incorporate the typology of institutional (and
developmental) entrepreneurship (Pacheco et al., 2010b; McMullen, 2011). When following
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ideas of DiMaggio on Isomorphic institutions, SuE can thus be ascribed to changing the
isomorphic setting in practices, routines, reasoning and institutions for entrepreneurial
activity to incorporate, and in the end to be led by sustainability objectives. Hence, from a
larger perspective, sustainability-‐driven entrepreneurship should be interpreted as "an
innovative, market-‐oriented and personality driven form of creating economic and societal
value by means of break-‐through environmentally or socially beneficial market or
institutional innovations" (p.226, Schaltegger and Wagner, 2011).
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4.6 Conclusion: Summarizing a Systems Approach for SuE
This chapter made a theoretical exploration of the Sustainability-‐driven Entrepreneur.
Thereby it first reviewed different types of entrepreneurship that are related to
Sustainability-‐driven Entrepreneurship: Eco-‐preneurship, Socio-‐entrepreneurship,
Institutional Entrepreneurship and Community-‐based Entrepreneurship. This was deemed
necessary for gaining an insight to the dimensions and principles that are of relevance to
SuE. After a brief review of SuE research and definitions two theoretical approaches that
could be associated with weak and strong sustainability were presented and analyzed. While
an equilibrium market-‐based approach for describing the SuE is useful for an initial
abstraction, its framework lacks scope to describe many of the systemic dimensions that can
be perceived as relevant for a better understanding of the phenomenon. It will now be
attempted to create a systemic summary that is aligned with a co-‐evolutionary approach of
SuE.
First, one must understand socio-‐economic systems as embedded within ecological
systems. Both can be considered as dissipative structures that are driven by
sustaining/increasing free-‐energy throughput of the system. When hiting upon limits, they
go through a development processes where ever finer pathways for conserving and cycling
degraded energy emerge through an evolutionary process of increasing complexity. Within
such a perspective, entrepreneurial activity is the transformation of resources into what
they perceive as useful for the generation of value for the socio-‐economic system. As such
they establish rules, routines, habits and practices that become so-‐called meso rules if
adopted by a larger population. Entrepreneurial activity however does not only occur within
an economic domain, but also within the socio-‐cultural, political and creative part of the
socio-‐economic system. Sustainability-‐driven Entrepreneurship differentiates itself from
traditional entrepreneurship as it strives to provide solutions for the environmental
degradation and social problems in an integrative manner while assuring the adaptive
capacity of the whole system. It can thus be regarded to generate socio-‐ecological value that
is in line with a sustainable development.
As such, SuE can be perceived to contribute positively to multiple dimensions of
capital while taking certain levels of non-‐substitutability into account (as suggest by Ekins
and Newby, 1998). In doing so, they holistically integrate socio-‐economic systemic efficiency
with the systemic efficiency of ecological systems. This implies going beyond a managerial
thinking of achieving a single unit optimization, towards stacking as many benefits as
possible into single operations (i.e. Parrish, 2010). It thereby is a mode of problem solving
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that considers a certain inefficiency in order to retain the systemic property of qualitative
diversity. This infers going beyond single efficiency targeting (such as eco-‐efficiency) towards
an effective integration of processes and connections that work within multiple dimensions.
Sustainability-‐driven meso rules thus seek to create value by recombinant connections that
give rise to ecological and social resilience, and hence value on an intergenerational basis.
However, for this to have a considerable impact, eco-‐innovation needs to be
integrated with dimensions of social innovation. Going further, research and development
of material and energy use that are compatible with the emergence of products and
services that are integrative with sustainable ecosystem loops must be promoted. This
does not only involve closed loop system within industrial systems but also demands
the consideration of socio-‐effectivity. As such SuE strives to contribute to the resilience
and adaptive capacity of ecosystems and its vital services, but also strives to provide these
same capabilities (resilience and adaptive capacity) for individuals and the community that it
impacts through its activities. SuE thus provides for the emergence of less material intensive
consumption and production lifestyle patterns while raising the overall well-‐being of the
society. At the same time it strives to secure the long-‐term regeneration and exploration of
resources that are aligned with the carrying capacities and inherent functions of cycling
activities of the socio-‐ecological system. SuE thus promotes opportunities and capabilities
for people to flourish at a sustainable metabolic rate without neglecting the aspect of
fairness/equity for current and future generations. Hence SuE can be regarded to
embodying a shift from an exploitative reasoning towards an organizational form that
embodies a regenerative reasoning within the organizational design, business models and
strategies that these pursue.
As a consequence, different values of stakeholders and ecological system functions
need to be taken into account. The adoption of a multi-‐variate approach during decision-‐
making processes thus becomes essential. This can assure that a multiple of interlinked
processes and networks, which are acting on multiple scales and hierarchal levels, are
effectively considered during the processes of organizational design. As such, metrics of
success are not only based on a single commensurable type of unit, but the
incommensurability of values is recognized as a valuable driver towards sustainability.
