entrepreneurship and institutional change: a research agenda

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Entrepreneurship and institutionalchange: A research agendaChristos Kalantaridis a & Denise Fletcher ba Enterprise & Innovation Lab, Bradford University School ofManagement, University of Bradford , Bradford , UKb Faculty of Law, Economics and Finance, University ofLuxembourg , LuxembourgPublished online: 30 Apr 2012.

To cite this article: Christos Kalantaridis & Denise Fletcher (2012) Entrepreneurship andinstitutional change: A research agenda, Entrepreneurship & Regional Development: AnInternational Journal, 24:3-4, 199-214, DOI: 10.1080/08985626.2012.670913

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Entrepreneurship & Regional DevelopmentVol. 24, Nos. 3–4, April 2012, 199–214

INTRODUCTION

Entrepreneurship and institutional change: A research agenda

Christos Kalantaridisa* and Denise Fletcherb

aEnterprise & Innovation Lab, Bradford University School of Management, University ofBradford, Bradford, UK; bFaculty of Law, Economics and Finance, University of

Luxembourg, Luxembourg

This paper introduces a Special Issue on the theme of Entrepreneurship andInstitutional Change. Drawing upon the accumulated literature and threeoriginal contributions it aims to explore the conditions and the processesthrough which entrepreneurship may influence institutional change. Thepaper argues that entrepreneurs are not only influenced by the prevailinginstitution(s) but they can also influence (both intentionally andunintentionally) institutional change. This challenges prevailing viewsabout the ability and effectiveness of the state to drive change. The paperalso outlines an agenda for future research into how entrepreneurshipshapes emerging institutional arrangements.

Keywords: entrepreneurship; institutions; institutional fields; institutionalentrepreneurship

1. Introduction

One of the most promising lines of inquiry in entrepreneurial studies is theexamination of how institutions influence enterprising behaviour and organisations.Research within this context draws upon theoretical insights provided frominstitutionalism (both in sociology and in economics; Minniti and Levesque 2008),introducing notions such as the governance structure, power and trust, the cost oftransacting, habits and embeddedness in entrepreneurship research. This interestresults from a gradual shift within this field of study from consideration of theattributes and characteristics of entrepreneurial individuals as well as their functionin the process of economic growth, to the environment (cultural, legal, political)within which entrepreneurs operate (Hwang and Powell 2002). As a consequence,there is a growing number of studies examining the influence of institutions onentrepreneurship (for example Aldrich and Fiol 1994; Carney and Gedajilovic 2002;Jessleyn 2004; Aidis, Estrin, and Mickiewicz 2008; Bruton, Ahlstrom, and Li 2010).However, this body of research has been primarily concerned with institutionalenvironments that enable/constrain entrepreneurship and to date, there has beenlittle research into whether and how entrepreneurship can influence institutions(Tracey and Phillips 2008; Leca, Battilana, and Boxenbaum 2008).

This overemphasis on how institutions shape entrepreneurship can be partlyexplained by widely held assumptions (at least until recently) about institutionalstability and continuity. Institutions are viewed (invariably implicitly) as given, andindividuals or social groupings as malleable agents whose actions, in part or in

*Corresponding author. Email: [email protected]

ISSN 0898–5626 print/ISSN 1464–5114 online

� 2012 Taylor & Francis

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whole, may be externally defined. This assumption rests upon the widely held

conceptualisation of institutions as the repository of common knowledge and theembodiment of accepted practice in society. Institutions are stable, and may be

resistant to change, but they are not unchangeable. Evidence supporting thisargument emanates from historical studies into the development process as well as

more recent transition studies of institutional change. As yet, however, there is littleresearch examining the role of entrepreneurs in shaping institutions (for some

exceptions please see Yu (2001) and Kalantaridis (2007). However, institutionaltheory can receive ‘fresh impetus’ from the behaviours and actions of entrepreneurial

agents (Dorado 2005).In response, Entrepreneurship and Regional Development invited papers exploring

how entrepreneurs may influence (positively or negatively) the process of institu-

tional change at the local, regional and national level. Following a rigorous selectionprocess, three papers and an extended introduction are presented in this Special

Issue. The papers explore the conditions and the processes through whichentrepreneurship may influence institutional change, placing particular importance

on the interface between the state and entrepreneurs. They draw from a broad rangeof contextual settings, including: post-socialist regimes in Central and Eastern

