Understanding the need for social entrepreneurship


Social Entrepreneurship is an emerging and growing field that investigates an opportunity to create societal and economic value on a sustainable basis. We can consider social entrepreneurship as a hybrid of for-profit and non-profit activities. In contrast with the non-profit sector, social entrepreneurship satisfies the growing demand in effective and sustainable support in funding. At the same time, social entrepreneurs are able to attract increasing concentration of wealth and power in the private sector and use corporate social responsibility as a proactive solution to various social problems, such as poverty, as well as environmental problems. As stated by Sherill Johnson (2000), "social entrepreneurship is emerging as an innovative approach for dealing with complex social needs."

Despite the fact that social entrepreneurship has been attracting much attention over last few decades, this field of study is still on early stages of development. The topic is still a Greenfield for researches, and scientific works devoted to this field are still behind the practice. In order to overcome this lag, several university research centers have been established (the most prominent is Skoll Centre for Social Entrepreneurship in Oxford).

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In this paper we will try to present either conceptual papers (which will help us to have a view on social entrepreneurship from defferent perspectives), or some empirical researches, devoted to the subject.

Development of the concept

Although the term of social entrepreneurship has a short history, the practice of social entrepreneurial activity dates back many years ago and many social entrepreneurs can be found in the history. An example that satisfies modern criteria of social entrepreneurship could be Florence Nihgtingale (1820 - 1910), the founder of the first nursing school, and Vinoba Bhave (1895 - 1982), who founded India`s Land Gift Movement.

As stated by Nicholls (2006) the term "social entrepreneur" was introduced in 1972 by Banks, who noted that social problems could be solved with managerial approach. However, only in 1990s the subject gained much attention from government and researchers. In 1991 in Italy the first social firm with specific legal form for a social cooperative was created. At the same period, a great number of literature and researches, devoted to the topic of social entrepreneurship, has been introduced (Boschee, 1995; Dees, 1998; Leadbeater, 1997). Social entrepreneurship gained further interest in 2000s, especially after Muhammad Yunus, the founder of the Grameen Bank received Nobel Peace Prize in 2006.

Reasons for interest in social entrepreneurship

According to Nicholls (2006), we can distinguish two types of development of social entrepreneurship: demand and supply. The first is incipient problems which require innovative approach. The second is developments that can help to overcome these problems.

The demand side is twofold. Firstly, there is an awareness of inequality in wealth distribution (Worldbank, 2007). Secondly, social institutions are facing a decrease in funding. This reduction can be a result of growing competition among nonprofits (Johnson, 2000; Salamon, Sokolowski, & List, 2003). Moreover, nonprofit institutions are facing growing demand in efficiency. (Zahra et al., 2009). Boschee describes the problems which are recently emerged in social sector as follows: "operating costs have soared, resources available from traditional sources have flattened, the number of nonprofits competing for grants and subsidies has more than tripled, and the number of people in need has escalated beyond our most troubling nightmares." (Boschee & McClurg, 2003).

On the other hand, several opportunities for social sector have emerged recently. The main opportunity is growing Corporate Social Responsibility movement. Businessmen started to believe that social responsibility and doing business are not incompatible (Zahra et al., 2008). A good example of the new generation of business philanthropists, who understand the importance of doing social good, is Jeffrey Skoll, the founder of eBay and Skoll Foundation supporting social entrepreneurs.

Problem of definition of social entrepreneurship

Despite the fact that social entrepreneurship is a growing field of interest, there is no general definition of this phenomenon. Unfortunately, the boundaries of social entrepreneurship are unlikely to be defined soon.

Peter Drucker argues that social entrepreneurs "...change the performance capacity of society" (Gendron, 1996) while Henton et al. (1997) consider 'civic entrepreneurs' as "...a new generation of leaders who forge new, powerfully productive linkages at the intersection of business, government, education and community" According to Schulyer (1998), social entrepreneurs are "...individuals who have a vision for social change and who have the financial resources to support their ideas....who exhibit all the skills of successful business people as well as a powerful desire for social change" . Boschee (1998) decribes social entrepreneurs as "...non-profit executives who pay increased attention to market forces without losing sight of their underlying mission" (p. 1). According to Thompson et al. (2000) social entrepreneurs are "...people who realize where there is an opportunity to satisfy some unmet need that the state welfare system will not or cannot meet, and who gather together the necessary resources (generally people, often volunteers, money and premises) and use these to 'make a difference'"

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Overall, we can distinguish two basic approaches to this concept. The first is based on non-profit perspective. Adherents of this approach (Boschee & McClurg, 2003; Fowler, 2000; Sharir & Lerner, 2006; Weerawardena & Mort, 2006) consider social entrepreneurship as doing business in the non-profit sector. This approach excludes contribution to SE enterprises via grants and subsidies. The other approach is focused mainly on contribution of SE enterprises to society and environment (Mair & Martí, 2006; Nicholls, 2006; Peredo & McLean, 2006). According to Nicholls, "social entrepreneurship represents an umbrella term for a considerable range of innovative and dynamic international praxis and discourse in the social and environmental sector" (Nicholls, 2006).

