Communities of disentrepreneurship: A comparative cross-national examination of entrepreneurial demise

Communities of dis-entrepreneurship: A comparative cross-national examination of two cases of entrepreneurial demise

Leo Paul Dana University of Canterbury Private bag 4800 Christchurch NZ e-mail: [email protected]

Benson Honig Wilfrid Laurier University School of Business and Economics Waterloo, Ontario Canada N2L3C5 Phone 519-884-0710 ext.2909 ; Fax: 519-884-0201 e-mail [email protected]

1

Communities of dis-entrepreneurship: A comparative cross-national examination of two cases of entrepreneurial demise

“The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor….If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage” (Smith, Book IV, Section ii).

As the great Scotsman (and Kirkcaldy/Fife native) Adam Smith pointed out, countries are by no means equal, yielding differential outputs and comparative advantage. They vary considerably in terms of their resource endowments, including natural and social (human and social capital) as well as their environmental and geographic specifications, their historical framework, and their method of organization. For obvious reason, considerable attention continues to be focused on environments observed to be economically successful and creative. Legions of scholars traipse off to California’s Silicon Valley to study its history, institutions, networks, and idiosyncrasies, in the hopes of recreating a new high technology answer Adam Smith’s call for contemporary comparative advantage. There are over 50 silicon examples, ranging from Israel’s Silicon Wadi to New York’s Silicon Alley, India’s Silicon Plateau to Scotland’s Silicon Glen. From the opposite perspective, considerable effort examines nation-states, communities, and sub-populations that are found “wanting”. Underdevelopment includes a range of factors including poverty, poor access to health care, education, political stability, gender equality, safety, and a host

2

of other concerns (McCloskey, 2003). The considerably robust field of development economics concerns this arena. The subject of this work is not to review the now copious wealth of literature concerning development studies, be they of successful (siliconization) or unsuccessful (LDC’s). Rather, it is to examine a largely overlooked area of the landscape: communities that temporarily demonstrated successful social and economic success, but regressed, or may have cycled through periods marked by unusual success and unusual failure. Taking the lead from Diamond’s recent work “Collapse” (Diamond, 2005), this paper examines and attempts to explain the causes of community “disentrepreneurship”, as well as that of community entrepreneurship, in two distinctive environments: rural Scotland, and the Chatham Islands. We begin our comparison with Scotland.

Fife, Scotland

In Scotland, the region called Fife lies about midway, along the eastern coast, with light soils and many bogs and unimproved moors. As described by one Scottish king, Fife is “a beggar’s mantle fringed with gold” (Lenman:25) (Lenman, 1977).. Fife is also somewhat isolated: ‘bounded on the north, south and east by the wide estuaries of the river Tay and the Forth with the steep Ochils the west, [Fife] was largely isolated from the rest of Scotland’ (Steel, 1975).. Nor is Fife rich in resources. Due to the waterlogged nature of the bogs, much of the low ground in the region was not in cultivation until more sophisticated drainage technologies were employed in the nineteenth century. Fishing, until the nineteenth century, was primarily a supplementary activity, with some salmon and herring exports, primarily of a small scale (Whyte, 1995). The region was central to the development of the flax and woollen industry during the industrial revolution. One reoccurring theme of the Scottish business environment over time is the apparent ambivalence on the part of government regarding encouragement or support policies for 3

business activity. This was certainly the case regarding the growth of the Scottish flax industry during the 18th century. At times it was discouraged by government, with export duties making it difficult to compete in colonial markets (Whyte, 1995, p. 302). Eventually more enlightened policies were implemented, as Scottish export (stamped) linen production rose from 3.5 million yards in 1728 to 9 million in the 1750’s, and exports to America rose from 92,000 yards in 1744 to over 2 million in 1760 (Whyte, 1995, p. 303). Another important component of the fabric trade was the jute industry, eventually centering on Dundee. Jute was used for traditional bags of agricultural produce, and later for carpeting and the bottom of linoleum tiles. The fibre was imported from Bengal, and manufactured for the lowest possible price in a number of locations world-wide. In Dundee, which also had a whaling industry, someone hit upon the idea of mixing water with whale oil (later substituted by mineral oil) to soften the jute. By the 1830’s, carpeting was being manufactured around Dundee, and shortly thereafter bags were exported world-wide. By 1880, Dundee’s Cox Brother’s Camperdown had the largest jute factory in the world, with 5000 employees. Late in the 1870’s, linoleum was developed in Kirkcaldy, a product of linseed and cork, backed by jute (Lenman, 1977, p. 184).