Europe, the Commonwealth of Independent States and China (Smallbone andWelter), rural Greece during the era of the military dictatorship (1967–1974; Bika),

and rural Ireland from the 1960s onwards (McCarthy).The Introductory paper aspires to bring together insights provided by the three

empirical papers together with key issues raised in the accumulated body of

literature in order to develop an outline research agenda on how can entrepre-neurship influence institutional change (presented in the concluding Section of the

paper). The specific contribution of this paper to the literature is four-fold. Firstly,the paper provides a distinction between two key concepts often used in the

relevant literature: the institution and the institutional field. The argumentadvanced here is that there are significant differences between these two concepts,

and therefore can not be used interchangeably. Secondly, the paper highlightsevolving views regarding institutional stability between old and new institutional-

isms. It is conceptual advances within new institutionalism (and particularly thatbody of literature identified with the terms of institutional entrepreneurship) that

offer scope for entrepreneurial actors to influence the change in institutions.Thirdly, the papers brings to the fore the issue of intentionality. More specifically,

the view advanced here is that in some instances changes in institutions are not theresult of concerted action, but the outcome of the diffusion of new practices

introduced by entrepreneurial actors. Lastly, the paper identifies a number ofprocesses through which entrepreneurs may influence institutional change. These

include: (i) change through the political process (including actions such aslobbying, state capture and double entrepreneurship), (ii) innovation, and (iii)

direct action (including passive adaptation and evasion, active adaptation, andresistance to change).

In examining entrepreneurship and institutional change, this opening paper is

organised as follows. The next section discusses two key concepts: institutions andinstitutional fields. Following this, the concept of institutional entrepreneurship is

evaluated. The fourth section of the paper explores processes of entrepreneur-driveninstitutional change. Lastly, the paper draws some general conclusions and explores

200 C. Kalantaridis and D. Fletcher

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implications for the direction of future research relating to entrepreneurship andinstitutional change.

2. Institutions and institutional fields

The past thirty years or so have been marked by a significant change in economicsand sociology. This change involved a dialogue between these two disciplines aroundthe concept of ‘institutions’ (Portes 2006). Thus, by 2004, Roland declared ‘we are allinstitutionalists now’ (Roland 2004, 110). This dialogue was the result of the growinginfluence of economists such as Coase, Williamson, North and Hodgson, economicsociologists – such as Granovetter - and sociologists with an interest in organisationalstudies such as Scott, Powell and DiMaggio (for reviews see Brinton and Nee 2002;Scott 2004). They share the view that institutions are about common rules and normsthat regulate human behaviour, and that institutions matter: as they providestructure to daily activity and their role in reducing uncertainty. Institutionalisttheorists failed, however, to reach a consensus regarding a commonly agreeddefinition of institutions.

Early institutionalists define institutions as ‘settled habits of thought common tothe generality of men’ (Veblen 1919, 239). They refer to the regular, patternedbehaviour of individuals in a specific social setting, as well as the ideas and valuesassociated with these regularities (Neale 1994). Within this theoretical context,Hodgson defined institutions as ‘systems of established and prevalent social rulesthat structure social interactions’ (Hodgson 2006, 2). They are social constructsregarding the validity, expediency or merit of a given line of conduct or deliberation.Institutions are, therefore, the embodiment of long-standing and widely acceptedpractice in society.

New Institutionalists in economics adopted a similar, though by no meansidentical, perspective regarding definitions. Douglas North, one of the mostinfluential exponents of this tradition, defines institutions as ‘any form of constraintthat human beings devise to shape human interaction’ (North 1990, 3). NewInstitutional Economists view institutions as the ‘rules of the game’ which can enableor constrain economic activity. These ‘rules’ comprise of both formal and informalinstitutions (North 1990).

Within sociology the definition and conceptualisation of institutions differssignificantly from that in economics. More specifically, Scott views institutions as‘cultural-cognitive, normative and regulative elements that, together with associatedactivities and resources, provide stability and meaning to social life’ (Scott 1995, 33).Regulative elements emphasise rule setting and sanctioning, whilst normativeelements contain an evaluative and obligatory dimension. Lastly, cultural/cognitivefactors involve shared conceptions and frames through which meaning is understood(Powell 2007). More recently, working within the same disciplinary setting, Portesdefines institutions as ‘the set of rules, written or informal, governing relationshipsamong role occupants in social organizations like, the family, schools and othermajor institutionally structured areas of organizational life’ (Portes 2006, 241). Thus,institutions are mental constructs that guide the actors’ understanding of socialphenomena.

The evolution of ideas within sociology regarding institutionalism led recently tothe emergence of the concept of the institutional field – a concept which has been

Entrepreneurship & Regional Development 201

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used increasingly in empirical studies around institutional change (Battilana 2006).

