Legitimate and Illicit : An Opinion Concerning the Relation of Convergent and Divergent Development Strategies Jeff Brice Jr. Assistant Professor Department of , Entrepreneurship, and General Business

usiness consulting and training are their empires on crime, violence, and activity to initiate, maintain, or develop Bpopular vocations in the United related activities, they each had to a -oriented business” (Livesay, States. In business school, students formulate and enact innovative business 1982). This definition is useful because receive training that should give them strategies to gain advantages over their it serves to ascertain the ambiguous the tools to help others develop competitors. The “training” that they nature of the entrepreneurial act. It is competitive advantages in business over received was not from formal education broad enough to capture most notions laypersons. However, history has shown but that of the street variety from when of personalities and processes that have that this is not nearly always the case. they were honing their craft. commonly been associated with Bill Gates, arguably the world’s most entrepreneurs who perceive market successful entrepreneur, was a college Many of today’s criminals face the same opportunities and act to exploit them. dropout. Although Gates’ rivals at Apple situation. It seems logical that one Computer, Steve Wozniak and Steve cannot be a successful drug dealer/ It is known that rates of entrepreneurial Jobs, did attend college, they had no distributor unless one understands the activity vary in different cultures even business training before founding Apple intricacies of personnel management though there are parallels in social and Computer. Like Gates, Michael Dell and logistics. It is also just as logical to (Shane, 1992); dropped out of college before finishing assume that one cannot be a successful and, research has shown that cultural his degree program but he now heads confidence artist unless one knows values play an important role in one of the most successful computer something about social psychology. the entrepreneurial orientation of manufacturing in the world. Although the areas that these illicit individuals (McGrath et al., 1992). Thus, one can argue that academic entrepreneurs (criminals) exploit are business education does not always not legitimate, their constructive The processes that entrepreneurs result in competitive success in strategy talent and ability to manage traditionally use to establish business the market. emergent situations can be ventures are well known. Cooper and hypothesized to be similar to that which Dunkelberg (1986) identify four typical The focus of this research, however, must be mastered in legitimate business paths to : views entrepreneurship from a different circles except with the threat of dire angle. In the underground of society, consequences in the case of failure. Start-up: Developing an independent there are also burgeoning “success” business from the ground up. stories. Organized crime is a functional Legitimate Entrepreneurship Purchase: Buying an already established part of the American social system that, business enterprise. primarily, minorities and immigrants There is no single accepted definition of Inheritance: Obtaining ownership of a have used as a means of upward an entrepreneur (Gartner, 1988; Low business from an estate. mobility. It was estimated that, at the and MacMillan, 1988); or, what actions Promotion: Obtaining ownership of a time of his death, Colombian drug and processes are considered business through succession. cartel kingpin Pablo Escobar’s fortune entrepreneurship (Schumpeter, 1934; was worth more than one billion Kirzner, 1973). Past research on this During Cooper and Dunkelberg’s study, dollars. This from a former peasant who matter has not solved the quandary. minority business owners of each race received a scant formal education. The and ethnicity were found to be much same parallel can be drawn from crime While there is still no standard more likely to enter business ownership legends such as Al Capone, Charlie definition of entrepreneurship, the through their own start-up activities. “Lucky” Luciano, and Meyer Lansky. working interpretation accepted here This finding is attributed to an Although these men formed the basis of includes “purposeful and successful escalating emergence of minority

4 entrepreneurship. Reynolds (1991) However, not all organized crime is it nature of the “business,” many resi- describes the dominant theme underly- entrepreneurial. There are two types of dents and neighborhood associates of ing minority entrepreneurship as organized criminal networks described these networks (especially those of the blocked opportunities in the majority by Ianni (1998). The first of these, asso- same ethnic background) view them as society (sociocultural displacement). ciational criminal networks, is the legitimate. Thus, the inference is that, in The challenge is to understand the dif- familiar version of the Italian “mob” or some communities, African-Americans ferential behaviors and contexts of vari- “Cosa Nostra.” Associations are formed, and Puerto Ricans view crime and ous ethnic groups. usually from childhood or prison expe- business