Qualitative considerations of processes thus also become an important objective in the
achievement of sustainability.
Sustainability-‐driven Entrepreneurship as a concept does not only limit itself to the
creation of a sustainable culture of goods and services but also represents agents of change
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that challenge unsustainable institutional structures and barriers that prevent more
sustainable modes of production and consumption to emerge. Hence they can also be
involved in activities (and feedback mechanisms) that take place at multiple hierarchical
levels within the political, creative and socio-‐cultural domain. As such, firms are not only
embedded in social and ecological networks to create economic value but should also be
regarded as niche constructing agents for sustainable development. However, it is very likely
that some solutions that come up today might render new problems that need to be tackled
with renewed entrepreneurial activity. This does not suggest short term thinking, but on the
one hand, suggest that socio-‐economic activity is niche constructing and opportunities for
solving might occur tomorrow after some initial systemic elements where established today.
For instance, the promotion of private vehicles in its current form (as a meso rule) is
definitely pursuing an unsustainable trajectory (city clogging, pollution, over use of metals
and materials). But automated steering may provide for a de-‐personalization of vehicle use,
thereby reducing the total numbers needed (i.e. car sharing) while also reducing much of
the insurance cost that arise out of car accidents. This then allows for further adaption
towards lighter material use (i.e. organically produced materials) and smaller, less power
intensive transportation vehicles. On the other hand, expectations and signaling (i.e. in the
form of back-‐casting as discussed by Gaziulusoy et al. (2012)) of future scenarios and
challenges for the adaptive capacity of the socio-‐ecological system play an increasingly
fundamental role in the pursuance of such socio-‐technical innovation. So alternatively to the
personal vehicle example, the cooperation of private and public institutions for the creation
of urban living areas that integrate spaces for work, leisure time, food production and
opportunities for learning and interacting might reduce the overall need for transportation
systems.
This very dynamic character of development prescribes the idea that SuE does not
act in isolation. The processes for identifying and utilizing potential sustainability-‐driven
innovations and solutions thus become just as vital if not more important than
conceptualizing SuE from a prescriptive perspective. What one can learn from this is that the
new qualitative pathways that may emerge are embedded in prevalent structures. The
recognition for sustainability-‐driven solutions36 thus lies in the individuals and groups that
detect and pursue opportunities for recombining new sustainable processes within given
barriers and structural constraints. However, due to the complexity of connections that are
sought for, organizing the trade-‐off between incommensurable values in order to promote a
36 I.e. "the eye" for sustainability
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systemic well-‐being demands innovation on multiple levels within firms and their networks.
A top down expert led team is likely to be slow and not be "there" where solutions might be
discovered and created. It is like "trying to catch the wind if you can". Individuals who are on
the spot, that grasp an opportunity, can only do so if they have the absorptive capacity to
perceive the vital connections and find the institutional incentives to act upon these
opportunities. This, however, demands that a holistic and systemic way of thinking, including
second-‐order learning (see Sterling, 2010), becomes a quality for problem solving within the
wider population. Going further it also demands that organizations are more open to
multivariate stakeholder interactions. The locus of interaction, in the form of
interdisciplinary structures of participation, deliberation and communicative exchange for
social learning are thereby essential spaces for experimentation for potential sustainability-‐
driven meso rules to be discovered/created. Entrepreneurship as a method, thus becomes
so much more important and relevant skill of everyday citizen. For only these can detect the
'fine' and delicate pathways in their everyday life.
Further it must be highlighted that SuE and its networks do not only internalize
negative externalities where possible. Even further, by putting social and ecological mission
at their organizational core, their processes also strive to provide positive externalities to
the socio-‐ecological environment. By relaxing on optimization of efficiency, SuE networks
can provide spaces of socio-‐ecological livelihood for well-‐being that can also act as a safety
net during phases of economic hardship or personal transition. At the same time, these
spaces allow for the generation of the needed alternatives (interdisciplinary interactions)
that might provide the solutions for tomorrow’s challenges. For example, by providing for
healthy work environments with diversity in work activities and opportunities for
participation it strives to raise the general well-‐being of individuals and community as it
externalizes less health related life processes to the market. By the introduction of
disruptive innovations that are integrative of ecosystem loops, while also considering the
achievement of socio-‐effectivity, they can reduce the overall needed throughput of the
system (i.e. an expanding health care sector that arises out of rising issues of obesity or
stress related health issues; pollution prevention mechanisms that actually just serve to
preserve current ineffective structures). As a consequence, such firms may save the
economy, state and society a lot of costs in the long run, while at the same time providing
the needed opportunities for future qualitative growth and development. Hence they also
"educate" socio-‐economies towards economic value creation that are compatible with a
sustainable development. As a result, economic value comes to promote emergent
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properties such as resilience and adaptive capacity. Going further, alternative business
models and ways of organizing and interacting can provide for the diversification of
economic interlinkages. These again raise the resilience and adaptive capacity of the whole
system. And this is an indispensable quality of a socio-‐ecological and sustainable economy.