Despite large number of definitions, there is a little systematic attempts to map the definitions. The most recent attempt was made by Johanna Mair and Ignasi Marti (2004). These authors highlighted three basic assumptions in defining the subject. Firstly, the social entrepreneurship can be considered as a process of creating value by combining resources in new ways (Stevenson, Roberts, & Grousbeck, 1989; Schumpeter, 1934). Secondly, these resource combinations are intended primarily to explore and exploit opportunities to create social value by stimulating social change (Alvord et al., 2004) or meeting social need. Thirdly, the process of social entrepreneurship not only can involve the offering of services and products, but can also refer to the creation of new organizations.

Figure Defining Social Entrepreneurship

Source: Mair, J., & Martí, I. (2006). Social entrepreneurship research: A source of explanation, prediction, and delight. Journal of World Business, 41(1), 36-44.

In order to capture the essence of social entrepreneurship, Johanna Mair and Ignasi Marti splitted this term and studied its "social" and "entrepreneurial" elements.

Degree of "social"

One of the main obstacles in understanding social entrepreneurship is defining the boundaries of what we mean by "social" (Seelos & Mair, 2005a). We should take into account the fact that "pure" entrepreneurship also has a social aspect. As Venkataraman (1997) has pointed out, increasing social wealth is an essential part of the entrepreneurial activity:

"As Schumpeter (1934) pointed out several decades ago (and Adam Smith much earlier), the personal profit motive is a central engine that powers private enterprise and social wealth. Entrepreneurship is particularly productive from a social welfare perspective when, in the process of pursuing selfish ends, entrepreneurs also enhance social wealth by creating new markets, new industries, new technology, new institutional forms, new jobs, and net increases in real productivity".

According to Velamuri (2002), altruism and entrepreneurship differ only in degree, not in kind. What is the difference, thereby, between social entrepreneurship and entrepreneurship in business sector? Mair and Marti investigated three successful cases of social entrepreneurship -- the Grameen Bank in Bangladesh, the Aravind Eye Hospital in India and Sekem in Egypt - and discovered that value creation in all three organizations had both social and economical aspects. However, in contrast to other businesses, in these organization "the main focus is on social value, while economic value creation is seen as a necessary condition to ensure financial viability".

According to Mair and Marti, "the nature of the social needs and social change addressed by social entrepreneurs differs depending on the context". For instance, in developing countries social needs that can solved by mean of social entrepreneurship are poverty, hunger, child mortality, deceases etc. For developed world it can be gaps in the social welfare system. According to Thompson (2000) these opportunities are "unmet needs that the state welfare system will not or cannot meet".

Degree of "entrepreneurial"

First studies on the topic of entrepreneurship were investigating how personality and background of the entrepreneur define his/her entrepreneurial behavior (McClelland, 1961; Kets De Vries, 1977). In the middle of 1980s this focus shifted to the entrepreneurial process or entrepreneurial behavior (Gartner, 1985,1988; Sandberg & Hofer, 1987). In addition, a number of scientific works, describing entrepreneurial processes outside of the business sector (Morris & Jones, 1999; Zerbinati & Souitaris, 2005) and the role of entrepreneurship in society (Steyaert & Katz, 2004) have emerged. Modern paradigm describes entrepreneurship as a field that analyses how, by whom, and with what effects opportunities to create goods and services are discovered, evaluated, and exploited (Shane & Venkataraman, 2000).

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A great number of recent researches are devoted to personal traits of social entrepreneurs, like special leadership skills (Henton, Melville, & Walesh, 1997; Thompson et al., 2000), a passion to realize their vision (Bornstein, 1998; Boschee, 1995), and a strong ethical fiber (Bornstein, 1998; Drayton, 2002). Mair and Marti put into question this approach, expressing doubts about its ability to differentiate social entrepreneurs and other actors like social activists, managers, politicians etc. The authors refer to the article "Who is the entrepreneur? is the wrong question " by Gartner (1988).

Some researchers instead of focusing on personal traits of social entrepreneurs emphasis on entrepreneurial process in order to make a distinction between social initiatives and social "entrepreneurial" initiatives. Representing this approach, Dees describes social entrepreneurial activity as "engaging in a process of continuous innovation and acting boldly without being limited by the resources they currently have in hand" (1998).

