entrepreneurship for sustainable development - an exploration of theoretical approaches

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

ii

Statement of Originality

I hereby declare that this thesis has been composed by me and is based on my own work.


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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.


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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.


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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


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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


1

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


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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


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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


4

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?


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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


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


7

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.


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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


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


10

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


11

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


12

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


13

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


14

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


15

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"


16

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.


18

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


19

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).


21

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


22

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


23

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.


24

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


25

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.


26

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


27

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.


28

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.


29

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.


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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).


31

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).


32

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,


33

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


34

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/


35

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


36

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).


37

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,


38

• 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.


39

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


40

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


41

'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


42

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


43

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)


44

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?


45

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


46

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.


47

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.


48

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


49

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


50

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)


51

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?


52

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).


53

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.


54

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.


55

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


56

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.


57

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.


58

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.


59

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.


60

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)


62

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


64

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


65

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.


66

• 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).


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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


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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


69

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


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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)


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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


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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


73

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.


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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.


75

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).


76

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.


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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.


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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.


90

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)


91

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,


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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


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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


140

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


142

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


143

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.


144

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


145

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.


146

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