in different terms than the rience, based on ethnic heritage, geo- social majority. For example, using data from the late graphical centralization (“the neighbor- 1960s and 1970s, Auster (1988) exam- hood”), and family relations. These Additional research supports this view. ined African-American and Caucasian “Mafia” emulate the stan- Myers (1992) explored the links business owners in three urban areas in dard multinational corporate structure, between self-admitted drug dealing and order to describe characteristics of both along with its internal bureaucracy and labor force behavior to determine if and owners and the . African- reactive inflexibility. how returns to employment influence American business owners were found the decisions by both African- to have fewer years of both education The second type of criminal organiza- Americans and Caucasians to enter drug and business experience. African- tion described by Ianni is the entrepre- dealing. Using data collected on inmates American businesses were found to be neurial network. It is apparent that this in prisons and jails in California, smaller and less profitable. Auster did is a predominant form for African- Michigan and Texas, it was concluded not, however, find significant differ- American and Puerto Rican crime that African-American and Caucasian ences between the survival rates of organizations. The entrepreneurial net- offenders vastly differ in their percep- African-American and Caucasian owned work follows the model of the small tions of criminal opportunities. It was businesses. Auster posits that one expla- businessperson, the individual illicit discovered that the dominant factor nation for the lack of a significant dif- entrepreneur, whose criminal enterprise contributing to entry into drug selling, ference in survival rates is that African- is conducted through a network of indi- especially among African-American American business owners lacked alter- viduals under his or her authority. In males, is unattractive market opportuni- native employment options, a reoccur- fact, this form of criminal ties, which is consistent with the find- rence of the decreased opportunity cost is comparable to the network of support ings in legitimate entrepreneurship explanation previously offered by formed by the owners of small, legiti- research. One cannot determine unam- Leibenstein (1968). She concludes with mate businesses. One individual man- biguously whether this results from the the suggested public policy implications ages the activity of the others and is lure of drug dealing for its entrepre- that increased funding and business responsible for their salaries, commis- neurial attractiveness or simply results training to African-American business sions, or other compensation. There is from crime versus employment choices. owners have the potential for improving little bureaucracy among the network, In any case, evidence presented clearly the profitability of their businesses, and and most employees have direct contact demonstrated that racial differences in ultimately the underlying problems of with the managing illicit entrepreneur. returns to employment explain most of the urban neighborhoods. Thus, inci- In terms of financial exposure, it is the the gap between African-American and dences of urban crime are posited to central illicit entrepreneur who must Caucasian drug dealing. decrease with heightened sophistication bear the risk of funding and managing and dissemination of legitimate entre- the venture. In fact, if an employee does Theoretical Consideration preneurial knowledge and processes. accumulate significant risk , he or she is likely to attempt establishment of Variant types of “undesirable” entrepre- Illicit Entrepreneurship (Crime) an independent network of his or her neurship within the larger society have own. Interestingly, employment in this been previously examined. The early Based on most academic views of entre- type of criminal enterprise is viewed as impetus for the current perspective lies preneurship, it is feasible for one to cate- little different from any other job. in previous attempts by scholars to gorize organized crime as a variant form. Similarly, if the business of the network understand how immigrants, or new However, the fact that the criminal activi- is successful, the boss is likely to have members of host societies, develop a ty is illicit does not remove it from the many of the traits of any good entrepre- sense of economic stability (Butler & realm of operational entrepreneurship. neur, including recognized status as a Greene, 1997). In the late 1800s Georg The development and exercise of organ- businessperson in his or her neighbor- Simmel (1950) referred to what we call ized criminal enterprise can be closely hood. It is this relationship between the today “ethnic entrepreneurs” as related to the Cooper and Dunkelberg illegal enterprise and the community “strangers” or “traders.” These people (1986) framework (listed above). that is most significant. Despite the illic- carried out the scorned practice of trad-