This stream of inquiry is commonly associated with the concept of institutional

entrepreneurship (discussed in detail in the following Section). The institutional field

is defined as a structured system of social positions within which struggles take place

over resources, stakes, and access (Bourdieu 1990). It is made up by similar

regulatory and reputational pressures imposed upon a community of disparate

organisations, including producers, consumers, overseers, and advisors, that engage

in common activities (Powell 2007). Institutional fields constitute the environment

within which organisations operate (Garud, Hardy, and Maguire 2007), and are

‘characterized by the elaboration of rules and requirements to which individual

organizations must conform if they are to receive support and legitimacy’ (Scott

1995, 132). Thus, they create a whole new system that ties the functioning of

disparate sets of institutions together (Garud, Sanjay, and Arun 2002). Within this

context, actors are viewed as ‘socially constituted . . . and acting in the field under

consideration by the fact that they possess the necessary properties to be effective

[and] to produce effects’ (Bourdieu and Wacquant 1992, 107).

Table 1. Comparing institutions and institutional fields.

Institution Institutional field

Theoretical origin Old institutionalist economics(Veblen, Commons, Hodgson)

New institutionalist economics(Coase, North, Williamson)

Sociology (Scott, Powell)

Sociology (Bourdieu)Institutional entrepreneurship

(Scott, Powell, Garud,Batillana)

Definition Settled habits of thought commonto the generality of men(Veblen)

The ‘rules of the game’ which canenable or constrain economicactivity (North)

Cultural-cognitive, normative andregulative elements that,together with associated activi-ties and resources, provide sta-bility and meaning to social life(Scott)

Structured system of social posi-tions within which strugglestake place over resources,stakes, and access . . .made upby similar regulatory and rep-utational pressures imposedupon a community of disparateorganisations . . . . that engagein common activities(Bourdieu, Powell)

Scope Governing a specific dimension/aspect of economic activity (forexample property rights) butcommon to ‘the generality ofmen’ (i.e. the entirety of thepopulation in a defined socio-economic setting)

Governing the environment (in itsentirety) within which a numberof organisations function andinteract

Meaning of change Reconfiguration of an existinginstitution: changing the ‘rulesof the game’.

The creation of a new institutionalfield involves a new combina-tion of new and existing insti-tutions that govern interactionamong a number ofinteractions


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Institutional fields differ from institutions (Table 1). They comprise of a set ofinstitutions that collectively form the environment within which a group oforganisations functions. Thus, an institutional field provides a holistic context fororganisational interaction. Moreover, a new institutional field may comprise acombination of existing and new institutions. These institutions may be specific tothe field or common among many institutional fields. In contrast, an individualinstitution makes-up only a segment of the context within which actors (bothindividuals and organisations) operate. However, the institution (as defined ineconomics) may invariably be influential in more than one institutional field.

Acknowledging the distinction between institutions and institutional fields is ofconsiderable importance for the advancement of debate and the development of acoherent body of knowledge. This is partly because it prevents confusion,underpinning a consistent understanding of the phenomena under consideration.Moreover, conceptual clarity facilitates the process of undertaking comparisons.This is particularly important when considering the results of empirical studies. Moreimportantly however, this distinction (between institutions and institutional fields) iscrucial in developing the concept of change. In the case of institutional fields changemay be linked with the creation of a new combination that is relevant to a group oforganisations. However, the emerging institutional field may comprise – in itsentirety – institutions that are present in other institutional fields. These institutionsmay already govern behaviour among some or all of the organisations belonging tothe new field. The change of an institution however is linked with the reconfigurationof something that already existed. Thus, it results in a change in ‘the rules of thegame’ as experienced by actors that come under its sway. As a result, the actualprocesses involved in changing institutions may differ from those involved inchanging institutional fields.

The divide between institutions and institutional fields is made explicit in thisSpecial Issue. McCarthy focuses on the creation of an institutional field: that ofcultural tourism in Ireland. Her study is concerned with examining a process ofemergence from the 1960s onwards, where state action encouraged increased levelsof interaction between social entrepreneurs and other actors. The new institutionalfield comprised overwhelmingly of existing elements (such as language and music)that underpinned a coalition of actors (which was neither unconditional and notwithout tension) with a commonality of purpose. Bika, in contrast, explores thedemise of a specific institution: that of patriarchy in rural Greece. Changes in policyduring the seven year rule of the military junta in Greece brought to the foreunderlying tensions between generations in small communities in the countryside.This enabled entrepreneurial sons to challenge the authority of the patriarchs andeffect change. Smallbone and Welter also focus on institutions rather thaninstitutional fields – drawing from the definition provided by North (1990).However, they explore change in the set of institutions (both formal and informal)that provide the framework for entrepreneurship.