To help to distinguish social entrepreneurship from other entrepreneurial activity, some researchers focused on the "social value creating" nature of the opportunities entrepreneurially discovered and exploited (Hibbert, Hogg, Quinn, 2002; Mort, Weerawardena, & Carnegie, 2002; Guclu, Dees & Anderson, 2002).

Broad definition

After the analysis of the most common definitions of social entrepreneurship (Table 1) and major aspects in explanation of this term (either social and entrepreneurial), Mair and Marti proposed a broad definition of social entrepreneurship as a "process involving the innovative use and combination of resources to pursue opportunities to catalyze social change and/or address social needs."

The definition, proposed by Mair and Marti, is used in GEM (Global Entrepreneurship Monitor) for variables, concerning social entrepreneurship. Due to the fact that we will use GEM methodology in this paper, we will also accept this general definition as the most general and universal one. The issue of selected methodology will be further covered in the "Methodology" chapter.

Modern schools of thoughts: Four approaches to social entrepreneurship

The development of research in the field of social entrepreneurship resulted in several dissimilar approaches to social entrepreneurship in the different regions. We can distinguish two geographical traditions -- American and European -- which gave birth to four several approaches or schools of thought. (Nyssens, 2006; Kerlin, 2006; Hoogendoorn et. al., 2010)

American tradition

At the end of 1970s due to economic downturn many nonprofit organisation faced large cutbacks in federal funding. In order to cope with these cutbacks, a commercial activities in a form of social enterprise was introduced. By this reason the American context is focused on-generating activities (Kerlin, 2006). Hence, within the American approach, social entrepreneurship refers above all to market-oriented economic activities that serve a social goal irrespective of the legal structure and sector (Nyssens, 2006).

This approach considers social entrepreneurship a sub-field of entrepreneurship that results in scholarly attention from both business schools and social sciences (Hoogendoorn et. al., 2010).

The American approach resulted in two separate schools of thought: the Social Enterprise School and the Social Innovation School:

The Innovation School of thought emphasises on innovation nature of social entrepreneusrship: "the school is focused on establishing new and better ways to address social problems or meet social needs" (Dees & Battle Anderson, 2006). This school of thought on social entrepreneurship is rooted in the body of knowledge of commercial entrepreneurship on the discovery, evaluation, and exploitation of opportunities. In the case of social entrepreneurship, these opportunities are found in social needs exploited by innovative means to satisfy those needs (Hoogendoorn et. al., 2010).

The Social Enterprise School of thought, focuses on is the enterprise, described as an entrepreneurial, nonprofit venture that generates "earned-income" while serving a social mission. The income is independent from grants and subsidies. This school also promotes the idea that adopting business methods is a successful way to improve the effectiveness of nonprofit organisations and make them more entrepreneurial. (Hoogendoorn et. al., 2010).

European tradition.

As well as social enterprises in the USA, European social enterprises root back to crises of the 1980s. However, they mostly addressed services, not provided for that time. The European social enterprises address services such as housing for increasingly marginalized groups, childcare, urban regeneration, and employment programs for the long-term unemployed (Kerlin, 2006).

Within the European approach, social enterprises are generally of the nonprofit or co-operative type, are dedicated to the creation of social impact for the community, and combine revenue generation with the work or participatory activity of program beneficiaries (Nyssens, 2006). Another distinction of European approach is that it is mainly initiated on regional and governmental levels. Within the European approach two school of thoughts can be distinguished: EMES and British.

The Emergence of Social Enterprise in Europe (EMES) Research Network began in 1996 and consists of scholars cooperating in order to investigate the social enterprise phenomenon and establish a broad definition that allows for the national differences within the European Union. The main objective of the research of the EMES network is the emergence and growth of social enterprises within the European Union.

As in the Social Enterprise School, the unit of observation is the enterprise. In the case of the EMES approach, the social enterprise has an explicit aim to benefit the community, is launched by a group of citizens, enjoys a high degree of autonomy, is participatory in nature, and does not base decision-making power on capital ownership (Hoogendoorn et. al., 2010). In general, the organisations within

This approach consist of the following types: associations, co-operatives, mutual organisations, and foundations. In contrast to the Social Enterprise School, which applies a non-distribution constraint to profits, the EMES approach allows for some profit distribution due to the inclusion of co-operatives.

UK approach is a separate approach, distinct both from American and European tradition. This approach dates back to 1990s, when the Labour Party tried to stimulate partnerships between civil society, the public sector, and the private sector. UK social enterprises are subject to a limited distribution of profits and can be initiated by individuals, groups of citizens, or by legal entities. In contrast to the EMES approach, the goods and services provided can be related, unrelated, or central to the venture's mission. In addition, the social enterprises in the UK are trading within the market.