5 ing and because no one else 1. What are the similarities and about legitimate entrepreneurship in the wanted to participate in a “commoner’s differences between the strategic management literature, there has been vocation.” Illicit entrepreneurs fit this processes of illicit (criminal) and little scholarly effort focused on the analogy particularly well because they legitimate entrepreneurs? More specifi- strategic implementation of illicit also operate below society’s accepted cally, do criminals perform equivalent (criminal) entrepreneurship. Specifically, mores and standards. They can be viewed market research, risk analysis, and com- this line of inquiry is necessary to as strangers operating in stealth, masked petitive investigation in a manner simi- evaluate the similarities and differences among the law-abiding population. Since lar to legitimate entrepreneurs? in initiation, growth and diversification assimilation is not always possible (or of all types of entrepreneurial enterprises. desired), illicit entrepreneurship is one 2. Is there anything that can be gained In this manner, scholars may uncover avenue that has developed over time to from studying the strategic processes of unique perspectives and new strategies equalize social and economic disparity. criminals as a mechanism to make that might be translated into legitimate legitimate entrepreneurs more effective? forms of . The perspective forwarded in this article 3. Most importantly, what is the is rational when one applies enclave References likelihood that we can rehabilitate theory as an investigative framework. successful illicit entrepreneurs into Enclave theory traditionally examines Auster, E. R. (1988). Owner and legitimate businesspeople using their Organizational Characteristics of Black “self-segregated” communities of ethnic well-developed competitive skills? and White-Owned Businesses. American origin that have as their primary Journal of Economics and Sociology. Vol. concern the creation of new ventures This last inquiry is of particular concern 47, No. 3, pp. 331-344. and the development of a labor market to minority scholars. It is a sad fact that within the confines of the host country racial and ethnic minorities comprise Butler, J. S., and Greene, P. G. (1997). Ethnic Entrepreneurship: The Continuous (Nee & Nee, 1986). The enclave a much larger percentage of the economy, therefore, is thus composed of Rebirth of American Enterprise in Sexton incarcerated population per capita than and Smilor’s Entrepreneurship 2000. sociocultural and economic elements. the social majority. Therefore, minority Chicago, IL: Upstart Publishing , The illicit entrepreneurial enclave may scholars should be the first to conduct pp. 267-289. be viewed as a division of the larger necessary academic inquiry into those economy with an autonomous enclave research questions that defy the Cooper, A. C., and Dunkelberg, W. (1986). economic structure that represents a common stereotypes that pervade the Entrepreneurship and Paths to Business highly distinctive labor market. Scholars American social caste system. Ownership. Strategic Management Journal. who utilize enclave theory stress the Sociological research occasionally Vol. 7, pp. 53-68. compares criminal models of business positive cultural identity of the group Gartner, W. (1988). ‘Who Is an Entrepreneur?’ and how members rely on resources to legitimate forms. Unfortunately, Is the Wrong Question. American Journal of within the community in order to academic literature in business ignores Small Business. Spring, pp. 11-32. develop, manage and maintain business illicit entrepreneurship altogether. enterprise (Butler & Greene, 1997). Therefore, the natural result of this Ianni, F. (1998). New Mafia: Black, Hispanic Since it has been reported that perspective is to explore illicit business and Italian Styles. Society. Jan/Feb, Vol. 35, African-American and Puerto Rican practices and, more importantly, the Issue 2, pp. 115-130. entrepreneurial criminal networks do strategies behind them to assess the Kirzner, I. (1973). Competition and attain some legitimacy in their neigh- uniqueness of various tactics and possible application to the legitimate Entrepreneurship. Chicago, IL: The borhoods of operation (Ianni, 1998), University of Chicago Press. business economy. such a community helps entrepreneurial criminals to successfully adjust to an Leibenstein, H. (1968). Entrepreneurship advanced capitalist ideology and avoid Conclusion and Development. American Economic the bottom of the socioeconomic Review. Vol. 58, No. 2, pp. 72-83. structure of that society. A potential argument, in its most basic form, is that a drug dealer is really an Livesay, H. C. (1982). Entrepreneurial History entrepreneur who is simply selling in Kent, Sexton, and Vesper’s Encyclopedia Suggested Research Problems the wrong products. The viewpoint of Entrepreneurship. Englewood Cliffs, NJ: Prentice Hall, Inc., pp. 7-15. and Relevance for Scholars forwarded in this article proposes that scholars should investigate the Low, M., and Macmillan, I. C. (1988). Considering the concepts and literature business development strategies of all Entrepreneurship: Past Research and described above, this perspective poses entrepreneurs — legitimate and illicit. Future Challenges. Journal of Management. several interesting research possibilities: While there has been much research Vol. 14, p. 139.