3. From old to new: Introducing institutional entrepreneurship

However important institutions may be in defining the boundaries of humanbehaviour, they do not prescribe a fixed selection of actions that can then be enactedby actors. Put another way, just because institutions are in existence, this does not


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mean that actors adhere or respond to them. Indeed, institutions are themselves

subject to, what Granovetter (1992) terms as, the problem of embeddedness. Thismeans that the human interactions that institutions seek to guide can in turn effect

these institutions (Portes 2006). This brings to the fore the issue of how

entrepreneurship may influence the nature and configuration of institutions within

a specific socio-economic context. This is now discussed in terms of the notion ofInstitutional Entrepreneurship.

The term institutional entrepreneurship (IE) combines conceptual insights from

entrepreneurship and institutional theory and is used, by way of definition, todescribe organised actors who leverage support and acceptance for new institutional

arrangements to serve an interest they value (Dorado 2005 referring to DiMaggio

1988; Rao 1998; Beckert 1999). The interest from institutional theorists in theactions/interests of entrepreneurial agents can be explained by the formers’ concerns

with understanding how institutions, as structures and mechanisms of social action,

emerge, evolve, survive, become transformed and affect behaviour.In accounting for the role and meaning of both formal and informal institutions,

‘old institutional theory’ has stressed the ways in which institutions shape how actors

act out vested interests in order to benefit/maximise personal/individual gain. With

reference to power, informal practices, strategic positioning and normative expec-tations, this aspect of institutional theory is concerned with how institutions affect

rational choice-making and produce notions of duty/obligation. The new institu-

tional theorisations give greater emphasis to how institutional rules and referents areproduced in relation to cognitive, cultural and social conceptions (i.e to emphasise

that individuals do things sometimes because they can act in no other way). Here,

consideration is given to human agency and its effect in devising institutions that

‘structure political, economic and social interaction’ (Wijen and Ansari 2007,referring to the work of North (1990, 97)).

The lack of attention to human agency/interests prompted new institutionalists to

use the concept of entrepreneurship in order to rebalance theoretical interests and tohighlight how actors gain support and acceptance for institutional change projects

(Fligstein 1996, 1997; Rao, Morrill, and Mayer 2000). As a result, institutional

theory has received ‘fresh impetus’ (Dorado 2005) from the behaviours and actionsof entrepreneurial agents and studies on this notion have flourished in a variety of

contexts. Some examples from the literature include the works of Amine and Staub

(2009), Martin de Holan and Phillips (2002) and McDade and Spring (2005).In interfacing notions of institutional theory and entrepreneurship, the origins of

the ways in which new practices become established, legitimised and diffused, are

made explicit. As Lounsbury and Crumley (2007) say, through integrating notions of

entrepreneurship and institutional theory, a ‘blind spot’ in neo institutional theory isaddressed. Furthermore, because of their interests in the creation of new institutional

fields, institutional entrepreneurs are acknowledged to play a key role in field making

or formation. This is because they act as strategic actors, powerful agents, orinstitutional designers (Child, Lu, and Tsai 2007, referring to Scott 1995; Hoffman

1999; Thelen 2004) in the making of new rules and practices.The discourse of institutional entrepreneurship has helped, therefore, to redirect

neo-institutionalist analysis toward the study of actors and their role in catalysinginstitutional change (Lounsbury and Crumley 2007). Mutch (2007), for example,

undertakes a historical exploration of a nineteenth century institutional entrepreneur


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who introduced an innovation in the management of public houses. Considering the

paradox of ‘embedded agency’ Mutch evaluates how the spread and diffusion ofinstitutional change starts with the actions of the agent for change but through the

diffusion and enrolment of such practices to a wider network, broader change isbrought about over time. Finally, on the theme of how IEs have a key role to play in

diffusing and legitimising new organisational forms, Perkmann and Spicer (2007)explore the institution-building projects behind the propagation of a new

organisational form – the Euro region.In the forthcoming papers within this special issue institutional entrepreneurship

can be seen in action. This is apparent in McCarthy’s account of the construction of

a new institutional field where she demonstrates how social entrepreneurs leveragecultural resources, identify new opportunities and engender new activities, innova-

tions, product and service transformations – to leverage Ireland’s cultural tourismpotential. This is also shown in the study of Thessaly, Greece, how dissent produces

(or is instrumental) in establishing subject/entrepreneurial actions and effects. It isalso evident in the study of Smallbone and Welter where they examine how

entrepreneurs interpret novel institutions and devise solutions to institutionalinefficiencies