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Chapter 5 Conclusion
This chapter will now in retrospect summarize past chapters in order to come to a
conclusion. First it will give a brief summary of ideas, principles and theory explored in the
past three chapters on sustainable development and entrepreneurship. While this thesis did
not have the explicit aim to make a new scientific contribution, some of the insights made
will nonetheless be elaborated upon. This will be followed by a section that explores the
limitations of this work while also reflecting upon potential future research that may build
on the ideas and concepts that were explored in this thesis. This also involves a discourse on
some of the dimensions that were discoursed upon however not explored in further detail.
This chapter will end with an outro that can be understood as a broader discourse on the
topic of SuE in the context of a sustainable economy.
5.1 Summary of Research and Findings
The purpose of this thesis was to investigate theoretical approaches that have emerged to
describe the phenomena of Sustainability-‐driven Entrepreneurship (SuE) in a dynamic socio-‐
ecological context. It can be described as an attempt to merge the areas of entrepreneurship
with insights from sustainable development. The focus was thus on reviewing and
investigating theoretical approaches that could be deemed as relevant for describing the
phenomena. Building on a co-‐evolutionary model, some of the ideas, concepts and
principles from sustainable development were integrated to highlight systemic dimensions
to consider for understanding new sustainability-‐driven ventures and their diffusion process
into the broader economy.
The first chapter was a brief depiction of the current global challenges within the
ecological, social and economic dimensions that human societies currently face. This set
forth the remark that a transition towards a sustainable global economy must gain
momentum. Therein the potential role of entrepreneurs was emphasized. This also
highlighted the research motivation and deduced research question of this thesis: To explore
theoretical approaches for understanding entrepreneurship in the context of sustainable
development.
The second chapter gave the reader an introduction to the research area of
sustainable development. This involved a brief review of its historical development and
intellectual roots and a discussion on the difficulties of defining the term. One also learnt
that the interpretation of the concept is attached to different epistemological worldviews.
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Here a reductionist, linear and mechanistic interpretation was contrasted to a social
constructivist and complex systems perspective. From this outset, two different disciplines
within economics where presented: environmental economics and ecological economics.
These were also shown to represent two 'camps', especially in regards to the substitutability
of capital that is often framed as a discussion on weak and strong sustainability. However,
the dichotomy showed to have some deeper implications on how to tackle issues of
sustainable development. More specifically these two approaches have different theoretical
frameworks for explaining but also interpreting concepts and elements of sustainable
development. Building on the latter, four main principles were explored: the normative
principle, the equity principle, the integration principle and the dynamism principle. From
these it could be learnt that sustainable development is a multidimensional concept that
demands a multi-‐variate approach for tackling issues and challenges in a continuous process.
Going further, this chapter also briefly touched upon concepts and ideas regarding
thermodynamics, resilience and characteristics of complex adaptive systems. This was
followed by a depiction of two simple visual models that have gained popularity within the
sustainability discourse. Their strengths and weaknesses in regards to the above gained
insights were briefly touched upon. Last but not least, the business case for sustainability
was briefly explored so as to serve as a transition to the following chapters. It was
highlighted that its root idea builds on the notion of eco-‐efficiency, a term established
during the first conference of the World Business Council for Sustainable Development in
1992.
The third chapter reviewed but also discoursed upon various dimensions of
entrepreneurship research. After highlighting the general acknowledgement of its economic
relevance, its classical historical roots were contrasted to the more modern interdisciplinary
field. This was followed by looking at the theoretical discourse on the role of entrepreneurial
activity for economic development. It was pointed out that the mainstream equilibrium
model of economic analysis was already criticized by Frank Knight in 1921. He especially
highlighted its difficulties in integrating entrepreneurial activities due to the stringent
assumptions that models make. It thereby neglects the dimensions of uncertainty (as
opposed to risk). Entrepreneurs can be described as those that confront situations of
uncertainty in the pursuit for new economic activities. Two other economic perspectives,
namely that of Joseph Schumpeter and Israel Kirzner, were then presented. Schumpeter
regarded the entrepreneur as someone who brings qualitative development to the economy
in the form of innovation, thereby disequilibrating any current economic path in a process of
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'creative destruction'. Israel Kirzner on the other hand described the entrepreneur as
someone alert to asymmetric and dispersed knowledge, thereby continuously bringing
economies into an equilibrium state. It was remarked that while both can be interpreted to
have complementary roles (i.e. the innovative and the replicative entrepreneur), the
disruptive entrepreneur appears to have a more important (initial) role in regards to
introducing new practices that are in line with sustainable development. As a follow up, the
chapter described different dimensions that emerged within entrepreneurship research. The
role of entrepreneurial traits, environmental context and entrepreneurial opportunities (i.e.
