The Kirznerian-Ethnic-Entrepreneurship Model: A Double Arbitrageur

The Kirznerian-ethnic-entrepreneurship model, in the present conceptu­alization, is inspired by what Clifford Geertz called the “market-born- and-bred-group of men” during his exploration of enterprising and economic development in the early 1950s in Indonesia.

Talking about informal economy in the context of developing nations is different from how one would approach similar institutional dynamics such as shadow or illegal economies in the Western world. Addressing the informal economy, as opposed to the formal economy, in the sub­Saharan African context means addressing an economic field that has resulted from a cultural process and which bears attributes of a traditional African market order (Ayittey 1986, 2006). While ostensibly close to a bazaar economy, this order is much more complex and therefore requires its own research programme involving the dynamics of entrepreneur­ship. Seen under an institutional and development economics perspective, the dichotomous relationship between the traditional order and a formal institutional order, mostly inherited from colonialism, creates an insti­tutional disequilibrium, as the formal institutions, legal environment and bureaucratic system do not adhere to the informal institutions of the concerned society (Granovetter 1995; Boettke et al. 2008; Douhan and Henrekson 2008). May it be via colonialism, modern bureaucratic and multilateral donors' interventions, exogenous top down institutional interventions are grounded in the belief of “fixing“ local institutions which otherwise will not experience development. From that mind-set has emerged a planning approach to economic development as an ideal recipe for economic growth over recent decades to make markets work in many African countries via SME promotion projects to push these economies and reduce poverty (Easterly 2002). The ambitions to bring entrepreneurship and market economy in those places failed for many reasons.

Exploring entrepreneurship in developing countries while ignoring these aspects is a difficult exercise. in contrast, though, the fact that the African traditional economy consistently fails to reach the next level of development, which includes, for example, the mobilization of financial resources for long-term investments in larger scale productive activi­ties, highlights the real challenge of finding the appropriate mechanisms to canalize this enterprising spirit toward more economic development (Servet 2006). A clear reading of the current evolution within the cultural context is necessary in order to identify the dynamics blocking that process and how to circumvent them.

observed closely, the present institutional dichotomies, and the resulting institutional disequilibrium, create additional uncertainties for entrepreneurs. indeed, entrepreneurial opportunities exist and are tapped by those who align with this disequilibrium and operate at the bound­aries of these two orders. The compatibility between economic habitus and the field as guarantee for entrepreneurial success brings funda­mental questions to the fore. The fact that fewer firms—the mainstream visible barometers for a successful enterprise—are operating in the formal economy reveals the inability of this order to shape an environment that allows the emergence of more entrepreneurs and opportunities. on the other hand, an observation of the current entrepreneurial environment in several African countries shows that entrepreneurs with “formally” trained cognitive lenses who operate with “formalized” type of enter­prising, have, on average, difficulties in finding orientation and fit within the formal institutional order and much fewer chances in the tradi­tional market order. The trigger of this inability is grounded not only in the institutional inconsistencies but also in the weakness of those formal institutions, which fail to provide solid institutional foundations for a market economy, such as free competition, contract enforcement, information dissemination or formal property rights which are based on local customary practices to ensure legitimacy and enforcement by the greater number of people (Soto 2000, Golub and Hansen-Lewis 2012).

A relevant challenge of addressing the issue of the formal-informal economy dichotomy is not whether they may be considered as diamet­rically separated spheres, since they form the economy, but when “infor­mality" tends to be the norm. It can be interpreted as a reverse scenario with a bottom-up institutional development during which the primacy of informal institutions as foundations of formal institutions is made visible (North 1990). Addressing that reality from a sociological and institutional economics perspective requires exploring the feasibility of any bottom-up institutional change and re-design. However, the growing proportion and ability of the traditional economy to capture and respond to the needs of a greater number of people in articulating local patterns of interac­tion and consumption has resulted in certain impositions. Namely, for entrepreneurs, the necessity to operate at the boundary between two worlds in filling the gap created by those institutional inconsistencies, therefore transforming entrepreneurs into agents of institutional change. It is their actions that shape the present trends. This dynamic re-joins Denzau and North (1994) to some extent as they address similarly the process of organic institutional change and development in pointing out the crucial role played in that process by shared mental models. In that model of development, gradual changes in the shared understanding of concepts and paradigms are punctuated by discrete jumps to new equi­librium. It is assumed here that the entrepreneur plays a major role in that equilibrium via representational redescriptions and the adoption of new shared mental models by pointing out the logical inconsistencies between what Denzau and North call “ideological beliefs” and “common parlance” (Denzau and North 1994; Shughart et al.

Applied to the case of the Kirznerian-ethnic-entrepreneur, one may argue that the entrepreneurs have identified the inconsistencies between formal and traditional economy, for instance, the questions regarding which rules should govern the economy and regulate the pattern of economic transaction and production. Furthermore, it appears that filling this gap conditions entrepreneurial success, which results from a discovery and learning process during which the fitting habitus helps the entrepreneur identify the problems and gap between the reality of the traditional order and the exigencies of the formal rules and the inconsis­tencies they bear in regard to local market logic and dynamic. With this discovery, the entrepreneurs also find the modi operandi to fix or adapt entrepreneurial practice in one sense or other. Therefore, it is an arbi­trage operated by the entrepreneurs between those spheres, which brings the entire system to equilibrium and to function. The practice resulting from that process also gives birth to a new shared understanding about economic processes and shared mental models that one needs to under­stand in order to interpret market dynamics, either as an entrepreneur or a customer.