6 McGrath, R. G., MacMillan, I., and Scheinberg, S. (1992-A). Elitists, Risk- Takers, and Rugged Individualists? An Jeff Brice Jr. brings to his responsibilities as Assistant Exploratory Analysis of Cultural Professor of Management, Entrepreneurship and General Business at Hofstra’s Frank G. Zarb School of Business a Differences Between Entrepreneurs and varied background as a successful entrepreneur. His Non-Entrepreneurs. Journal of Business academic experience extends to his work as a consultant Venturing. Vol. 7, pp. 115-135. responsible for developing curriculum in the area of entrepreneurial studies. Myers, S. L. (1992). Crime, Entrepreneurship, and Labor Force Withdrawal. Dr. Brice’s current research is concerned with the effects of Contemporary Policy Issues. Apr., Vol. 10, personality, culture, preferences, and self-efficacy on the No. 2, pp. 84-97. decision whether or not to pursue entrepreneurial opportunities. He has also performed business strategy research concerning the effect of Nee, V., and Nee, B. (1986). Longtime vertical integration on firm performance and the impact of technological opportunity and Californ’: A Study of American China diversification on firm-level research and development intensity. His research findings have Town. Stanford, CA: Stanford University been presented at various conferences, and his articles have appeared in numerous scholarly Press. and business journals. His endeavors have been acknowledged by awards and honors conferred by many organizations, including the Coleman Council for Entrepreneurship Reynolds, P. D. (1991). Sociology and Education, the Southern Regional Education Board, and the Academy of Management, among Entrepreneurship: Concepts and others. Contributions. Entrepreneurship Theory and Practice. Vol. 16, pp. 47-70. Dr. Brice founded and owned several firms ranging from film and television production/ development to commercial construction to management consulting. Although a large portion of Schumpeter, J. (1934). The Theory of his work experience has been entrepreneurial, he spent time in the finance headquarters of the Economic Development: An Inquiry Into Engineering Division at General Motors as part of his M.B.A. requirements. He also has a Profits, Capital, Interest, and the Business background in nonprofit development, establishing programs that target affordable housing, Cycle. Cambridge: Harvard University economic development, and entrepreneurial training for at-risk and disadvantaged communities. Press. Dr. Brice is an active member and reviewer for the Academy of Management and Southern Shane, S. (1992). Why Do Some Societies Management Association. He is a lifetime member of the National Black MBA Association and Invent More Than Others? Journal of Iota Phi Theta Fraternity, Inc. Business Venturing. Vol. 7, pp. 29-46 Jeff Brice Jr. earned a Ph.D. in management with concentrations in business strategy and Simmel, G. (1950). The Stranger. In K. Wolf entrepreneurship from the Mississippi State University College of Business and Industry. He (ed.): The Sociology of Georg Simmel. holds an M.B.A. in finance and marketing from Clark Atlanta University, and he completed his Glencoe, IL: Free Press. undergraduate work at Tuskegee Institute (now Tuskegee University).

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