the individual-‐opportunity nexus) and entrepreneurial value creation were presented as
important dimensions. Furthermore a discourse on the ontological and epistemological
underpinnings of entrepreneurial activities, opportunities and research was made. It was
shown that entrepreneurs tend to follow a process termed effectuation that can be
contrasted with more risk oriented managerial approaches. In conjunction to this the
discourse on opportunity discovery vs. opportunity creation was portrayed. The latter builds
on an evolutionary realism perspective. Such an approach aligns itself well with a strong
sustainability approach, where uncertainty, but also a dynamics and evolutionary 'mix' of
socially constructed and objective value judgments (for opportunities), can be seen as
important dimensions for describing reality. This was followed by a brief discourse on
entrepreneurial typologies, especially the innovative vs. imitative entrepreneur. The chapter
ended with a brief summary of dimensions and elements investigated while reflecting briefly
on their relation to ideas and concepts from the previous chapter.
The fourth chapter built on previous chapters in order to investigate theoretical
approaches of entrepreneurship in the context of sustainable development. Recent
literature has also come to apply the term Sustainability-‐driven Entrepreneurship (SuE) for
this phenomenon. The chapter started with a brief investigation of related types of
entrepreneurship research. The ecological, social, institutional and community
entrepreneurship were identified and described. It must be stated that the brief review of
these entrepreneurial types already revealed a great deal on the concept of SuE and what
research on this subject entails. For their different focus (ecological, social, and communal
value as well as the important role of institutional change makers) all highlight important
sub-‐elements of SuE. Further, they highlight that such entrepreneurial activity cannot only
be seen as taking place within for-‐profit organizations. Profit thus often only becomes a
means for achieving a social, ecological or communal purpose. In reflection to the
integration principle it however becomes clear that for achieving sustainable development,
Joshua von Gabain Entrepreneurship for Sustainable Development
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all these sub-‐elements need to be considered within organizational activities (from a
hypothetical standpoint). Hence it was pointed out that for rhetorical, analytical, empirical
and theoretical purposes it is useful to distinguish the SuE from these other typologies.
Nonetheless, the possibility of these fields to be converging is clearly evident. Building on
this insight, a brief review (map) of existent research of SuE was made. This was followed by
a consolidated definition of SuE that was assembled from different scholarly interpretations.
A table of different definitions from the literature was also presented.
The next section, which should be regarded as the core of this work, was to compare
two theoretical approaches for explaining SuE. Here an approach built on equilibrium
economics was compared to a co-‐evolutionary model. The former prescribed
entrepreneurial opportunities to market failures (such as asymmetrical information or
externalities). Hence sustainability-‐driven entrepreneurs were interpreted as actors that
overcome barriers to correct these market failures. Strength and weaknesses were
discoursed upon. While the model can be prescribed to offer a pragmatic usefulness for
describing SuE it also fails to account for many non-‐market dimensions. Further, the
framework is very limited in describing many elements that are dynamic in nature, which are
nonetheless highly relevant for describing entrepreneurship and innovation for sustainability
(such as uncertainty as well as path dependent lock-‐ins of institutions, technologies and
industries). This model was contrasted with a model that described the entrepreneurial role
in an environment-‐economy co-‐evolution (Potts et al., 2010). The focus of this model was
not so much on correcting market failures. Instead the model depicted the socio-‐ecological
economy as a population of nested connections (termed as 'rules') that is embedded in a
system with the evolutionary tendency of degrading ever more energy with the help of
knowledge accumulation. Knowledge is here regarded as subjectively formed connections
and rules. The system thereby experiences ever-‐increasing complexity. Entrepreneurs are
thus interpreted as agents that introduce new potential rules that provide for a generic
evolution of the economy. The authors highlight the existence of an entrepreneurial loop in
the context of uncertainty. New solutions to problems are just as likely to bring about new
problems that were not previously known. Due to this recognition, the importance of
feedback loops is raised. Hereby entrepreneurs are not only regarded to act within an
economic domain but also within the political, creative and socio-‐cultural system domains.
Without going into more detail about this model, it raises the relevance of promoting the
right meso rules that are in line with sustainable development. In comparison to the market
failure approach, this theoretical framework delivers a basis that is much broader in its
Joshua von Gabain Entrepreneurship for Sustainable Development
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analytic scope. Hence it also opens up the possibility to integrate many of the ideas and
concepts that were explored within the chapter on sustainable development but also ideas
on effectuation and opportunity creation (i.e.. evolutionary realism) that were revealed in
the chapter on entrepreneurship. This concepts also fits very well with the notion raised by
Sarasvathy and Venkataraman (2011), that entrepreneurship can be regarded as a method
to find solutions in situations of uncertainty. Nonetheless, the model does not explicitly
discuss meso rules for sustainable development. For instance, what implications do more
holistic (integrative) thinking have for problem solving heuristics of SuE? What kind of
organizational decision making processes by SuEs can be adapted for achieving
sustainability? What implications does the process of sustainable development have on
opportunity exploitation (i.e. resource and stakeholder interactions)? While these questions
remain open, the framework certainly delivers the capacity to integrate such dimensions.