In the practice, the alignment of entrepreneurs with their contexts has enabled the emergence of mobile banking and payment services like M-pesa in Eastern Africa with a pioneering and disruptive impact on the banking, insurance and financial transaction industry in Africa and the world, where conventional banking had difficulties to tap into this potential. indeed, people use mostly products with which they can identify easily and meet their practices; entrepreneurship has for role to bring this to happen. it is in that context that, Nollywood, the Nige­rian film industry, has emerged among the top of the world with several billion uSD in revenue and thousands of movies produced yearly by local movies entrepreneurs with a proven level of productivity, agility and cost effectiveness that responds to the entertainment needs and budget of hundreds of millions of households across Africa and the diaspora (Bisschoff and Overbergh 2012; Lobato 2010). These trends are quite revealing about certain aspects of the enterprising practice in many of those countries as one which is exercised via a hybrid form at the inter­section between individual entrepreneur and firm. Empirical obser vations unveil how with a firm-like form of enterprise, in major cases even offi­cially registered, entrepreneurs conduct transaction volumes and activities like a firm but with the agility of an individual, and practices solidly grounded in the traditional market order with particular ethnic groups expressing a singularity in the master y of entrepreneurship.

The last decades have seen an accrued interest for the phenomenon of ethnic entrepreneurship in Africa since social groups seem to demon­strate a proven entrepreneurial and business acumen translated into a recognizable entrepreneurial practice, mastered and transmitted within those groups. The interest for the embodiment process of entrepreneurial habitus may find good application using the developed model to explain this acumen and the resulting entrepreneurial praxis. The Murids, an ethnic Muslim brotherhood of Senegal, the Yoruba and igbo ethnic entrepreneurs of Nigeria, are all well-acknowledged poster children for the described challenges and entrepreneurial acumen of their respective countries (Sudarkasa 1985; Diouf 2000). They are visible examples of the described relation between habitus and structures. The embodiment process of entrepreneurial spirit (habitus) occurs often via ethnic networks and various education mechanisms focusing on building and transferring traditional entrepreneurial values and practices to the individuals.

The Murids show devotion to their religious guides, the “Sheikhs,” hard work, and self-deprivation. They are bound together through a tradi­tion of mutual obligation and sense of family. These values are cemented and continuously nourished over many years at the Dahira, a central insti­tution of their community in charge of promoting spiritual nurturing, community solidarity and economic success. These informal meetings, present in all Murid communities from urban Senegal to New York, Paris and Beijing, ser ve as places of exchange of information, assistance regarding business opportunities, and incubation for individual enter­prising endeavours (O'Brien 1971; Salem 1981; Ebin 1993). For almost a century, the Dahiras have been what is today trending all around the world: incubators or other impact hubs providing mentors, capital and networking events to their members who will, in turn, sustain the institution.

While the Murid model strongly emphasizes networks, the igbo and Yoruba have an apprenticeship-oriented approach wherein young indi­viduals are educated to be entrepreneurs. The Yoruba, especially those of the Republic of Benin, transmit entrepreneurial skills from mother to daughter. Entrepreneurship is a women phenomenon and the embodi­ment process of entrepreneurial habitus is one through which girls help, starting at a very young age through young adulthood, the mothers on the marketplace and experience in vivo the art and practice of trading, which goes sometimes across national boundaries (Igue 2003). This expo­sure to entrepreneurship involves learning how to buy and sell while developing a real sense for pricing and accrued sensory and interpretation of market dynamic by knowing where to buy cheaper and how and where to sell at higher price while making profit. The Igbo in Nigeria follow a similar but more structured and systematic process via the “Imu-Ahia”, their traditional Business school system, which literally means to learn how to do marketing or to trade (Olutayo 1999). Through that system, which has occasionally priority over formal schools, the young apprentice learns at the feet of a mentor and manages the mentor's business opera­tions at different degrees over the years until they are granted autonomy once the habitus is formed within them. This stage is followed by several financial and venture mechanisms that aim to help the accomplished entrepreneur to begin a personal entrepreneurial endeavour (Orugun and Nafiu 2014; Obunike 2016).

In light of the exposed challenges and dynamics, it seems obvious that the more an ethnic entrepreneur is embedded in the traditional market order, the greater are the chances to develop compatible strate­gies and successfully navigate within the overall economy. How good and sustainable the described institutional dynamic may be is another issue that cannot be addressed at the present stage. it was rather impor­tant to provide, through the lenses of culture, a more coherent and sophisticated theoretical construct allowing the exploration and inter­pretation of entrepreneurial process as it appears and is experienced by the entrepreneurs, and not how one thinks it should be. Further­more, the unintended public and institutional economic consequences of that conceptualization show the usefulness of the Kirznerian ethnic entrepreneur model as an analytical device to explore entrepreneurship in the sub-Saharan context. However, the discussions still remain open as to whether or not it may lead to a methodological conception of a coherent bottom-up strategy for institutional intervention and re-design, further leading to change in major African nations. For now, it is relevant to admit that while the Kirznerian alert entrepreneur is an arbitrageur, the Kirzne­rian ethnic entrepreneur in many sub-Saharan African countries is revealed as double arbitrageur, who, in addition to usual marketplace arbitrage, taps into the opportunities resulting from the institutional disequilibrium between the formal economy and the traditional market order.