Abstract
Political economists often make a distinction between the advanced center (or core) and the backward periphery of an economic system (Knox & Taylor, 1995). This distinction is often expressed spatially, and center–periphery differences have been frequently noted at the global, national, and regional scales. Sometimes special attention is given to the so-called semiperiphery, identifying those areas that are positioned economically, and often geographically, between the more dynamic center and the more static periphery. At the global level, this third type of economy includes emerging markets like Brazil, Malaysia, and Turkey. These nations have begun to move away from staples toward the production and export of low-to-medium value-added manufactured goods. As a rule, those very important inclusive institutions like private property rights, credit and insurance agencies, legal systems, and labor markets are weakly formed in these emerging markets (Acemoglu & Robinson, 2012; Ray, 1998). This book examines the nature of innovation and entrepreneurship within the periphery and semiperiphery of contemporary Europe.
Chapters 2 and 3 focus on innovation throughout parts of Eastern Europe by discussing some of the institutional factors that have hampered innovation in the post–socialist era. There is consensus that the institutions in these economies still behave differently from those in the more advanced nations of Western Europe. Post–socialist governments impose more constraints on economic actors and this leads to significant amounts of resource scarcity.
In a chapter on the Ukraine, Christos Kalantaridis and colleagues examine open innovation and from where and how firms access much-needed technical information and market knowledge. Actors are often reluctant to engage with each other, being concerned about divulging information that is important for their success (often because intellectual property rights are unclear), so innovation practices tend to be relatively closed. This occurs in both vertical (within-firm) relationships, in which asset specificity is important and in horizontal (between-firm) relationships, in which trust is an important ingredient of reciprocity. Self-reported survey data drawn from 120 different enterprises in three regions (oblasts) are used to classify innovative behavior as being radical, incremental, or marginal. Radical innovation involves introducing practices (or products) not seen before across the entire nation and are most prevalent in either manufacturing (with patents) or the business services; marginal innovation, on the other hand, involves adopting new practices at the regional level and occurs mostly in trade. While the capital region in and around Kyiv is certainly the most prosperous in the Ukraine, the most innovative region of the study, Zakarpattya, is located farther to the west and the least innovative region, Karkhiv, is located farther to the east. The results are reminiscent of those diffusion studies of the 1960s and 1970s where adoption patterns were shown to involve the twin effects of “friction of distance” and “city size.” Clearly, in today’s Ukraine, geographic propinquity to Western Europe trumps hierarchic position in determining the geography of radical business practices. In the next chapter, Anna Rogut and Bogdan Piasecki focus on the possibilities of promoting smart specialization across the five provinces of Eastern Poland. Any success with this strategy requires that firms and governments work together to target a limited number of research and development (R&D) and innovation priorities, in which existing patterns of industry specialization will normally reflect those activities where the region already enjoys some comparative advantage. The authors argue that long-term growth will only be achieved if several conditions are met: a culture of risk taking and entrepreneurship is established; the interests of academic research and commercial activity become more closely aligned; and innovative ventures are given more support by financial institutions. This chapter outlines a paradigm for sustainable regional development in the post–socialist environment.
Chapter 5, written by Colm O’Gorman and Declan Curran, reviews how policy makers have tried to influence the extent and nature of entrepreneurship in Ireland. For decades, the nation’s industrial policy has involved both supporting export-oriented, Irish-owned firms and attracting export-oriented, foreign-owned firms. As is widely known, foreign direct investment, promoted by factors such as low taxes and the emergence of clusters, has been especially important in recent times. However, Ireland has not adopted a widespread policy to support small businesses, except in certain sectors like tourism. There is much evidence that the performance of indigenous firms has long been poor; therefore, in 2013 the Irish government established an Entrepreneurship Forum whose intent is to create start-up ecosystems by improving business mentoring, helping new firms to access the skills found in local labor markets, and encouraging “hot spots” on the landscape for small business entrepreneurs. The authors make the interesting observation that the success of this strategy, and of similar policies adopted elsewhere, should be based on the impacts and not the improved rates of entrepreneurship that might result. Here they are recognizing the inherent endogeneity of economic development where ongoing growth itself can induce higher volumes of business start-ups.
