Dr christos pitelis professor joseph t. mahoney

Defining public entrepreneurship

14 June 2011

The article at a glance

The private and public sectors do share common interests and entrepreneurs can work in both sectors. Dr Christos Pitelis, Reader in International …

The private and public sectors do share common interests and entrepreneurs can work in both sectors.

Dr christos pitelis professor joseph t. mahoney

Dr Christos Pitelis, Reader in International Business & Competitiveness at Cambridge Judge Business School, and Professor Joseph Mahoney of the University of Illinois, discuss their award-winning paper on public entrepreneurship.

The paper, “Toward a theory of public entrepreneurship”, won the European Management Review 2010 Best Paper Award and was co-authored by Peter Klein and Anita McGahan.

Dr Pitelis and Professor Mahoney gave an exclusive interview to the Cambridge Judge Business School podcast series.

Professor Mahoney said: “As we come out of the financial crisis, and see the government being more involved in the public sector and the bail out of the financial sector, there is a requirement for more study into the interests of public and private.”

Their award-winning paper discusses how the term ‘entrepreneur’ has traditionally been associated with private sector goals and aspirations and ‘for profit’ motives. Their first task was to define those words ‘public entrepreneurship’.

Professor Mahoney said: “If we focus on public interest, it is far more complex than we think. There may be a divergence of interests between what the local community, the regional authority, the nation state and the international community want. The public interest is complicated. It maybe a volunteer organisation like the Red Cross or municipal bodies like the police forces. We need to know how to aggregate individual interests to give a meaning to the public interest and it can be difficult to make that aggregation. What is public can change over time. We are seeing this for example in the university sector, when in the 1970s it was a public good, now the meaning has changed dramatically and people are helping to pay for their own education.”

Dr Pitelis said: “All human beings have a similar objective, which is to profit from their value-creating actions. Where the difference really lies in the private and public sector is the incentives provided to create the values you are subsequently trying to appropriate.”

The private and public sectors do share common interests and entrepreneurs can work in both sectors. Management theory is relevant to both.

Professor Mahoney said: “Public entrepreneurship involves innovations of those who combine public and private resources in pursuit of their social objectives. Management as taught in business schools is relevant for public policy. In the same way we talk about private entrepreneurs having creativity and coming up with solutions, we can think of those same characteristics being needed in the public sector as well, whether we are talking about markets, firms, governments, Universities, each of these has the need for entrepreneurship in terms of creativity and innovation.”

Dr Pitelis said: “Private and public sectors have distinctive capabilities and distinctive comparative advantages. The public sector deals more with the issue of institutional change and legal and property rights, and important innovations and changes can take place that can create value, distributive value or destroy value or lead to value appropriation. There is scope to do things which are positive or negative but the question is how to create a framework so that we can work towards doing the right things and the value-adding things.”

There is a need to understand better what the critical differences and similarities are between the public and private sector, so that both can seek out ‘opportunities for rent-seeking’, explains Professor Mahoney and Dr Pitelis.

When they do achieve success they can share the slices of the pie they create leading to those much desired ‘win-win’ solutions for all.

Professor Mahoney said: “Even for private entrepreneurship you can have some actions that are productive, some which are unproductive and even some that are destructive.

“The key idea is that when people are seeking economic gains some people will have ideas that will create value and increase the share of the pie in which they will capture some of that gain. In some cases the entrepreneurial action can be win-win so it is not only the entrepreneur themselves that gain but other stakeholders involved in that process too.

Dr Pitelis said: “You can’t really appropriate value out of value which is not created; you have to create it in the first place unless you are in a monopoly situation. The public sector can sometime appropriate value without creating it because it is a monopoly, so the scope for rent-seeking is bigger.

“The fundamental question, which we are addressing with ongoing research and a new paper, is under what conditions does the public sector, despite the enhanced scope for rent seeking, benefit out of trying to maximise the joint value for society as a whole, rather than from appropriating as much as possible out of a shrinking or static pie. We are making some progress in this.”

Converting academic study into practical realities for the public sector and firms in the private sector in order to increase competitive advantage is a big achievement for the authors of “Toward a theory of public entrepreneurship”.