The table below represents major defference between the approaches mentioned above:

Figure : Schools of thoughts on social entrepreneurship

Source: Hoogendoorn, B. , Pennings E. , & Thurik R. (2010) What Do We Know About Social Entrepreneurship: An Analysis of Empirical Research from

Social enterprise classification

In the recent years authors have concluded three different types of social entrepreneurship. Dorado (2006) and Trexler (2008) have similar approaches whereas Zahra et. al. (2009) go a different way.

According to Dorado, there is the non-profit social enterprise which does business to finance its social service. She defines its strategy as a strategy "to limit dependency on donations and government subsidies and to become self-sufficient" but the fundamental difference […] is the government form". The objective of this social enterprise is to provide social service and the reason why it is doing business as others is the aim to become less depended on others but to be more self-sustainable through own resource creation. This type goes well with Trexler's type which comprises "nongovernmental, non-profit organizations that apply business practices and metrics to their work" (Trexler ;2008). These organizations are absolutely non-profit and can be explained best with the new term venture philanthropy. Dorado's (2006) second type is the for-profit social enterprise which, according to her, is a "for-profit enterprise with double bottom line mission". Typical for these types of enterprises is the fact that they "blend business and social goals" and that its founders "recognize and relentlessly pursue opportunities" (Dorado, 2006).

Their resources are not limited and they "share the same governance form as traditional enterprises". Trexler describe this type as an organisation that devises "solutions to social problems that go beyond the limits". In contrast to Dorado it does not matter whether the enterprise is non-profit or for-profit as this definition of social entrepreneurship is seen "in terms of entrepreneurial innovation" (Trexler; 2008). Dorado's last type of social enterprise is the cross-sector social enterprise which is combination of both previously mentioned types and can be characterised by "their spanning across for-profit and non-profit organisations". Trexler (2008) instead defines that type as a more entrepreneurial approach where a social business "eschews grants and donations in favour of financial self-sustainability". It can be both non-profit and for-profit but the difference to Dorado is the fact that the author equates "entrepreneurship with earned income" (Trexler, 2008).

The most recent definition of different types of social enterprises was done by Zahra et. al. (2009). Zahra et. al. distinguish the different types by their scale, their scope and their focus. Their first type is the Social Bricoleur. This form of social entrepreneur addresses local social needs in his close environment. He or she is small in scale and focuses on the local area. As this type of entrepreneur is close to the target group he or she can count on his or her detailed knowledge and knows the needs of his or her customers. One of the problems the Social Bricoleur encounters are limited resources. The second type introduced by Zahra et. al. is the Social Constructionist. Their main goal is to build and operate "alternative structures and [to address] needs that set up institutions cannot" (Zahra, et.al, 2009). They are mainly small to large in scale and local to international in scope. They are important for the community because "laws, regulations, political acceptability and inefficiencies prevent set up institutions from addressing important needs". They basically fill the gaps of large institutions. They largest limitation is the "need to acquire financial and human resources".

The third and last type Zahra et. al. stated is the Social Engineer. Their aim is the "creation of newer, more effective social systems to replace existing ones". Normally they are "very large scale and national to international in scope". These social entrepreneurs are important because it may happen that crucial social change is prevented by political parties or corrupt governments that may face disadvantages of having a new social system. One might think of any dictator who does not want to have social service for the population as it is then easier to oppress them. Their largest obstacle is the fact that they are seen as fundamentally illegitimated parties being a threat to government and other strong parties.

Theoretical framework

This chapter covers two groups of theories, which can be used to explain and understand cross-country variance from the perspective of social entrepreneurial activity. The first group of literature gives a theoretical basis for investigation of this variance from the perspective of economic development, while the second one considers macroeconomic indicators as determinants for social entrepreneurship. Based on these theories, the framework of study is developed and research hypotheses are stated.

Economic development as a source of explanation of social enterprises country variations

Understanding the dynamics of entrepreneurship

The research, investigating the interdependence between entrepreneurship and economic development dates back to fundamental Schumpeter's concept of influence of entrepreneurship on the society (Schumpeter, 1975).

According to Schumpeter, "Everyone is an entrepreneur when he actually carries out new combinations". These new combinations contribute the economic growth by meeting the demand and creating new products ("process of creative destruction"). On a basis of the theory of "creative destruction", Schumpeter built a theory of "long waves" of business cycles, viewed as a result of the process of innovation and growth of the economy.

