Economic Growth

What impact does poverty have on entrepreneurial creativity?

A vendor hands change back to a customer at her market stall with price tags marked in Cuban pesos in Havana October 23, 2013. Cuba took the first step towards scrapping its two-tier currency on October 22, 2013, in a move which could boost local workers' income and remove a major hurdle for importers and exporters. Cuba's convertible peso (CUC) is pegged to the U.S. dollar, while the local peso (CUP) is valued at a fraction of the greenback's value, angering the population which is paid in the latter, and complicating accounting, the evaluation of performance, and trade for state companies.

Research has examined the role poverty plays in entrepreneurial creativity. Image: REUTERS/Desmond Boylan

Terry Lavender
Writer, University of Toronto
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Does poverty hinder or encourage market creativity? That’s the question Laura Doering, an assistant professor at U of T’s Rotman School of Management, set out to answer when she travelled to Panama to interview poor entrepreneurs.

Doering’s research was recently written up in the Sunday New York Times and will soon be published in the journal Sociology of Development.

In the paper she writes that entrepreneurs are both catalyzed and constrained by conditions of poverty. Ultimately, poverty limits entrepreneurs’ capacity to profit from the creativity they bring to the marketplace, Doering concludes. She discussed her findings with U of T News recently.

 The 9 countries with the most entrepreneurs.
Image: World Economic Forum

How did you get interested in the relationship between poverty and entrepreneurship?

Before I went to graduate school to study sociology, I worked in international development, mostly in Latin America, and so that got me interested in the effects that development programs were having on poverty. I became curious because often they weren’t effective or the effects were different from what was intended. I was originally interested in how relationships between loan officers and their clients shaped microfinance outcomes. So it was through the lens of microfinance that I became interested in poverty and entrepreneurship. I realized that a big part of what I was interested in was the way that business and entrepreneurship could potentially be a tool for fighting inequality and so I did up an additional degree in business. That’s the long story of how it all connects.

How can poverty both help and hinder entrepreneurial creativity?

At first, poverty is something that helped people in Panama to overcome the barriers to creativity. Creativity is always in some ways more difficult than replication of existing business ideas. What I found was that individuals were migrating quite a bit for work and education and through that they gained access to lots of different ideas and were talking with people who had migrated. That migration helped or facilitated the creative process. Later on, conditions of poverty made it very difficult to sustain those creative ventures.

How easy was it to conduct field work in Panama?

There were a lot of challenges. I interviewed 41 low income entrepreneurs for the Sociology of Development article, as well as many higher income individuals for another study, so it was difficult logistically coordinating hour-long interviews with almost 100 people, especially since a lot of my interviewees were in rural areas. So I would take a bus out to this far-flung community and it would be pouring rain and I would get there and the person would say, “Oh I’m sorry, I forgot about this interview today, can we reschedule?,” and so there was a lot of time often lost in those transactions.

Is Panama representative of other Latin American countries with regards to poverty and entrepreneurship?

The rates of entrepreneurship among low income populations in Panama are quite representative and so in that sense it’s very similar to other countries in the region. I think it’s also different in some ways, in part because much of the Latin American financial sector is located in Panama City. Panama is also one of the fastest growing economies in Latin America. I think what that does is facilitate migration processes because you have lots of people from rural areas who are spending some time in Panama City where there are lots of opportunities and then going back to their home communities. In that way it fuels this import-export of ideas. What’s unique to this study that you might not see in other places is how much people are moving around.

You suggest governments use business incubators and cash grants to help poor entrepreneurs. Are there other ways these people can be helped?

The idea for incubators and cash grants is very much aimed at helping people to develop their creative ideas and to keep those creative businesses alive. In my opinion, that would be the best way of developing novel businesses, but that said, there are lots of ways to support micro-entrepreneurs that don’t involve cash grants and incubators. For example, some short-term training programs have been shown to be quite effective, especially among people who are extremely poor and even more effective when used in combination with cash grants.

Are you doing any follow-up research?

Not at the moment, although I’ve been in touch with a few organizations interested in implementing and testing these ideas. Right now I’m looking at a public housing complex in Colombia, where people have been randomly assigned to housing. My colleague and I are looking at how an individual’s location in the housing project affects whether or not they start a microenterprise and how much they earn from their business.

What has the reaction been to the New York Times article?

Many organizations that work with micro-entrepreneurs have reached out to me to ask for advice, asking for suggestions for ways they might integrate a cash grant incubator system. I’ve also heard from a few organizations who say that they run incubators and trainings, but that they don’t target entrepreneurs who have novel businesses. It seems that there’s a possibility in the future for potentially collaborating with organizations that are working on the ground on these issues. So that was a pleasant surprise that came from this, how many organizations reached out to me.

Have you gone back to see how the people you interviewed in Panama are doing now?

I haven’t been able to follow up with everyone, but I went back a few times during the course of the research to see how people were doing. Often the updates are disheartening. A lot of the time people have abandoned their businesses or something really bad has happened in their family and they’ve had to move. But one of my interviewees won a major award for micro-entrepreneurs and that really launched her onto the national scene. She got lots of attention and received lots of capital. So that was really exciting.

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