“One of the participants in our program is an 80-year-old retiree who is now starting a company that produces judicial and clerical robes. He uses his contacts in the city to get more business for the company, and then hires formerly incarcerated individuals to fulfill the contracts, which keeps them employed and out of trouble.”
Jay Nwachu, CEO of Innovation Works in Baltimore, Maryland
According to FBI statistics, some of the deadliest cities with the highest homicide rates in the U.S. include Baltimore (46.6/100,000), Detroit (28.0/100,000), and New Orleans (23.8/100,000). However, these are ten times the homicide rates of other large U.S. cities such as New York (3.3/100,000) and San Francisco (2.6/100,000). What factors make the difference between the homicide rates in various cities?
As illustrated in the quote above (coming from the CEO of an incubator working within the context of a city with the highest homicide rate in the U.S.), active participants in the entrepreneurial ecosystem believe that entrepreneurial ecosystem support can reduce crime. However, empirical evidence remains sparse, especially in terms of specific crimes such as homicide. Given the tremendously high homicide rates in some of the largest cities in the U.S., evidence that support for entrepreneurship can mitigate the homicide problem should motivate political and community leaders to respond with greater attention to and funding for entrepreneurial ecosystem support initiatives. Additionally, considering that the average cost to society per homicide (in the form of victim costs, criminal justice costs, and lost offender productivity) has historically been calculated to exceed $17.25 million each, in addition to the decreased investment experienced in more violent cities, homicide has extensive economic ramifications that exceed its already horrific personal effects.
Entrepreneurial Ecosystem Support Reduces Homicide
Research supports the positive relationship that entrepreneurship in general has with job creation, productivity growth, and high-quality innovation, and that the growth that entrepreneurial firms represent also spills over to benefit the growth rates of the regions in which they operate. But what kind of positive social spillover effects come from entrepreneurial ecosystem support? Entrepreneurial ecosystem support is perceived as a kind of social support, as individual elements of the ecosystem help entrepreneurs attain their venture goals. For example, as intermediaries provide skill development and mentoring, financial institutions provide funding mechanisms and advice, universities provide entrepreneurship education, and entrepreneurship groups foster networking and cultural acceptance, new entrepreneurs see the supportiveness of the ecosystem and choose legal forms of commerce rather than illegal forms that may end in violent crime. Entrepreneurial ecosystem support can reduce crime through reduced strain, recidivism, and economic disparity, as well as through increased economic benefits and role modeling. This study of 200 U.S. cities across five years of data (published in the Journal of Business Venturing Insights) finds that after controlling for the effects of poverty rates, unemployment rates, population, GDP, and the size of the police force, the strength of entrepreneurial ecosystem support is related to reductions in homicide. Additionally, that relationship is strengthened by a city’s high school graduation rate. These relationships to homicide are important because a lack of entrepreneurial ecosystem support could contribute to an endless cycle wherein a lack of support affects homicide rates, which in turn affect entrepreneurial decisions about whether or not to build or invest in a specific city, which leads to even less legal economic opportunity and more incentive to turn to crime, and so on. All too often this cycle can accelerate a city’s downward spiral, but strong entrepreneurial ecosystem support can reverse the trend.
Practical Implications
Although there are still questions about how effective entrepreneurial support organizations such as incubators and accelerators are at fostering venture development and performance, entrepreneurial ecosystems in general have been linked to many positive outcomes including the presence of high-growth firms, innovation, and entrepreneurial activity, and studies describe the supportive attributes of the ecosystem as the driver of these outcomes. The supportive aspects of entrepreneurial ecosystems help explain why they are perceived as a form of social support, which in turn influences individuals to pursue productive forms of commerce rather than illegal activities which may result in homicide.
Practically speaking, this study provides findings that should motivate leaders at all levels to invest in entrepreneurial ecosystem support initiatives including entrepreneurship education, incubators, and small business loans. These activities encourage entrepreneurial motivation, increase optimism in the environment, and result in more productive individual decisions. However, policies that simply incentivize entrepreneurship are not enough, since those kinds of programs tend to inspire high numbers of sole proprietorships rather than the new businesses that provide employment opportunity and economic lift within a community. Policies to increase entrepreneurial ecosystem support must focus on initiatives that actually provide support and greater access for all, such as mentorship and education, in order to result in the desired positive social spillover effects.
Read the full paper here.
Authors bio
Michael McDaniel is Assistant Professor of Management in the business school at Louisiana State University Shreveport. He received his PhD in Management from the University of Texas at Arlington, an MBA from the University of Notre Dame, and a BA from the University of California at Berkeley. His research focuses on entrepreneurship, corporate social responsibility, and organizational behavior.
Jianhua Ge is Associate Professor of Management in the business school at Renmin University of China. He received his PhD in Organizational Science from the University of North Carolina at Charlotte. His research centers on organizations, networks, entrepreneurship, and family business in China.
Wenhao Yuan is a graduate student in the business school at Renmin University of China. His research interests include organization theory, institutional theory, and social entrepreneurship.
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