A drawback of IE, as Lounsbury and Crumley (2007) identify, is that ‘the ability

of actors to create, alter, and transform institutions, has been greatly exaggerated’(1006). Also, as Mutch (2007) claims, ‘the concept [of IE] tends to describe the

phenomenon under inspection rather than analysing it, [thus] leaving assumptionsabout the nature of agency unexamined [and] leaving the door open to rational

choice models . . . (1123). This means that consideration of how actors escape the‘conditioning . . . . supplied by institutional frameworks’ is under examined (Mutch,

2007, 1124). Furthermore, in exaggerating the role of entrepreneurs as agents ofchange, researchers often overlook questions relating to how, as McCarthy asks in

her Irish study, actors can alter institutions when they are conditioned by the veryinstitutions they seek to change. Bika expresses a similar point in a different way by

claiming that most studies are concerned with how IE works and with what effects,rather than considering what sets it in motion or activates it.

What is learned from all of the studies in this special issue is that there is a need to

be cautious about being over attentive to the individual acts of institutionalentrepreneurs.1 For the Greek study, Bika demonstrates this by showing how

institutional change occurs on many levels and in many different ways. Shedemonstrates how institutional change cannot be answered solely by a consideration

of the actions of key institutional entrepreneurs. In her ethnographic study, there isevidence of goal-oriented agency but this has to be considered in the context of

family farm life cycles, ascendency to power of new political regime, farmmodernisation and the availability of new credit/finance opportunities. As such,

institutional change occurs through the inter-relationship of social, cultural,economic and political factors. In exaggerating the role of institutional entrepre-

neurs, there is an assumption that the actions of special individuals can besuperimposed on a given context/community to enact change. But, as Bika argues, it

took the Greek local context of activity to draw out processes of institutional change.In the study of cultural tourism in Ireland, McCarthy introduces a processual

emphasis to demonstrate how the interrelationship between government policy,inducements for private entrepreneurs, and innovations by social entrepreneurs


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enabled the creation of a new organisational field for cultural tourism that wascharacterised by language, culture and network associations. In the context ofcentrally-planned economies, Smallbone and Welter (this issue) consider how formaland informal institutions inter-relate to create opportunity fields and institutionalvoids (holes) allowing for discretionary actions and entrepreneurship.

Wijen and Ansari (2007) examine the notion of collective IE, to demonstrate howagents engage in collective action when individual interests favour lack ofcooperation in a political regulatory (climate change) context. Furthermore, ‘adeeper engagement with the social theoretic commitments that underlie the neo-institutional tradition (Lounsbury and Crumley 2007 referring to Scott 1995), isneeded to create ‘a more nuanced and situated approach to IE’ (1006).

A further problem with the term IE is that it implies a degree of intentionality onthe part of the lead entrepreneur (to institute institutional change) which is often notthere in practice – beyond, to use that often quoted phrase that entrepreneurs use, adesire ‘to make a difference’. This is systematised by Dorado (2005) who introducestwo additional profiles of institutional change.2 These profiles are labelled‘partaking’ and ‘convening’ and are shaped by three interrelated factors (agency,resource mobilisation and opportunity). ‘Partaking profiles’ describe institutionalchange processes occurring through the autonomous actions of countless agentswhich converge over time and generate institutional change unwittingly throughacceptance of new regimes, rules and scripts.3 This process of change is evidenced inthe ethnographic study by Bika where she reports how the multitude of everydayactions of entrepreneurial sons collectively (and incrementally) constituted institu-tional change over time. It was observed how the eldest sons of farming families werepursuing particular interests and exploiting opportunities created (unintentionally)by the colonel’s regime and which collectively (and unwittingly) had the effect ofdeinstitutionalising patriarchic rule. The ‘institutional convening’ profile (Dorado2005) describes change brought about by organisations or actors who work togethercollaboratively to jumpstart processes that will overcome particular problems.McCarthy’s study illustrates this where a range of actors such as social and privateentrepreneurs worked together to overcome political resistance to the sidelining ofcultural tourism in Ireland and where these collaborations eventually persuaded Irishpolicy-makers of the need to be responsive to the significance of cultural tourism forthe future economic development of Ireland.

4. Entrepreneurship and institutional change

This section sets out to examine how entrepreneurship may influence the nature andconfiguration of institutions within specific socio-economic contexts. Some insightscan be drawn from existing theoretical and empirical research on this issue. Morespecifically, two of the pioneers of institutionalism, Thorstein Veblen and DouglasNorth, identify two distinct processes of institutional change: (i) as resulting fromentrepreneurial innovation, (ii) occurring through direct action to alter institutions.Empirical research conducted within a broad disciplinary setting and often detachedfrom mainstream entrepreneurship research and institutionalism - concentratespredominantly on the latter process focusing upon change through the politicalprocess. Empirical research distinguishes between three types of entrepreneurialaction as part of the political process: lobbying, state capture and double


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entrepreneurship. Moreover, empirical evidence also identifies change throughmicro-level adaptation to existing institutions. This involves three types of action:passive adaptation and evasion, active adaptation and resistance. In some instances,changes in institutions through these processes may be the result of unintendedaction (a point also raised within the context of institutional entrepreneurshipresearch).

