Productive and Unproductive Entrepreneurship in Latvia

Profit and various forms of self-fulfilment are usually highlighted to be the major drivers of entrepreneurial activity. If, however, entrepreneurs are understood as persons who are innovative in generating profits or in adding to their power and prestige, it cannot be expected that they will be concerned with how much or little the activities employed to achieve these goals will contribute to the net output of economy (Baumol, 1993). In this light, a key question concerns which activi- ties entrepreneurs pursue in order to create value, pointing to the necessity to distinguish between “positive” and “negative” activities and their output, or as argued by Baumol (1990, 1993), produc- tive and unproductive entrepreneurship3.Rent seeking, illegal and shadow activities and various forms of corruption are often mentioned as unproductive entrepreneurship. Job generation and innovativeness, if not used for rent seek- ing purposes, are mainly associated with a “productive value” of entrepreneurship on societal and economy levels (e.g. Baumol, 1990, 1993; Foss and Foss, 2002). However, so far, there is no consen- sus on what determines productive and unproductive entrepreneurship on a conceptual level. The main reason for this is that in reality only few activities, among them rent seeking, make absolutely no contribution to economy output (Davidsson and Wiklund, 2001; Davidsson, 2004).Also, little work has been done to empirically assess productive and unproductive entrepreneur- ship. This paper aims to fill this gap by developing a new conceptual framework which allows mea- suring the level of productive and unproductive entrepreneurship. Empirically, the paper draws on interviews with entrepreneurs in small and medium sized enterprises conducted in Latvia during 2005 and 2006. Based on the empirical and theoretical findings, policy suggestions on how to en- hance productive entrepreneurship in Latvia are formulated.The rest of the paper is structured as follows. The second section introduces the conceptual framework, while section 3 discusses methodology, sample and methods for analyzing the data. Section 4 continues by presenting the main empirical findings. Conclusions, shortcomings as well as implications for further research on the topic are covered in section 5.