The Royal Burgh of Newburgh The royal burgh of Newburgh is located in north Fife on the southerly banks of the River Tay, 7 m. N.W. of Ladybank. For over a millennium it has had a settlement or a village on the present site. Due to the region’s proximity to Edinburgh, as well as cheaper land prices, small estates were established in the region as early as the 12th century. Many included tower houses, a few of which are still standing (Lenman, 1977).

During the eighteenth century, Newburgh, situated on the Tay, was one of the two main ports in the county handling flax. The local growth and production of flax was Newburgh’s staple 4

industry for more than two centuries. Flax spinning and hand-loom weaving provided an artisan class with relative wealth and status. However, until the end of the eighteenth century, there were no publicly constructed roads in Newburgh. Roads linking Newburgh to the remainder of Fife were primitive. A contemporary source noted:

‘The parish, and in particular, the town of Newburgh, labours under several disadvantages. The country near it, on the south, is hilly, thinly inhabited, and badly provided with roads. Trade being already established at Perth and Dundee, militates against its speedy acquisition of commercial consequence…the town of Newburgh [has been] long poor…’.1 Newburgh’s landscape has also affected its potential for population growth.

A steep

hillside, flood plains, and the Tay surround Newburgh, providing a sense of being an enclave. Isolated as a consequence of geographical location and inadequate transport links, Newburgh has tended to suffer from peripheralisation. This may be one other explanation of a swinging pendulum regarding entrepreneurship, in comparison with other parts of Fife and Scotland.

In the nineteenth century , Newburgh, like other Royal Burghs in the Fife region, was a centre for linen manufactures and salmon fishing. The pre-eminence of the linen industry has shaped the evolution of Newburgh’s economic progress and failures. In 1833, 564 looms were making linens for 13 small firms, largely from homespun yarn. A diversified economy (manufacturing, fishing, agriculture) led to prosperity and growth. Demographically, Newburgh presents somewhat of an exception, both in comparison to Scotland, as well as to the region of Fife. The population of Newburgh in the nineteenth century, peaked in 1841, subsequently falling below the level reached one hundred years before. In contrast, during the same period, the population in greater Fife grew monotonically. This trend, a gradual increase in population for the surrounding area, and a flat or falling population in Newburgh, continued through the 20th century until the present time. It is just one

1

J. Sinclair, (ed.) The Statistical Account of Scotland, Fife vol. X. (1793), p. 683.

5

indication that Newburgh presents an anomaly regarding development, even in comparison to its immediate neighbours in Eastern Scotland.

Scotland and the Industrial Revolution

The first industrial base for Scotland involved textiles, in particular, the woollen trade. Unfortunately, there was limited demand for the type of coarse woollen garments produced in Scotland. Decline was evident by the 1707 union, when the trade also suffered from English competition (Campbell, 1980; Hudson, 1989). In part to ward off opposition with Scotland’s union with England, the Board of Trustees for Fisheries and Manufactures was established in 1727, in part to encourage better manufacturing techniques by sending Scotsmen overseas for study. Linen manufacturing, a Scottish tradition and its premier manufacture in the eighteenth century, was one of the beneficiaries of this policy, and exports continued to grow both the England and elsewhere. Initially, quality was quite low (poor raw material, poor manufacturing processes), but some successful mechanization processes were developed and imported from France and Holland, eventually improving the quality and with it, demand. Output increased from 2.2 million yards in 1728 to 24.2 million yards in 1800 (Campbell, 1980, p. 8). With the improvement in Watt’s steam engine, steel, textiles, and coal production increased putting pressure on the Scottish labour markets. Despite mechanisation, Scottish production was very labour intensive, comprising 60 percent of total costs as late at 1890. Seasonal migration of labour increased, particularly from Ireland, and many Irish immigrants settled in Scotland, including the region of Fife, and Dundee in particular. By 1871, the Irish born comprised six percent of the population of Scotland (Campbell, 1980, p. 16). One significant difference between Scotland and England during the industrial revolution was the importance of Scottish burghs (small towns) such as Newburgh. In England, the 6