Quantitative data, provided by Global Entrepreneurship Monitor, give an opportunity to give a statistical justification of this proposition. As it was revealed in research papers, the level of economic development is not the same for countries with different economic development.(e.g. Verkhovskaya, Dorokhina, 2008) Thus, there is no direct correlation between the level of economic development and the level the level of entrepreneurial activity, and - as it was revealed by numerous studies -- this relationship is U-shaped (e.g. Verkhovskaya, Dorokhina, 2008; Obraztsova, 2010; Wennekers et. al. 2010). This finding gives a possibility to explore entrepreneurship within different clusters and suggest possible determinants the distribution of entrepreneurship.

The recent study "The relationship between entrepreneurship and economic development: Is it U-shaped?" Wennekers and colleagues investigate the empirical evidence for a U-shaped relationship between the level of economic development and the rate of entrepreneurship. (Wennekers et. al. 2010). The study reveals a discontinuity between solo self-employed at the lower end of the entrepreneurship spectrum and social innovators and ambitious entrepreneurs at the upper end. Authors suggest that upper end of the spectrum an apparent positive correlation between the prevalence of ambitious, export-oriented and innovative business start-ups on the one hand and average per capita income on the other may be dominant in qualitative terms.

Recently, the various observations and assumptions are proposed in order to distinguish demand and supply side of entrepreneurship are to some extent corroborated by the self-expressed motives of early-stage entrepreneurs to choose for self-employment.

Acs (2006) use GEM 2004 data in order to find a positive relationship between the opportunity-necessity entrepreneurship ratio and a country's per capita income. The author argues that at low levels of national income, self-employment provides job opportunities and scope for the creation of markets. As GDP per capita income increases, the emergence of new technologies and economies of scale allows larger and established firms to satisfy the demand of growing markets and to increase their relative role in the economy. However, with further increases in income, the role played by the entrepreneurial sector increases again, as more individuals have the resources to go into business for themselves in a business environment that allows the exploitation of opportunities. In high-income economies, through lower costs and accelerated technology development, entrepreneurial firms have a competitive advantage.

Similarly, Bosma et al. (2008) on a basis of Global Entrepreneurship Monitor 2007 survey research reveals that even in high-income countries, on average almost 40% of early-stage entrepreneurs do not choose self-employment due to 'improvement driven opportunity". Instead, they look for self-employment for a reason of necessity (because they have no better options for work), to maintain their income, or for mixed motives (necessity and opportunity). In less developed countries more than 50% of the entrepreneurs have necessity or mixed motives for choosing for self-employment.

According to Hessels et. al. (2008) in Europe more than 35% of early-stage entrepreneurs choose self-employment in order to gain independence, while in less developed countries 'being independent' is the primary motive for only around 20% of early-stage entrepreneurs:

Figure : Motives for early-stage entrepreneurs

Source: Hessels, S.J.A., K. Suddle and M. Mooibroek (2008), Global Entrepreneurship Monitor 2007 The Netherlands, Zoetermeer: EIM

Another source, which can be used to explore entrepreneurship-economic development interrelation, is innovation. Technological change in the late 20th and early 21st century and rapid increase if new technologies, has greatly influenced opportunities for entrepreneurial activities giving an opportunity to develop new goods and services. Zoltan Acs and colleagues developed the "Knowledge Spillover Theory of Entrepreneurship" according to which the creation of new knowledge expands the set of technological opportunity. Acs et. al. propose, that the entrepreneurial activity does not involve simply the arbitrage of opportunities, but also the exploitation of intra-temporal knowledge spillovers not appropriated by incumbent firms. It creates opportunities for innovative new business start-ups, which bring inventions to market, that create wealth and growth.' (Acs et al., 2009).

The study of Koellinger (2008) brings an empirical evidence for the Knowledge Spillover Theory of Entrepreneurship and links economic development, innovation and entrepreneurship. The study is based on GEM statistical data in order to explain the prevalence of self-perceived innovative nascent entrepreneurs. Firstly, a significant positive influence on the prevalence of innovative entrepreneurship exists with respect to, among others, education, entrepreneurial self-confidence, and opportunity perception at the individual level. Second, the regression analysis shows that GDP per capita in the respondent's country of residence has a significant positive influence on the odds of innovation among nascent entrepreneurs (Koellinger, 2008).

The graph below summarizes the theory devoted to understanding cross-cultural difference from the perspective of commercial entrepreneurship.

Dynamics of social entrepreneurship dynamics: same or different?

As suggested by William Baumol, the level of entrepreneurship is the same across countries, but that entrepreneurship is manifested in different ways depending on the institutional context (Baumol, 1993).

