What is Hoselitz theory of entrepreneurship?
Burt F. Hoselitz was a professor of economics at the University of Chicago. Hoselitz argues that entrepreneurship tends to come from socially marginalized groups in a given society. This is very similar to the withdrawal of status respect theory and the misfit theory of entrepreneurship, which both deal with marginalized populations.
Hoselitz assumes that entrepreneurship can only come out of a developed cultural base. Marginalized populations must be considered culturally developed in order to be considered eligible for entrepreneurship. He refers to entrepreneurship by marginalized groups as “pariah entrepreneurship”.
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Hoselitz claimed that his theory helps to explain to the highly entrepreneurial behaviors of Greeks and Jewish people in medieval Europe, Lebanese in West Africa, Chinese in Southeast Asia, and Indians in East Africa.
The concept of cultural development is ambiguous and potentially problematic for Hoselitz’ theory. The level of development of a culture may not be objectively ascertained. However, the spirit of the argument is that the culture must be perceived to be developed from the subjective perspective of the dominant groups in a society.
Hoselitz coins the term “marginal men” to mean those individuals who are both from a marginal population and a developed culture, and therefore want to adjust their ambiguous situation by engaging in innovative social behavior. Marginalization redirects an individual’s social/cultural power to new ends.
The theory implies that some marginal populations are not legitimate enough to be eligible to be entrepreneurs from the perspective of the dominant population groups. One might criticize the theory by pointing out that cultures can change and adapt in fits and spurts so that static expectations become less useful than dynamic interpretations of culture. In other words, theories like these may inadvertently contribute to stereotyping by generating self-confirming biases. It is at the very least, a controversial theory.
Entrepreneurial opportunity is viewed as cross-country arbitrage.
Perhaps a looser, but more inclusive version of the theory is that entrepreneurs that migrate may look to aspects of their home cultures that seems in some way more effective or more efficient than the ways of the host culture(s). This avoids the problem of labeling whole cultures as more or less developed, and puts the attention on the relevant routines. Routines that have evolved over many generations are likely to be better in some way on some dimensions. Routines that developed under conditions of scarcity may also have efficiency advantages. It is the young cultures and the lost cultures that seem to lack potential for this type of entrepreneurship.