importance of the guild system along with medieval social structures was rapidly disappearing by the seventeenth century. In Scotland, the Convention of Royal Burghs continued to hold considerable influence in government, and received monopolies on trading, leading to a somewhat more urban diffusion of manufacturing in Scotland as late as 1790 (Hudson, 1989, p. 234). Surrounding these Royal Burghs were smaller towns that provided some of the labour and raw materials necessary for the industry – either linen or wool. The delegation of economic interests to Burgh leaders, including the financing, organizing, and marketing, may be one explanation for the apparent failure of a consistent competitive climate to become established in Scotland. It was not until the latter part of the nineteenth century that competition in the linen and cotton industry began to seriously jeopardize Scottish industry. In particular, the move towards a more generalized cotton production created competition from cheaper labour markets, in particular Lancashire, Europe, and the US . Between 1861-1871, the number of spindles and the labour employed in Scotland was reduced by one quarter (Campbell, 1980, p. 57). Following the wholesale export of the textile industry to India, the region fell into economic depression, but not without various entrepreneurial attempts. Newburgh enjoyed the reputation as a holiday resort at the turn of the century, when pleasure steamers came from Dundee. A net and buoy factory was opened in 1859, and the Tayside Linoleum Company was introduced to Newburgh in 1891. In more recent times, the economy has resumed its decline. The region continues to be one of the poorest and most economically disadvantaged areas of the U.K. Thus, despite various shortterm successes in the linen and linoleum trades, Newburgh’s industrial history is quite chequered. The variability of economic prosperity, a virtual historical roller coaster, raises important questions concerning Newburgh’s inability to develop long-standing viable enterprises. During certain historical periods, circumstances (e.g. “rare events”, as in the industrial revolution) the citizens of Newburgh organized themselves to bring about considerable economic development and infrastructure, echoing Smith’s call for comparative advantage. During subsequent periods (perhaps 7

due to other “rare events”?) the population of Newburgh failed even to match the anaemic progress of their neighbouring communities.

Industrial and business development in Newburgh The first census specifically mentioning the occupations of Newburgh took place in 1801. Out of a total population of 1,936, 448 people were listed in trade, manufacturing, or handicraft; 30 were employed in agriculture, and 1,458 were unclassified (Genealogical Society, 1959). Thus, 93% of those classified were in trade, manufacturing or handicraft, 6% in agriculture. Ninety years later followed the next census to classify Newburgh’s industries, In the 1991 census, manufacturing led with 20%, distribution and catering at 22%, construction at 14%, and agriculture at 4%, suggesting an occupational pattern quite similar to the roles nearly one hundred years before (General Register Office for Scotland, 2001).

Despite the importance of linen as a contribution to Newburgh’s economy, the production method remained somewhat backward. For example, while there were 40 power looms in operation in nearby Kirkcaldy as early as 1821, and power loom usage in Dundee by 1828, it was not until 1872 that the first power loom was employed in Newburgh (Laing, 1872), While the burgh’s economic stability hinged upon the production of linen for most of the nineteenth century, trade was a significant mechanism in Newburgh’s accumulation of wealth. An instance of this was the exporting of locally fished salmon. Sir John Sinclair explained:

‘Salmon fishing was a considerable source of wealth to all who have property in the river. [For instance,] a proprietor of one part of the channel drew £200 sterling per annum rent for the use by fishermen. What enables the fishermen to pay such high rents is the great price which salmon bring in the London trade’.2

2

J. Sinclair, The Statistical Account of Scotland (1793), p. 665.

8

Its main source of employment being salmon and sprat fishing, Newburgh’s quay was quite busy. At the peak of the fishing industry, forty boats were in service.3 In the latter decades of the nineteenth century, there was a boom in municipal building, coupled by an increase in secondary businesses and services. In addition to several bakeries, grocers, and hotels, there were reportedly thirty-five pubs.4 The role of secondary businesses and services in Newburgh proved to be the most stable in an experimental period of entrepreneurship.

Transportation had continued to figure as a major impediment to the development of Newburgh. As observed in 1872:

‘The Newburgh (linen) manufacturers purchased almost all the yarn they required from Dundee, which was then brought weekly to the market, by sellers who bought it up in small parcels from spinners in the country. There was then no public conveyance of any kind, to Dundee, excepting a small sailing sloop, which went irregularly as the tide answered. The consequence was that the manufacturers walked to what was then called the Waterside (now Newport), a distance of fifteen miles, summer and winter weekly, and back the same day. The only mode of crossing the river at that time was in small pinnaces; and in stormy weather the passage was often extremely hazardous. The first voyage made by a steam vessel from Dundee to Newburgh was on the 4th April 1814’ (Laing, 1872). Although the railway came to Newburgh in 1848, the surrounding topography meant the station had to be at quite a high level on the slopes, and nowhere near the waterfront. It has been observed that the absence of a rail link to the harbour contributed to the latter’s demise over the century that followed.5 Throughout the post-war period, the quay was increasingly less used, in part due to its shallow depth, as well as the lack of transportation links. The closure of the rail line in the 1950s precipitated an overall decline in Newburgh’s economy, from which it has yet to emerge. Of note is that while the train regularly passes through the abandoned station in Newburgh on the way to Perth, it no longer stops, seemingly underscoring the peripheralisation of the town. In 1988, the Tay Salmon Fishing Company terminated; salmon fishing is currently a small tourist trade. The disproportionately large number of drinking establishments can be viewed as an indication of economic troubles in the area. The correlation between unemployment or underemployment, poverty and alcohol consumption was prevalent in this period. 5 This has been commented upon in several online sources, such as the 2005 Gazeteer for Scotland as well as . 3 4

9

Entrepreneurship in Newburgh

Entrepreneurship in Newburgh initially consisted of an amalgamation of the weavers who operated throughout the 18th century. By the 1830’s, manufacturing had been consolidated such that only thirteen individuals employed most of Newburgh’s 564 looms (Pearson & Pearson, 1998).

Several entrepreneurial ventures emerged in the last four decades of the nineteenth century, which largely impacted the infrastructure of Newburgh’s economy in the twentieth century. After making his wealth in the oilskin, net and buoy factory in Cellardyke, Robert Watson opened a branch in Newburgh in 1859. This industry was shortlived, however.

Secondly, the Tayside Linoleum Company was introduced to Newburgh in 1891. Emulating the successful linoleum trade in Kirckaldy, linoleum manufacture slowly replaced weaving as the main industry. This was a good strategic business for the people of Newburgh. Proximity to Dundee and transport on the Tay assured a ready supply of the necessary raw materials at fairly competitive prices. The initial design and printing required plenty of skillful but not inordinately demanding human capital.

A ready market existing due to the centrality of Kirckaldy in a trade whose

production was limited to a few locations world-wide. Besides, linen had played itself out by this time, and was prone to severe fluctuations and outpaced by competition in the rest of Fife and Ireland. The over-dependence on a single industry would prove disastrous however, as in the 1970s, the linoleum factory was destroyed by fire.

Newburgh enjoyed a reputation as a holiday resort at the turn of the century, with pleasure steamers arriving from Dundee. During the interwar period the pleasure steamer industry began its decline as a consequence of prolonged trade depression and unemployment. With the advent of the

10

touring bus and more sophisticated travel destinations becoming available, pleasure steamers ceased in the post-war period.

Lastly, specific industries such as quarrying and transport have tended to be taken over and operated by outsiders. Taken as a whole, the various attempts to inject stability and industry in Newburgh failed to achieve long-lasting effects.

Disentrepreneurship in Newburgh

Economic development is by no means a uni-directional process. In 1900, Argentina was one of the ten wealthiest countries in the world, although it is currently classified as a developing country.

In the case of Argentina, however, it was not so much due to regression as a failure to

grow with the world economy, particularly after WWII.

Newburgh presents a case of a different sort, and for this, the term “disentrepreneurship” is most relevant. Disentrepreneurship is when a community creates, either systematically or by accident, an environment unsuitable for the establishment or sustainability of existing entrepreneurial activities. It may do this through public policy initiatives that penalize or prohibit entrepreneurial activities, by promoting cultural values and norms that discourage entrepreneurship, or by failing to create the required legal, institutional, and structural environment necessary for entrepreneurship to become established.

Newburgh has, at times, done quite well in comparison with its neighbors, and at times, much worse. One interesting facet of Newburgh’s history is it appears to consistently have suffered from a leadership/identity crisis. For example, in 1631 Newburgh established itself as a Royal Burgh, as did neighboring towns such as Cupar, Ladybank, and St. Andrews. Most royal burghs were sea ports created by the crown with a burgh charter confirming their rights, and represented in 11

the Parliament of Scotland. Newburgh, however, failed to send a representative – and lost its rights with the Union of 1707 to send an MP to parliament. In a legal document regarding a court debate in 1843, it becomes apparent that it still was not clear whether Newburgh was a Royal Burgh, or a Burgh of Regality. They lacked a representative in Parliament, which was one of the key features of being a Royal Burgh. The document concludes that Newburgh was NOT classified as a Royal Burgh, allowing them to use land as a collateral for a local bond issue6 (Memorial for the Magistrate, 1843).