James Austin and colleagues proposed that, although the contextual factors for commercial and social entrepreneurship can be the same, the influence of the context is different because of the way the interaction of a social venture's mission and performance measurement systems influences entrepreneurial behavior (Austin et. al, 2006)

Weerewardena and Mort (2006) offer a model of social entrepreneurship, where social value creation is constrained by a context that impacts venture performance and resource acquisition. Finally, Spear and Bidet (2005) show the national context in which social ventures operate has an effect on the type of social enterprise chosen to address work integration of the chronically unemployed.

The macroeconomic context in which social enterprises operate influence their ability to both create social value and sustaining business model. Austin et al. (2006) suggest that a harsh economic context increases the demand for social services; at the same time, philanthropic donations are more difficult to procure in economically challenging times.

To summarize, approaches mentioned above provide two main assumptions for our research:

The relationship between commercial entrepreneurship and economic development can be presented in a U-shape, with two groups: solo self-employed at the lower end of the entrepreneurship spectrum and social innovators and ambitious entrepreneurs at the upper end.

Solo self-employed entrepreneurs are mostly necessity -driven, while entrepreneurs in developed countries are driven by innovation and ambition.

The dynamics of social and commercial entrepreneurship are different and the interrelation between social entrepreneurship and economic development will be presented in a different way, compared to commercial entrepreneurship.

Given the assumptions above, we can predict that the dynamics of commercial and social entrepreneurship are different:

The interconnection between economic development and the level of social entrepreneurial activity is presented in a different way compared to correlation between economic development and the level of commercial entrepreneurship

Exploring economical determinants of social entrepreneurial activity

Despite the fact the field of social entrepreneurial studies is growing rapidly nowadays, there is still a gap in the literature, investigating social entrepreneurship and its dynamics at a macro level. Thus, understanding the degree to which economic development as a part of macroeconomic context can be a determinant for the level of social entrepreneurial activity, as well as understanding the difference between dynamics of commercial and social entrepreneurship could provide a significant contribution to entrepreneurship literature.

Given the assumption presented above, we propose that - as for commercial entrepreneurship --there is an impact of the economic environment on of the level social entrepreneurship. This research will study the macroeconomic factors of social entrepreneurship, such as per capita income as a main determinant, unemployment, taxation policy, poverty rate, business freedom income inequality, ease of doing business, post-materialism, and happiness indexes.

Per capita income:

As it was discussed in the previous section of the paper, there can be found a U-shape relationship between commercial entrepreneurship and economic development (Wennekers et. al. 2010). On the other hand, as it was suggested by Austin et. al. (2006), given the same contextual environment, social and commercial entrepreneurship will manifested in a different way. Given a strong correlation between the level of economic development and the commercial entrepreneurship (Koellinger, 2008), we cannot predict the same correlation between social entrepreneurship and the level of economic development, indicated by GDP per capita index. Thus, the following hypothesis can be formulated:

H2: There is no correlation between the level of social entrepreneurial activity and the level of GDP per capita.

Unemployment rate:

Kerlin (2009) proposes to associate social entrepreneurship with unemployment. As an evidence for this proposition the author gives as example of Poland, where social entrepreneurship developed a response to the rising level of unemployment, combined with welfare gap created by shrinking public welfare system. Rising levels of unemployment, especially in combination with the retreat or poor functioning of the state provides an opportunity for social entrepreneurs. Thus, following hypothesis can be proposed:

H3: The level of social entrepreneurial activity is positively related to unemployment.

Taxation policy:

As it was revealed in the empirical study of Austin, small amount of public expenditure gives an opportunity for new social enterprises (Austin et al. 2006). In this case social enterprises activities can be viewed as a substitution to efforts undertaken by the government. We propose to take such indicators, as public expenditure and the level of tax rates as a percentage of GDP. Thus, we propose the following hypotheses:

H4: The level of social entrepreneurial activity is negatively related to the level of .tax rates as a percentage of GDP

Poverty rates:

As stated by many researches (Kerlin, 2009; Austin et al. 2006) social entrepreneurs address areas in the public sector that the government institutions have failed to address. Such an issue, addressed by social enterprises can be poverty. Thus, we propose the following hypothesis

H5: The level of social entrepreneurial activity is positively related to poverty rates (percent of population living below national poverty line)

Business Freedom:

Regulations, imposed by the government can be perceived as a barrier for entrepreneurs. Thus, business freedom is positively correlated with commercial entrepreneurship. Stel and colleagues (Stel et. al., 2007) in his empirical study reveals that government regulations have a negative impact on a level of commercial entrepreneurship. Thus, we expect that business freedom similarly has a positive impact on the level on social entrepreneurship:

H6: The level of social entrepreneurial activity is positively related to business freedom

Income equality:

Both commercial and social entrepreneurship play an important role to reduce income inequality. As stated by an empirical research by Perotti and Volpin (2004), wealthy inequality may worsen overtime under limited entry of entrepreneurs. Thus, the closer it the market to perfect competition the easier is the entry for entrepreneurs, which is leading to less income inequality. At the same time, as it was hypothesized above, social entrepreneurship has a positive impact on the level on employment and consequently improves income distribution. Thus the following hypothesis can be offered.