Hence it allows for investigating rules in the form of connections that are made within and
through the interaction of organizations that may be more in line with sustainability (i.e.
How are multiple dimensions of sustainability accounted for within SuE trade relations?). As
such it provides a broader scope for theoretical research but also policy analysis. However, it
must be mentioned that both models presented in this section (Section 4.4) focused solely
on the environmental dimension, leaving social side of sustainability completely unexplored.
Building on the co-‐evolutionary model it was asked what concepts and ideas from
sustainable development could be useful for getting a better understanding of what
sustainability-‐driven meso rules might entail. For this purpose, the concept of eco-‐efficiency
was explored and set in relation to insights of resilience, adaptive capacity, equity and
sufficiency. It could be highlighted that while the sole pursuit of eco-‐efficiency by firms is
useful, insights of complex adaptive systems also show that it is not a sufficient, if not even a
contra-‐productive strategy for achieving sustainable development. In short, there exists a
trade-‐off between the adaptive capacity and diversity of a system and ever-‐increasing
optimization for efficiency increase (may it be a firm or a larger system that is looked upon).
The notion of eco-‐effectivity is introduced as a further dimension for achieving ecological
sustainability. Going further, the importance of new venture strategies for achieving
different forms of equity, sufficiency and socio-‐effectivity were discoursed upon. It is evident
that it may be claimed that the nature of concepts and ideas that were here used are of a
'normative' nature. However, such a claim should be made with caution. For concepts of
resilience, adaptive capacity and diversity are systemic properties of complex adaptive
systems. Going further, these insights were used to show the importance of the qualitative
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development in the form of new pathways. Whenever systems are confronted with limits for
quantitative growth, diversity of interaction provides increases in the internal efficiency of
the whole system. Synergetic and mutualistic interactions thus become ever more
important. Elements of the systems can thus be seen to bundle several multidimensional
benefits for achieving increasing systemic efficiency. Hence organizational survival and
purpose can be described to be embedded in several spatial and temporal hierarchies of
individual and socio-‐ecological needs (and processes of functional value generation). These
insight were then reflected upon by comparing them to recent results from case-‐based
studies that investigated the organizational reasoning processes within SuEs (Parrish, 2010).
The heuristics that were derived from those cases fit very well into the theoretical ideas that
were explored.
A last section discoursed upon the dynamic perspective of SuE emergence in the
context of complementing a transition towards a sustainable economy. While this section
was rather brief, it nonetheless raised issues of opportunity recognition, the role of SuE
strategies for constructing niches and the implication for networks and stakeholder
interactions that take the normative, equity, dynamics and integration principle into
account. A concluding section summarized the insights gained, thereby deriving a
description of SuE activity from a systemic perspective.
5.2 Limitations and Future Research
This section will explore some of the limitations of this work. This will also involve
highlighting dimensions and concepts that can be of relevance for future potential research
in regards to SuE.
One area that was not explicitly dealt with was the research area of Corporate Social
Responsibility (CSR). This work investigated the theoretical approaches that can explain
entrepreneurial (and to some extent enterprise activities that are in line with a sustainable
development. CSR is more of a practice-‐oriented approach that deals with the
communication of sustainability related activities by the corporate firm. As such it can be
regarded as relevant subcomponent of this research, more specifically, it can be identified as
a meso rule towards corporate sustainability. With the effect of socio-‐cultural, political and
creative feedback mechanisms it is likely to evolve in its purpose and impact (see Visser,
2010). On the other hand, it must be recognized that currently any firm may pursue CSR
activities while at the same time pursuing and promoting business activities that do not
really contribute towards a more sustainable economy. Hence it was chosen to exclude CSR
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as an initial focus of this work. It is nonetheless recognized that it now may be interesting to
supplement the current investigation with the topic of CSR in future research.
Another interesting area of research that was left out, deals with innovation for
sustainability (Vollenbroek, 2002; Smith et al., 2010). As has become evident from this thesis
it would demand that one integrates eco-‐innovation with the area of social innovation
(Christensen et al., 2006; Seyfang and Smith, 2007; Roth, 2009; Bergman et al., 2010;
Witkamp et al., 2011) and further implement both into the concept of system innovation
(Brezet, 1997; Gaziulusoy et al., 2012; Gaziulusoy and Boyle, 2012). Exploring this area was
initially intended, however would have demanded a separate chapter for mapping out the
elements and components of the innovation research so it then could be related to the
literature of sustainable development (and entrepreneurship). Another large area involves
investigating SuE within the larger system dynamics of transition research (for instance
(Geels, 2002; Rotmans and Loorbach, 2009) and innovation system approaches (Geels, 2004;
Coenen and López, 2010; Jacobsson and Bergek, 2011). Similarly, a thorough investigation of
these research fields would also have demanded a further chapter for clarification. Future
research connecting these two areas is inevitable and has to some extent already begun
(Alkemade et al., 2011; Hillman et al., 2011; Bergek, 2012; Marletto, 2012). The co-‐
evolutionary framework explored in this thesis suits very well as a foundation (see for
instance Foxon, 2010). It nonetheless needs to be extended with ideas and concepts on the
theory of the firm, innovation, innovation systems, and transition research in any future
work being pursued.