We can consider the issue of transportation and access. During the eighteenth century the town was one of the two main ports in the county handling flax. Newburgh quay was used by Perth traders, whose own port had silted up (Perth is now a much larger town to the West of Newburgh). Lime, grain and potatoes, the latter from Kinross, Strathearn, and surrounding districts, were shipped on to London, and coal imported from as far as North-East England. Unfortunately, the harbour was rather shallow, and cargo boats had to wait for the tide to change. Heavier boats had to unload their cargo before proceeding up river. Apparently no effort was made to dredge the harbour, and it eventually fell into disuse, with the linoleum factor one of the last to utilize it.

By 1950, the plight of unemployment in Newburgh was well recognized, even by its neighbors in Fife. A brochure produced by the council states emphatically:

‘In order to ensure the future industrial prosperity of the Howe of Fife, towns and villages, including the Burgh of Newburgh, both the County Council and Town Councils are in agreement that land should be made available for industrial development. The Development Plan for Nirth East Fife, prepared under the Town and Country Planning (Scotland) Act (1947) selects the Royal 6

The money is used to build a new marketplace and granary, as well as for general town

improvements.

12

Burghs of Newburgh and Auchtermuchty as being two of the leading communities in North East Fife where particular encouragement should be given to the development of industry’ (Fife County Council, 1954).

At this time, only two industries were referenced as existing in Newburgh – oilskin manufacturing (R. Watson & Co) and linoleum (Tayside Floorcloth). Unfortunately, perhaps due to the topography of Newburgh, only 9 acres were made available for industrial development. Most recently: A 'For Sale' sign appeared in front of Newburgh Clothing and Textiles Ltd last week while staff were on holiday, but management have tried to assure the 20-30 workers that the future of the factory is secure. Following a fortnight's holiday, staff - many of whom have worked there since the factory opened - returned to work in uncertainty as they walked past the sign, and are reluctant to discuss publicly the situation. However, a spokesman for the company said the fact the building was for sale did not mean the end for the business. "There is absolutely no cause for concern," he said. "We don't own the building but we are the sitting tenants. "We have a future and a lot of orders, we would actually like to attract more employees." Newburgh and Tay Coast Councillor Andrew Arbuckle said he was concerned for the future of the factory, which mainly employs local women. He said: "It's the major employer in the town and I hope it has a successful future." Although the matter wasn't discussed at this week's Newburgh Community Council meeting, secretary Helen Smith added: "There's just so many women work there, some who have been there since it opened about 20 years ago. "Staff are very cautious to talk about it because they feel like they're on a knife edge. "It would be terrible if it closed because there's nowhere else for these people to work." ("Concern in Newburgh Over Major Employer," 2005)

The Chatham Islands: Location

The Chatham Islands (the Chathams), are the eastern-most lands of New Zealand; this region prospered from crayfish fishing, until its waters were over-fished. The Chathams are grouped in the region around 44º South latitude and 176º West longitude. This is about 800 km due east of Christchurch. Although New Zealand is geographically in the Eastern Hemisphere and the Chathams are not, “the geology, flora and fauna of the islands indicate their physical connection with New Zealand (Richards, 1952, p. 1.)” In 1842, the British government proclaimed the Chathams part of New Zealand.

13

The international dateline is diverted, such that it passes just east of these islands, for the calendar date to be the same on the island as it is on the New Zealand mainland. Nevertheless, the Chatham Islands lie sufficiently far to warrant their own time zone, 12 hours and 45 minutes ahead of Greenwich Mean Time. The principal island in the group is Chatham Island – known as Rekohu to the indigenous Moriori and later renamed Wharekauri by Maori newcomers – which is 222,490 acres (90,000) hectares; it is one of the two inhabited islands. The other is Pitt Island, referred to as Pitt’s Island by Anderson (1882), and also known as Rangiauria, covering 15,630 acres, and situated 23 km away. South-East Island (locally known as Rangatira), is 640 acres, and no longer inhabited; it was declared a reserve in 1954, and its last sheep were removed in 1961 (Cemmick and Veitch, 1985). Mangere Island was farmed until its last sheep were removed, in 1968.