4.1. Theoretical constructs

Veblen (1914), one of the pioneers of early institutionalism, advances one process ofinstitutional change. He identifies a clear distinction in the nature of institutions andtechnology: the former are relatively static whilst the latter is the dynamic force insociety. More importantly, however, the institutional setting is defined by theprevailing state of industrial arts (technology) over that period (Ekelund and Herbert1997). In this context, idle curiosity is instrumental in instigating the process oftechnological change. It is the generation of new information and the application ofcreative intelligence, which result in actions that further the state of industrial arts.Even in instances where actions may not succeed in instigating change, they (actions)result in new data and experiences, through learning, which inform subsequentdecisions. Within this context, entrepreneurs are of paramount importance, as it isthey whose idle curiosity advances the state of industrial arts, and subsequently theinstitutional setting.

Drawing from a very different theoretical tradition (the Austrian School) Yu(2001) also examine the institution changing potential of entrepreneurs throughinnovation. He uses Kirzner’s concept of extraordinary discovery (occurring in thelong-term and bringing in its wake a major technological breakthrough) as thecatalyst that initiates the destruction of prevailing institutions and the creation ofmarket uncertainty. As a result ‘other market participants will find that their stocksof knowledge are no longer adequate to interpret the newly emerging events. Theexisting institutional framework is incapable of coordinating the ensuing economicactivities . . .Entrepreneurial innovation creates confusion in the market. Thus, newinstitutions are needed for coordination’ (Yu 2001, 224). An institutional perspectiveon innovation is also examined by Lounsbury and Crumley (2007) where theydemonstrate how performance driven variation in money management practices ofthe US mutual fund industry spurred field wide efforts to establish a new innovation(997).

Interestingly, the second process of institutional change – identified in theory – isdeveloped by Douglas North (1994), the economist who placed new institutionalismin the centre of contemporary debates. He argues that the origins of change can betraced to opportunities4 perceived by entrepreneurial agents. They will assess thegains linked with contracting through existing institutional arrangements incomparisons to the gains that can be derived through investment (of resources) tochange (North 1994). The result of this calculation may prompt some entrepreneurs,i.e. those who perceive themselves as the relative losers of economic exchange onaccount of the prevailing institutions, to pursue change. This can be – in North’sview – through the political process. Thus, changes in formal rules will be the resultof legislative changes. Informal rules, according to North, will change also as a resultof the political process, though these may occur gradually and sometimes


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subconsciously as patterns of behaviour alter (North 1994). Douglas North goes onto develop two important points for the purposes of this study: resistance to changeand conflict, and the self-perpetuation logic of organisations such as the state. As faras the former is concerned, the argument goes that the larger the number of changesadvanced by an entrepreneurial actor, the greater the number of potential losers andhence the scope for opposition. Thus, institutional change will occur only in thoseinstances where the power of those pursuing change exceeds that of those opposingit.5 As far as the latter is concerned, North (1994) argues that the politicalorganisations that have to exist within the prevailing institutional context, have aninterest in its perpetuation that can produce ‘gridlock’.

4.2. Empirical evidence

There is also a growing body of empirical literature that focuses on change instigatedthrough the political process, theorised originally by Douglas North (and discussedin the previous sub-section). Indeed, empirical evidence suggests that there are twodifferent manifestations of this. Firstly, there is engagement in the political processthrough collective action and or membership organisations. The papers presented inthis Special Issue provide insights into this process. More specifically, McCarthyexamines the role of social entrepreneurs in the creation of a new institutional field inIreland. This is achieved through influencing policy-makers positively, by reducinguncertainty, and negatively, through the threat of sanctions and the withdrawalsupport. At the other end of the spectrum Smallbone and Welter examine a case offailure to influence change in Central and Eastern Europe. They argue thatentrepreneurs were less able to become directly involved in the policy processthrough organisations that represent their interests. The lack of a tradition ofmembership organisations in these countries was a key limitation in this process.

