Gerard McElwee, Peter Somerville & Rob Smith
Introduction
There is an implicit assumption in much entrepreneurship research, that entrepreneurial activities will be conducted legally, ethically and morally (Anderson and Smith, 2007). Consequently, little research has been conducted specifically in relation to illicit entrepreneurial activity although it is clear that illicit enterprise activity is widespread. and as Casson (1980) suggests crime and entrepreneurship are often intertwined. Baumol’s (1990) categories of unproductive and destructive entrepreneurship encompass a variety of behaviors from illegal through to immoral and amoral actions that are not always illegal. This short article suggests that all of these behaviors can be encompassed under the rubric of the term ‘illicit’.
‘Illicit’ activities can be expressed as 1) those not legally permitted or 2) disapproved of or not permitted for moral or ethical reasons. Typically, practitioners of the first of such activities consciously and pragmatically seek to avoid any form of official recognition; the second category is much more widespread.
Our wider research problematic is to consider the differences between licit and illicit entrepreneurial activity - in our case in a rural setting and to establish the position of what we term illicit rural enterprise (IRE).
We suggest that entrepreneurship can be framed as a process of bifurcation, where entrepreneurs can be seen as either ‘value-adding’ or ‘value-extracting’.
Conceptualizing illicit rural enterprise
The promotion of entrepreneurship is based on the premise that those individuals who are successful in their endeavors will improve not only their own economic well-being but that of others too. Entrepreneurship, from this perspective, is understood and presented as both a private and a public good. But is this simplistic?
We define illicit entrepreneurship as the process whereby entrepreneurs supply customers with illicit services or products; or legal services or products, using illicit means. Customers may not necessarily be aware of the illicit nature of the transaction, service or product concerned or the illicit means by which the legal products or services are provided.
Much, but not all, illicit entrepreneurship can be located within what Williams (2006, 2011) refers to as the informal economy.
There is a consensus (Smith, 2004; Wempe, 2005; Fadahunsi and Rosa, 2002) on the characteristics of illicit economic activity:
• It is not a marginal activity of marginal entrepreneurs;
• It is connected to the formal economy;
• Labour in the illicit economy receive fewer benefits and protections than those who work legally;
• It is available to those having entrepreneurial capability and choose to engage in it;
• Elements of illicit entrepreneurship may benefit from a government attitude of tolerance;
• Illicit enterprise is an entrepreneurial process similar to legal entrepreneurial processes;
• Many products or services can be part of the illicit economy;
• It normally, but not always, operates in cash or in kind;
• It can be a pluriactive illicit venture i.e. the entrepreneur may operate a number of illicit activities
The majority of research exploring illicit entrepreneurship, has tended to focus on criminality rather than on illicit entrepreneurship per se commonly portraying individuals and enterprises as deviant and often as social outcasts who operate at the margins of society. However, minority entrepreneurs, illicit enterprises and other marginal activities are not necessarily criminal. Galloway (2007: 271) suggests, research exploring illicit entrepreneurship helps to challenge ‘current stereotype-based knowledge’ of entrepreneurs as ‘dodgy’ or ‘unscrupulous’ and draws attention to the heterogeneity or diversity of entrepreneurial activities and individuals. Consequently, Smith (2007: 245) and Williams (2006) argue that research on illicit entrepreneurship should move away from mainstream or typical cases of entrepreneurship and instead focus on cases of entrepreneurship that are at the ‘edge of the known and accepted’.
One of the problems with researching illicit entrepreneurship in rural environments is that rural enterprise, as Smith, in his study of the illicit ‘smokies’ trade in Scotland, suggests, covers such a wide gamut of activities (Smith, 2004). Illicit rural entrepreneurs exhibit characteristics, such as strategic awareness, opportunity spotting and networking, shared by licit entrepreneurs (McElwee, 2008). Illicit rural entrepreneurs may well have multiple business interests that generate employment creation and rural economic development. This is a key issue because standard definitions of entrepreneurs ignore both the multiple interests and the social entrepreneurialism of the illicit enterprise.
Baumol’s (1990) discussion of productive, unproductive and destructive entrepreneurship is important in positioning an argument for a value-extracting/value-adding dichotomy as a clear heuristic. Value-adding entrepreneurship (VAE) creates value in excess of that which accrues to the entrepreneurial individual and, as such, includes benefits that accrue to society more broadly. It occurs within and valorises prevailing legislative and ethical guidelines. Value-extracting entrepreneurship, (VEE) on the other hand, involves activities that may enrich the individual but impoverish the society within which they occur. It may be argued that VEE occurs outside of and serves to delegitimize established legislative structures and ethical mores.
This distinction has emerged comparatively recently within the entrepreneurship literature (Frith and McElwee, 2009) and challenges the prevailing assumption that entrepreneurship is always a good thing.
The distinction between (VAE) and (VEE) is blurred, however. Both licit and illicit enterprise can add or extract value. It is how they are understood that matters because, if an entrepreneurial activity is clearly skewed more towards the more harmful and selfish forms of extraction mentioned by Baumol and has no apparent benefit for the wider community, then it is obviously not as useful as an activity which creates value for the wider community. Traditionally, VAE is regarded as comprising those types of entrepreneurial activities which are legitimate but which do little to change or affect the margins within which they operate. But why should illicit entrepreneurship not also add value?
Discussion
In this short paper, we suggest that research into illicit entrepreneurship should be concerned with all types of entrepreneurial activities in which current laws, norms and rules of behavior are challenged, reconsidered, redefined, and, in certain circumstances, rewritten.
We suggest that it is not adequate to classify illicit entrepreneurship as either ‘value adding’ or ’value extracting’, because all forms of illicit enterprise add value (to a community, for example) to some extent.
The similarities in approaches to entrepreneurship in different rural contexts has implications for theory and practice, not to mention policy. There is an assumption in the literature that entrepreneurs are engaged primarily in value-adding activities and that value-extracting forms of entrepreneurship can be eradicated from the economic landscape by increasing the level of punishments and chances of detection. However, such an approach may well deter the types of entrepreneurship and enterprise that enterprise policies seek to nurture. Recognizing the integrative and dynamic nature of entrepreneurial behaviors is, therefore, more than simply a matter of academic interest. A fuller and more nuanced understanding of value-extracting entrepreneurial behaviors is crucial to developing a robust enterprise culture and to enable such entrepreneurs to legitimize their business ventures.
A contribution of the study is that we have identified different ways in which value can be added by the entrepreneurial process - adding value to the environment; adding value to the economy; adding value in excess of that which accrues to the entrepreneur; adding moral and social value; adding to an individual’s wealth or well being; adding social benefits; putting resources to productive or profitable use, etc. Moreover, value-adding entrepreneurship defined ‘traditionally’ as involving only licit activity appears to involve a completely different meaning of value-adding again.
Gerard McElwee, Nottingham Trent University, Peter Somerville, University of Lincoln, Rob Smith, Robert Gordon University