Following a very short chapter on small businesses in the Western Balkans, Tõnis Mets provides a long chapter on the rise of high-tech entrepreneurial ecosystems in Estonia. Focusing on the experiences of three different born-global companies, Mets concludes that there is finally growing acceptance of rapidly growing ventures as being a viable mechanism for both job expansion and wealth creation. However, significant constraints still occur throughout Estonian business ecosystems, making the start-up period for new ventures entirely too lengthy and not encouraging enough young, educated people to engage in entrepreneurial activity. Another chapter on Estonia, focusing more on the perceptions of entrepreneurs, indicates that attitudes regarding business start-ups are much more favorable in urban areas as opposed to rural areas.
The most useful chapter in the third and final part of the volume explores, in a more general manner, how financial capitalization typically occurs for business start-ups. Here Paul Robson and two colleagues differentiate between general human capital and specific human capital, where the latter refers to either firm-specific or task-specific knowledge. The authors entertain various hypotheses including the claim that prior ownership or management experience enhances the ability of any new firm to raise sufficient financial support for its operations. Moreover, a new venture’s export orientation and its ability to innovate are both shown to be correlated to the amount of start-up finance that can be captured. In the end the authors call for the creation of an economic system that encourages serial or portfolio entrepreneurs as opposed to novices or one-off entrepreneurs. Financial training can be especially important during early times for new ventures because unforeseen liquidity problems can lead to premature closures even though enterprises might well prove to be viable over the longer term.
Truthfully, from a conceptual or theoretical vantage, the chapters do not offer much that is new. In fact, a few matters could have been addressed—if only in the opening or closing insights provided by the editors—that might have widened the potential audience for this book. For instance, no conceptual ties are made to the growing urban research on innovation in smaller, unexceptional cities, as inspired by Todtling and Trippl (2005). Smaller urban economies, like the emerging nations discussed here, often suffer from limited skills in the workforce and overspecialization in export activities; size-related issues like these present special challenges for sustaining new businesses. Second, a somewhat wider discussion of financial resilience might have been very useful. Many of the world’s semiperipheral economies are still fragile, especially in these immediate postcrisis years, and more attention could have been given to how innovation and entrepreneurship are both affected by highly disruptive natural or human-created events. Of course, such events not only affect the decisions of lending agencies but also constrain the usefulness of available infrastructure, often severely impeding the smooth flow of goods and materials that are needed in today’s complex supply chains. Third, the chapters do not fully address those demographic factors, including low birth rates and emigration, which currently affect regional or national labor markets across many parts of Europe. As youthful populations continue to leave these areas, shortages will surely take place in key occupations, foreign investment will subsequently drop, and economic growth will be curtailed (“The old countries,” 2017). Finally, the various discussions of entrepreneurship and innovation in the European Union’s newest member states avoids any mention of the thorny political issues that elevate business risk throughout most of these emerging markets, whether those be due to long simmering internal dissent or to the various threats now coming out of Russia.
Outside of clarifying some of the business and development issues that are currently most problematic in the lesser developed parts of Europe, the book proved especially useful to this reader for its mention of two international databases. One of these is the SME Policy Index, where the Organization for Economic Cooperation and Development monitors the performances of different nations in their support of small and medium business enterprises (see www.oecd.org/globalrelations). A total of 10 different policy dimensions are addressed here, including support services, availability of finance, entrepreneurial learning, and the important role of standards and regulations. Another valuable database is given by the Global Entrepreneurship Monitor, whose annual reports of both a global and national nature have been issued for nearly 20 years (see www.gemconsortium.org). This agency also issues special reports on topics such as postcrisis firm creation, the impacts of bankruptcy laws on entrepreneurial activity, and the effects of culture and gender on value creation in business.