A third limitation derives from the fact that this work did not have a sectorial or
industry focus. This would have involved the attempt to develop a detailed framework of
sustainability driven entrepreneurial activities within a specific domain, sector and/or
regional focus (i.e. rural vs. urban). Nonetheless, by developing a broader co-‐evolutionary
framework, some general principles for sustainability-‐driven entrepreneurship (and
enterprises) were put forth. This can now be set into relation in future in-‐depth studies
within specific sectors or domains. When briefly reviewing some literature that focuses on a
specific sector, it quickly becomes evident that technologies and industries possess certain
explicit and implicit qualities that shape the structure of the industry or sector. These
insights must be accounted for when investigating barriers and drivers for the development
of sustainable modes of production and consumption. This also involves the study of niche-‐
regime interactions within the different sectors. What factors contribute or hinder the
transition towards a low-‐carbon energy, food or housing sector? What does this imply for
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entrepreneurial opportunities? It is clear that any future research demands a strong
sectorial focus if it is aiming to achieve any guiding statements or policy recommendations.
The fourth limitation is the lack of any empirical research. This is simply due to the
fact that this work had a theoretical focus. However, since this is such new area of research
it was from my perspective first deemed relevant to develop a theoretical framework that
allows a coherent future empirical analysis. Hence, the core framework explored and
developed here, can be seen as an initial step for designing future case studies and empirical
research.
It has to be recognized that the chapters on sustainable development and entrepreneurship
explored many concepts, ideas and dimensions that were not investigated in an integrative
and coherent manner within the last chapter. This was however deemed relevant to gain a
systematic overview of both streams of research. Another advantage of this is that these
dimensions can now easily be explored in future work while adopting the framework of
theoretical reasoning identified and developed in Chapter 4.
First off, the elements of sustainability driven opportunities need to be explored in
more detail. It was already highlighted in Section 4.5.3 that the shape of stakeholder
interaction for identifying sustainability driven solutions (i.e. opportunities) is going through
a transformation. Further the role of education was highlighted. But more precisely, what
implications does sustainable development have for entrepreneurial education?
Interdisciplinary (if not transdisciplinary) knowledge interactions and thinking in the form of
second-‐ if not third-‐order learning was suggested by Sterling (2010)). Recent research from
neuro-‐economics and entrepreneurship suggest that the unconscious domain of brain
activity play a recognizable role during the development of ideas and solutions to problems
(see (Blair, 2010). More specifically, leading a discourse on barriers and drivers for
sustainable practices within the specific educations domains (i.e. technology, architecture
etc.) while at the same time promoting interdisciplinary interaction of issues and problems
for sustainability (Stephens et al., 2008) may be regarded as important components for
finding solutions that may generate meso rule innovation that is in line with sustainability
(Stephens and Graham, 2010). Educating sustainability-‐driven problem solving within
educational institutions and firms (beginning at an early age) may thus be regarded as one of
the most cost-‐effective catalyst for supporting a transition. Related to this, (Lefebvre and
Lefebvre, 2012) highlights the need to explore the drivers and barriers for CSR integration at
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the start up level as well as the impact this has on the process of opportunity recognition.
This demands further research.
This connects with another highly relevant research stream, albeit more practical
oriented. What multi-‐variate metrics of success are being used or can be used by SuEs? As
research suggested, multidimensional, and incommensurable, flows of information raise the
adaptive capacity of systems. Cohen et al. (2008) was mentioned as an attempt to
investigate this issue in regards to SuE research (see also Ekins and Medhurst, 2006;
Bleischwitz, 2009). While it may be suggested that top-‐down imposition of indicator use may
be regarded as the most suitable strategy, the bottom-‐up approach where new ventures
experiment with new forms of multi-‐dimensional sustainability accounting cannot be
neglected. Experience from practice on what may work, and what may be a feasible way for
achieving a multi-‐variate accounting of enterprise performance in regards to sustainability
cannot be neglected. For instance, the development of the double-‐entry bookkeeping in the
13th Century emerged not only out of socio-‐political and historical peculiarities but much
more through the spread of Florentine partnership systems and social networks that
achieved recombinant invention through a continuous learning process that was later
adopted by a broader population (Padgett and McLean, 2006). Similar patterns of new forms
of organizational bookkeeping in regards to sustainability may now be at work. An example
of such an experimental learning process is evident in the German speaking part of Europe
(for instance see Felber et al., 2010). How can different institutions and enterprises
cooperate to develop sustainability driven accounting systems for new start-‐up firms?