Secondly, there is the process of ‘state capture’, by a small number ofentrepreneurial individuals (collectively known as the oligarchs), often linked withpost-socialist transformation. This is defined as a situation where a set of narrowinterests use corruption to shape the political and legal environment to its ownadvantage (World Bank 2004). This has been documented extensively in theintroduction of private ownership on formerly state and collective ventures, throughthe process of privatisation (for good examples see Kryshtanovskaya and White1996, 2005; Coulloudon 2000; Cox 2000). More recently, Kryshtanovskaya andWhite (2005) provide a fascinating account (at the micro level) inside ‘Putin’s Court’,and the linkages between individuals and enterprise. Hanson and Teague (2005)argue that this relationship ‘cuts both ways’, with state power increasingly used toensure big business support for the party of power and existing policy, a viewadvanced further by Yakovlev (2006). This process can also be manifested at theregional level. More specifically, in the case of the Ukraine, Van Zon (2003) describesthe take over of regional government in Donetsk by a coherent group of clans. This‘regional state capture’ does not only hinder outsiders from accessing resources, butalso prevent reform measures emanating from the national government in Kyiv frombeing implemented in Donetsk. This evidence lends support to the view of the statean embedded element – rather than external – of the socio-economic milieu. Thus, itseems safe to argue that state policy does not exist in isolation of the interests ofdifferent groupings – including groupings that are part of the state.


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In this Special Issue, Smallbone and Welter provide insights into a different type

of interaction between entrepreneurs and the state in the process of institutionalchange. Drawing from the experience of China, they argue that entrepreneurs engage

in a process of ‘double entrepreneurship’, whereby addressing gaps in themarketplace is taking place alongside obtaining socio-political security. The latter

often involves negotiation between entrepreneurs and institutional ‘rule-makers’ withthe aim of policy experimentation with reform.

Empirical evidence also shows that entrepreneurs can influence the realisation of

institutional arrangements and offer emergent solutions through direct action. Morespecifically, entrepreneurs are able to shape the implementation and/or provide

meaning (interpret) to institutions (especially if these are superimposed (top-down)upon an old institutional setting). This process of hybridisation and re-functionality

is linked with acts of passive adaptation and evasion, active adaptation, and outrightresistance.

There are a number of instances of passive adaptation and evasion from post-socialist regimes in the accumulated literature. More specifically, small and micro-

scale family businesses find themselves unable to influence the political and legal

environment, both individually – by virtue of their size – and collectively – onaccount of the weakness or total absence of associative structures. Thus, they adopt a

strategy of detachment from the state and its manifestations locally (Yakovlev 2006).A similar process is also manifested by Smallbone and Welter in this Special Issue.

They illustrate how entrepreneurs in the Commonwealth of Independent Statesadopt coping and evasion behaviour in relation to aspects of the institutional

framework. A different example, by Kalantaridis, Slava, and Vassilev (2007),illustrates how co-operation between Ukrainian clothing manufacturers and inter-

national buyers emerges as a result of the relative high levels of ambiguity andstructural uncertainty, a direct consequence of the post-socialist transformation.

Within this context, strong relationships (that stand in sharp contrast to other caseselsewhere in the world and the anticipated outcome according to the dominant

theoretical perspective) emerge as a means of enforcing contracts, given the weaknessof formal institutions.

There is also a growing body of literature exploring active entrepreneurial

adaptation that may lead to institutional change. Haggard and Norland (2010)discuss the case of entrepreneurial response to North Korean famine during the

1990s. The state’s inability to provide food through the established distributionsystem, prompted small-scale social units – households, work units, local party

organs, government offices and even military units – to adopt an entrepreneurialcoping behaviour, much of it illegal, to secure food. These adaptations consisted in

part of innovative uses of existing institutions and practices which resulted in ‘marketcreep’. Despite state efforts to reverse changes, substantial market-oriented behav-

iour remains (Haggard and Norland 2010). Another case can be found in the processof agrarian reform in Russia. Reform involved the legalisation of private property,

the de-statisation of rural land and issuing land shares to individuals working inlarge farms, the creation of independent private farmers, and the reformation of

large state enterprises (Wegren 2004). The later, assisted by a combination ofresistance or unwillingness to adapt among the bulk of the population and some

formerly state and collective farms, were able to re-interpret agrarian reform in amanner that enabled the creation of very large farming operations. These average in


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excess of 50,000 ha, and are externally owned and managed (Rylko and Jolly 2005).A third instance of active adaptation that may lead to institutional change isprovided by Bika in this Special Issue. She argues that the availability of creditprompted entrepreneurial sons to break traditional patriarchal structures. They wereable to use state structures and finance to break away from the control of their eldersand reconfigure farm families.