H6: The level of social entrepreneurial activity is positively related to the level of income equality

Lifу satisfaction and happiness:

Research methodology

In this section the methodological framework used of the research is explained. The first section describes the GEM program used for the research and social entrepreneurial activity as a dependent variable. Second part covers sources of independent variables. Finally, we describe the typology of social enterprises accepted by GEM program..

Dependent variable

For our study we will use as our main data source the survey from the Global Entrepreneurship Monitor. Initiated in 1999, Global Entrepreneurship Monitor (GEM) gathers data from at least 2,000 adults in over 42 countries, using a combination of telephone survey and face-to-face interviews.

The main objectives of the GEM program are

Enabling an comparative analysis of total entrepreneurial activity between countries

Defining determinant of entrepreneurial activity

Studying policies that can stimulate entrepreneurial activity

Studying special topics on entrepreneurship

In 2009 was the special topic of GEM survey was the prevalence and nature of entrepreneurship with a social purpose. Respondents from 49 countries participated in the research.

To identify a commercial entrepreneurs among adult population the survey question requires to answer, whether the respondent

(1)"alone or with others, currently trying to start a new business or owning and managing a company, including any self-employment or selling any goods or services to others"

To identify a social entrepreneur, the following question was addressed to respondents:

(2)"Are you, alone or with others, currently trying to start or currently owning and managing any kind of activity, organization or initiative that has a particularly social, environmental or community objective?"

Since an "activity, organization or initiative" is not as narrow as owning or starting a business, there can be distinguished 3 groups of respondents:

Social initiators: those, who positively answered to the second question and negatively to the first one

Social entrepreneurs: those, who are answered positively to both questions.

Commercial entrepreneurs: those, who positively answered to the first question and negatively answered to the second question

Since the difference between two first groups is not evident and can easily be mixed up, for the research we will use an aggregate variable Social Entrepreneurial Activity, which includes both.

When interpreting the analysis and results we should keep in mind several limitations associated with the GEM methodology.

The degree, to which objective of an entrepreneur is social, environmental or community oriented depends on the perception of a respondent.

Since, most constructs are measured in dichotomous "Yes/No" terms. the extent to which the hypothesized concepts can be fully operationalized limited

Independent variables


GEM developed a typology including four broad groups. The typology is derived from three different features of a social enterprise:

1) Prominence of social (or environmental) goals with respect to economic goals;

2) Reliance on an earned income strategy and its contribution with respect to total revenues of the organization

3) Presence of innovation.

The four proposed categories are:

1. Traditional NGOs (high levels of social/environment goals; not-for-profit status),

2. Not-for-profit SE (high levels of social/environmental goals; not-for-profit status; innovation);

3. Hybrid SE (high levels of social/environmental goals; earned income strategy "integrated" or "complementary" to the mission)

4. For Profit SE (high but not exclusively social environmental goals; earned income strategy)

There is also a fifth category, social activity with primarily for-profit motives. This category captures the overlap or blurring of the boundaries between Social Entrepreneurial Activity and Total Entrepreneurial Activity.

Figure Social Entreprise Types Classification

Bosma, N., K. Jones, E. Autio and J. Levie (2008), Global Entrepreneurship Monitor, 2007 Executive Report, Babson College, Babson Park, MA, US / London Business School, London, UK


In this section we will provide descriptive statistics for social enterprise distribution. We will explore difference between four types of social enterprises, proposed in the previous section. The section proceeds with testing hypotheses on determinants of social entrepreneurial activity. Finally, we will explore the difference between dynamics of commercial and social entrepreneurship.

Social entrepreneurship at cross-country level

The cross-country rates for social entrepreneurship are presented in the Figure below

As seen from the figure, the highest rates of social entrepreneurship have United Arab Emirates (4.3%), Argentina (4.1%) United States (3.9%) Iceland (3.9%) Venezuela (3.6%), Peru (3.5%). Lowest scores on social entrepreneurial activity have Guatemala (0.1%), Saudi Arabia and Malaysia (0.2%) and Brazil (0.4%).