Innovation for non-‐monetary informational systems is thereby an interesting and important
field of research. For instance, more recently VanSandt and colleagues explored potential
catalysts to upscale social entrepreneurship activity to the larger economy. These identified
were effectual logic, enhanced legitimacy through appropriate reporting metrics, and
information technology (VanSandt et al., 2010).
Another very interesting related field of research involve the exploration of
sustainability-‐driven business models, strategies and networks. As it became evident from
the Table 9 in Section 4.3.1, it is already a well-‐explored area of research. Going further
research on business models and strategies by Social Entrepreneurship provide inspiring
insight for further research (see Alter, 2007). Also Hockerts (2003) explores the challenges
for the utilization of antagonistic assets for the purpose of sustainability driven innovation.
Last but not least one could integrate the ideas and concepts explored into the
design of agent-‐based models. The meso rule approach serves very well for studying the
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emergence of patterns that arise out of heterogeneous agents that pursuit bounded
satisficing after heuristics based on insights from fields such as behavioral economics.
Thereby one can also ask the question of how to integrate multivariate dimensions into the
agent’s perception and decision-‐making heuristics for interaction and trade. Emergent
patterns can thereby be compared with more stringent rule based decision-‐making (i.e.
single objective optimization). Further one could ponder on how to integrate the energy
gradient component into the development of potential meso rules. Since meso rules can be
regarded as practices consisting of several elements of survival and purposeful elements, the
study on how resource intensive patterns of trade emerge may be an interesting future
research. However, it also demands the formalization of many of the appreciative elements
development within this framework. Recent work by Safarazynska (2011; 2012) but also
Noailly (2003) are an inspiring start point.
5.3 Outro -‐ a point for reflection
Last but not least, I now give myself the freedom to make some point of reflection on this
thesis, while also allowing for some less rigorous comment on the insights made. The
current study aimed to explore different theoretical streams to explain entrepreneurship for
a sustainable development. Thereby a market-‐equilibrium based explanation for the
phenomenon was compared with a co-‐evolutionary model. It must be stated that there is an
immense amount of academic work available that explores the co-‐evolutionary dimensions
of creativity and adaptability of organizations. These provide a much deeper in-‐depth study
of the management of heterogeneous resources as well as the knowledge-‐driven capabilities
and absorptive capacities of firms than was presented here. In contrast, the current study
explored literature that connects evolutionary thinking to the dimensions of complex
dissipative structures that are far from thermodynamic equilibrium.
All complex and adaptive systems (social and ecological) are driven by increasing or
sustaining exergy throughput of its system. Hereby information and knowledge (in the case
of socio-‐economies) drive the environment-‐economy co-‐evolution through the act of
entrepreneurial activities that grasp opportunities of genuine "networks" of combinations
for increasing or sustaining the exergetic throughput. Building on ideas by Potts et al. (2010),
these "networks" of combinations can be understood as meso units or rules (esp. when
adopted by a grander population). Nonetheless, not all entrepreneurial innovation that
increases the socio-‐economic throughput (and labor productivity) increases or sustains the
throughput capacity of the whole socio-‐ecological system in the long run. Just like humanity
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has come to recognize the impact of deteriorating working circumstances on human and
social health, the destabilization of ecological circulation of minerals, nutrients and further
functions have to become an integrative aspect of human economic activity. Human social
and technical innovation thus needs to foster artifacts that pursue regenerative processes
for the whole socio-‐ecological system. That is, humanity can in fact develop socio-‐technical
solutions that can enhance the dissipative structure of the whole socio-‐ecological system.
This is the major challenge for human development within the 21st Century. Amidst the
challenge of staggering population growth, knowledge and information on eco-‐system
functions and processes are hence a prevalent driver for finding feasible solutions.
On this note, a weakness of the dichotomy between weak and strong sustainability
must be highlighted. One of the major dimensions of this dichotomy is discourse on the
substitutability of natural capital with man-‐made capital (i.e. strong vs. weak
substitutability). This study has highlighted research that clearly raises the point that some
functions of the eco-‐system cannot be replaced. However, another important point must be
raised. Human discovery and development of knowledge for sustainability-‐driven solutions
are highly dependent on physical, natural and organic artifacts. That is, research for
sustainability-‐driven solutions base themselves on the investigation of the ecological
systems (of which we are part of) on a physical, material, molecular, biological level.