There is also some evidence exploring entrepreneurial resistance to institutionalchange. Resistance could emanate from entrepreneurial individuals in position ofpower or not. An example of the former is provided by Janvry and Sadoulet (1989),exploring state driven land reforms in Latin America. They argue that reform in thatcase failed because landlords were able to use their power in order to obtain crediblepromises of non-expropriation and to successfully engage in rend seeking. As far asresistance from entrepreneurial individuals in position of weakness is concerned, thishas been well documented in a voluminous body of evidence regarding peasantries(for an interesting collection of works see Colburn 1989). Drawing on theoreticalconstructs developed by Scott (1995) they identify a number of forms of peasantresistance: including foot dragging, feigned ignorance, false compliance, manipula-tion, flight, theft, sabotage and isolated actions of violence. As a result, ‘thecumulation of the peasants’ evasionary tactics can erode away unpopular customs,laws . . . ’ (Coulburn 1989, x).

5. Conclusion

This paper introduces the Special Issue, by bringing together a broad and disparatetheoretical and empirical literature, alongside insights from new research – drawingfrom the experience of diverse institutional settings. The paper provides an outlineagenda for future research – both theoretical and empirical. Studies within thiscontext have to build on a clear distinction between institutions and institutionalfields. The latter may comprise of one or more institutions that provide theenvironment within which a group of organisations operate. An institution however,governs a specific dimension but may be shared among a number of institutionalfields. Therefore, one can expect disparities in the processes that introduce change ininstitutions and institutional fields. This raises the question about the extent to whichthese two processes should be examined together.

Research on the role of entrepreneurship in influencing institutions has to achievea fine balance between agency and structure. Over-socialised views invariablyconceptualise actors as socially-defined merely enacting roles prescribed to them bythe institutional setting. On the other side, the IE approach often exaggerates boththe power and intentionality of actors, and particularly entrepreneurs. As can be seenin the processes examined, intentionality in some instances (such as through theprocess of innovation) is at best questionable. Thus, addressing the embedded agencyparadox emerges as a key challenge for the direction of future research.

The accumulated body of knowledge, though characterised by fragmentation, isrich and provides a useful starting point for future research. It highlights themultiplicity of potential responses. It is particularly strong regarding the impact ofentrepreneurs on institutions, through the political process – where theoreticalconstructs are supported by empirical evidence. However, there are also apparentgaps in the literature. More specifically, there is little empirical research into the


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institution changing potential of entrepreneurs through innovation (theorised byboth Veblen and Yu). Empirical research in this context is confronted with thechallenge of establishing linkages between individual entrepreneurial innovationsand institutional change. This necessitates the adoption of a historical approach –that is currently virtually non-existent within the field of entrepreneurial studies.However, a useful point of departure in this direction is provided by the work carriedout by academics associated with the Centre for Research on EntrepreneurialHistory based at Harvard University (for an insightful overview please see Jones andWadhwani 2007). Inspired by the Schumpeterian concept of entrepreneurship,pioneers such as Cole (1959) and Gerschenkron (1962) began to develop sophisti-cated views combining the socio-cultural study of entrepreneurial origin, withpurposive entrepreneurial action influencing economic development and socialchange. There is also a significant gap in theorising the processes of adaptation (bothpassive and active) and resistance that may lead to institutional change. This isdespite the emergence of a growing body of empirical evidence on this issue.

Notes

1. This point is also made by Perkmann and Spicer (2007) where they argue that the role ofinstitutional entrepreneurs is multi-dimensional (i.e. cultural, technical and political). It isalso promoted by Lounsbury and Crumley (2007) in their push for a process model ofnew practice creation emphasising the multiplicity of actors that interactively producechange.

2. The Dorado (2005) profiling of IE does, however, have some limitations for the empiricalstudy of institutional change. For example, the convening activities can be equallycharacterised as displaying a set of entrepreneurial behaviours. This is because inmobilising resources through collaborative inter-firm linking, one must also leveragesupport and acceptance for new institutional arrangements. Likewise, the same can besaid for the ‘partaking’ profile of institutional change which could also be categorised as‘entrepreneurial’ if we take account of the everyday behaviours of small, life style andfamily businesses whose practices do not bring about sweeping innovative change ininstitutional patterns, but which do, nonetheless, unwittingly accumulate and convergeover time to legitimate acceptance of new regimes, rules and scripts.

3. Such practices have been have been acknowledged in societal and anthropologicalunderstandings of entrepreneurship (Katz and Steyart 2000).

4. North argues that opportunities stem from either external changes in the environment, oras a result of new learning and skills gained by actors in the process of economicexchange, and their incorporation in their mental constructs.

5. See Levy and Scully (2007) and Khan, Munir, and Willmott (2007) for discussions ofpower in institutional entrepreneurship.

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entrepreneurship and institutional change: a research agenda

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