The Table below presents the difference between social and commercial entrepreneurship in early stage and established organizations. As seen from the table, social entrepreneurs are more prevalent in early-stage organizations. It gives the empirical evidence to the fact that social entrepreneurship is a young field, thus the percentage of established social enterprises should increase in time. Also, this table reveals thу gap between social and commercial entrepreneurship. While the prevalence rates for commercial entrepreneurship tend to decrease with the wealth of the country, the percentage of social entrepreneurs (both early-stage and established organizations) are increasing.

The Table below provides prevalence rates for three different types of entrepreneurs, described in the previous section: social initiators, social business entrepreneurs and commercial entrepreneurs

GDP per capita and social entrepreneurship

The regression analysis of GDP per capita and social entrepreneurship provide quite interesting results. As seen from the Figure below 5 countries (Tonga, Colombia, Jamaica, Peru, Venezuela) have extremely high rates for social entrepreneurship while having low rates in GDP per capita.

This abnormal distribution can possibly be a result of a statistical mistake, made during the data gathering process. A special report by Howard Frederic (2010) investigates Tonga case as an example of statistical errors, caused by improper measurement . Despite the fact that people in these 5 countries probably in fact have high social entrepreneurial spirit, (e.g. as it is confirmed by Frederic, "Pacific peoples are well known for their innovation and their enterprising") due to coverage errors and measurement errors, indentified by Frederic, we need to exclude these cases for the model we use. If we adjust our measurement, the following cubic regression reveals the interdependence between social entrepreneurship and commercial entrepreneurship.

The correlation between the level of sovial involvement and GDP per capita is not simmetrical, and putting SEA index as a determinant does not lead to a significant regression.

The regression correlation can be used to determine the level of social entrepreneursip in a given country. For instance

This regression provides a support for our hypothesis that interrelation between social entrepreneurship and economic development is presented in a different way compared to commercial entrepreneurship (see Figure)

While numerous studies identify two major groups of social entrepreneurs: nessessity driven solo self-employed, and ambitious social innovators, the distribution of social entrepreneurs is more complex. A possible source of explanation can be the

Understanding economic development

In his classic text W.W. Rostow (1960) suggested that countries go through five stages of economic growth. Michael Porter (2002) has provided a modern rendition of Rostow's typology by identifying three stages of development (as opposed to growth). Porter identifies a factor-driven stage, an efficiency-driven stage, and an innovation-driven stage, and he adds two transitions. While Rostow focused on the age of high mass consumption, Porter's model encompasses recent developments in the economics of knowledge, hence he focuses on the innovation. Historically, an elite entrepreneurial class appears to have played a leading role in innovation and economic development. The factor-driven stage is marked by high rates of agricultural self-employment. Countries in this stage compete through low-cost efficiencies in the production of commodities or low value-added products. Sole proprietorships-i.e., the self-employed-probably account for most small manufacturing firms and service firms.

Almost all economies experience this stage of economic development. These countries neither create knowledge for innovation nor use knowledge for exporting. To compete in the efficiency-driven stage, countries must have efficient productive practices in large markets, which allow companies to exploit economies of scale. Industries in this stage are manufacturers that provide basic services. The efficiency-driven stage is marked by decreasing rates of self-employment. When capital and laborare substitutes, an increase in the capital stock increases returns from working and lowers returns from managing. The innovation-driven stage is marked by an increase in knowledge-intensive activities (Romer 1990). In the innovation-driven stage knowledge provides the key input. In this stage the focus shifts from firms to agents in possession of new knowledge (Acs et al 2009). The agent decides to start a new firm based on expected net returns from a new product. The innovation-driven stage is biased towards high value added industries in which entrepreneurial activity is important. According to Sala-I-Martin et al (2007) the first two stages of development are dominated by institutions. In fact, innovation accounts for only about 5 percent of economic activity in factor-driven economies and rises to 10 percent in the efficiency driven stage. However, in the innovation-driven stage when opportunities for productivity gains from factors and efficiency have been exhausted, innovation accounts for 30 percent of economic activity. We see an S-shaped relationship between entrepreneurship and economic development because in the first transition stage entrepreneurship plays a role but it increases at a decreasing rate as the efficiency stage takes over. However, as we move from the efficiency-driven stage to the innovation driven stage (the knowledge-driven stage) entrepreneurship plays a more important role increasing at an increasing rate and latter at a decreasing rate (Figure 1).

For social entrepreneurial activity (SEA index) the most efficient is the qubic regression model, which gives 20,5 % of coefficient of determination at a 0,95 of confidential probability (see Fig. below) .

The coefficint of determination is


Tax rates as a percentage of gdp

Poverty rates

Business freedom


Happy planet

Satisfaction with life

Human development


Ease of doing business

As seen from the graph above, the distrubution

Cumulative effect

Model Summary