Inspiration and knowledge for invention and innovation are highly based on that what we
learn from nature. The less networks of interaction there is available to be studied from
nature, the less potential solutions there are out there to be discovered. Hence the
maintenance of biodiversity becomes a crucial source for discovering processes that would
allow human-‐beings to develop (create) man-‐made solutions that one day may provide
substitutes for certain natural processes, if not enhance their functionality. As a
consequence, the dichotomy between weak and strong substitutability, as formulated here,
may be regarded as somewhat misleading. I however realize that this comment needs to be
elaborated on further than done in this outro.
Going further this study integrated concepts of resilience and adaptive capacity, as
well as peculiarities of the growth and development, into the evolutionary complex adaptive
systems that may render systems sustainable in the long run. Thereby the trade-‐off between
efficiency optimization and the adaptive capacity of a system was highlighted. Systems that
are optimized to pursue a single objective as efficiently as possible (i.e. maximizing GDP
growth) are diminishing their adaptive capacity within a dynamically changing environment.
That is, diversity plays a vital role for providing the solutions for tomorrow's challenges.
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Hence diversity can be regarded as a functional property of complex adaptive systems and
must be regarded to play multiple roles within such an understanding.
First, the principle of incommensurability suggests that the diversity of the
information types enhance the adaptive capacity of a system. As a practical example,
evolution that brought forth species like the human being, gave it multiple senses for
adapting and judging their "food" intake as well as their mobile activity and adaptation to
the environment. Similarly, organizational performance is likely to become much more
adaptive when regarding multiple quantitative and qualitative dimensions during processes
of innovation, strategy and operation. Price is surely a driving factor but in the long run
omits many dimensions that must be regarded in a dynamic and competitive environment.
Further one also needs to consider the qualitative human aspects of social well-‐being.
Opportunities for participation, motivation and self-‐determination play a vital role for the
general health and well-‐being of individuals. Hence there is a need to develop multi-‐
dimensional accounting and information systems that allow consumers, innovators and
firms to interact in regards to a variety of performance measures.
Second, the importance for up keeping alternative socio-‐technical solutions needs to
be recognized. Whether the solutions are based upon carbon-‐breathing buildings,
biodegradable photovoltaic, hydrogen based transportation system or vertical organic
farming, it needs to consider the critical limits of ecosystem capacities while assuring the
adaptive capacity of the whole system. This does not mean that research and development
should not strive for increasing efficiency of human-‐made processes (i.e. designing synthetic
viruses for building resource saving components for batteries). However it also means that
one should promote qualitative diversity of solutions and opportunity of life-‐styles (i.e. other
forms of energy storage, or providing opportunity for life-‐styles that consume less energy).
These might provide for tomorrow's solutions while not finding an advantageous utility
within today's society. Hence there is a need to provide spaces (niches) for creative
experimentation, even if these may be regarded as inefficient in the short term.
Third, adaptive capacity in the form of informational and qualitative diversity can
show to play a vital role for state and regional legislation. The emergence of unhealthy
eating habits or stressful working environment may produce new economic activity to
counter these negative externalities. However, it may also increase the overall exergetic
throughput of socio-‐ecological systems to unwanted levels that impose large administrative
expenditures for legislation, state or the whole economic system (i.e. promoting the
emergence of more healthy food systems and eating habits rather than making large
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investments into obesity reducing medication that do not tackle a unhealthy food industry).
Another example is the establishment of nuclear energy systems. While they certainly can
provide cheap electricity, the accounting for costs and risks of waste management, potential
terrorist attacks, infrastructure maintenance and impact on social structures may show that
such a solution provide less adaptive capacity for a region or nation. The build up of so-‐
called “defensive costs” hence needs to be considered within economic research. The use of
multiple dimensions of benefit pursuit within individuals, firms and state can thereby show
to be advantageous over the use of single-‐dimension (cost-‐benefit) optimization. Going
further, dimensions of resilience and adaptive capacity need to be discoursed upon within
legal and regulative dimensions of socio-‐ecological economic activity. These dimensions are
important for obtaining a dynamic governance regime that can adapt to a fast changing
environment, nonetheless provide transparency in regards to entrepreneurial expectations.
Here it is also important to allow for "creative destruction" where old economic and
industrial structures (i.e. meso-‐units) and can be "unlocked" to allow for new qualitative
pathways within the economy to emerge.
Many of these aspects need to be considered within economic research for giving
better insights for policy in regards to Sustainability-‐driven Entrepreneurship. Due to the
need to consider non-‐market dimensions, heterogeneous agents and dynamic change,
agent-‐based modeling may provide for a lucrative method to analyze and compare patterns
of emergence between systems where agents (i.e. individuals and firms) solely optimize
their activities after monetary return on investment to those that stack multiple benefits
into their activities (i.e. ecological return on investment, social return on investment).
Comparing these systems in relation to patterns of emergence as well as their adaptive
capacity during internal or external stressors might show insightful. While further
investigation definitely is needed, this thesis provides an interesting compilation on
dimensions, concepts and ideas that could be explored within such an endeavor.
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