New Zealand New Zealand has long been known as a progressive nation. Its first welfare legislation was enacted in the 19th century. Airmail was introduced between Auckland and Great Barrier Island, in 1897, when pigeons began carrying mail across the 60-mile distance. In 1898, the country introduced old-age pensions (Walker, 1952). A free medical care programme was made available in 1938. Ever since Ernest Rutherford – one of the most illustrious scientists of all times – New Zealand has been home to great minds. The paper clip was invented in New Zealand, as was the postage stamp vending machine. In 1950, New Zealand had the third-highest per capita income in the world (McMillan, 2002). Walker (1952) noted there were 17½ sheep per inhabitant at the time, and more than 2½ cattle. He elaborated: “Fifth among the world’s flock owners, the country exports more mutton and

14

lamb7 than any other; it stands third in wool production and second in its export. Local mills absorb only 15 million pounds of the annual clip; more than 300 million pounds, on the average, go far and wide (p. 421).” At the time, the export of dairy products was on the rise. In 1955, per capita income in New Zealand was still the third highest in the world (Cameron, 1985). During the ten-year period starting April 1, 1964, economic growth averaged 4.1% per year. Until 1973, New Zealand had one of the world’s strongest economies, with full employment. One New Zealand dollar bought $1.48 US. When the UK joined the EEC, in 1973, the New Zealand economy was jolted with the loss of its primary export market. The oil shock of October 1973 further harmed the New Zealand economy, as high oil prices led to inflation and unemployment (Cameron, 1985). While new legislation was introduced to help trade unions, the top personal income tax rate was increased to 66%. When inflation reached 20%, in 1982, price controls were instituted along with controls on rents and interest rates. The price controls led to shortages. New Zealand had the lowest rate of productivity growth of any developed country (Christainsen, 1996). By the early 1980s, 92% of all firms in New Zealand provided 54% of private sector employment, 50% of manufactured exports and 45% of GDP (Devlin, 1984). During the ten years leading to 1984, inflation averaged 13.4% per annum. In 1984, government spending represented about half the nation’s GDP (Christainsen, 1996). Public spending had led to an acute fiscal crisis, with inflation approaching 20%. Interest payments on debt accounted for about one fifth of government spending. Something had to be done. Between 1984 and 1992, New Zealand “restructured its economy more rapidly and more deeply than any other affluent democratic country (McMillan 2002, p. 197).” Once the governor of the central bank was put on a performance contract, and state enterprises were privatised, inflation

7

A young sheep is a lamb until it has two teeth, after which its value drops significantly. A calf may be sold as veal, as long as it is still suckling from its mother. 15

fell and budget deficits were eliminated. New Zealand reduced its public sector by more than half, and each department became a separate employer, with top public servants hired on five-year contracts. Top bureaucrats were required to focus on delivering measurable outputs; individuals could be fired for non-performance. Deputy ministers became chief executives, and they were hired by independent search committees. In 1985, the government reduced its fiscal deficit, deregulated the financial system, floated the New Zealand dollar, and reduced trade barriers. On September 2, 1985, the minimum weekly wage for adults was raised from $100 to $170. On September 27, 1985, Euromoney named New Zealand’s Minister of Finance, “Finance Minister of the Year,” honouring him for his boldness and vision in reforming a highly regulated and subsidised economic system. Most indirect taxes (including the wholesale sales tax) were eliminated when a 10% goods and services tax (GST) was introduced, in October 1986. The income tax scheme was simplified and income tax rates were reduced. Cameron predicted, “there is likely to be a resurgence of interest in small business (1988, p. 32).” In December 1988, the government announced a $7.9 million programme to fund local employment centres and promote the development of small enterprises. The purpose of this programme was to decrease the high failure rate among small businesses, by giving entrepreneurs access to management skills. The programme was targeted at unemployed people seeking selfemployment, as well as to existing owner-managers. Beginning in 1990, the state targeted inflation. In 1993, GDP growth was almost 5%, the second highest in the Organisation for Economic Cooperation and Development (OECD). In 1994, private investment as a percentage of GDP was double that seven years earlier. Unemployment dropped to 6.5%. In 1994, and again in 1995, the economy grew by more than 5%. Inflation stayed under 2%, and real private investment and exports soared by 70% in three years (Cook, 1995). The combination of low inflation and rapid growth enhanced the attractiveness of New Zealand assets. 16

By 1995, government spending cuts enabled New Zealand to wipe out its $1.6 billion deficit and to accumulate a surplus of $1.8 billion. In 1995, New Zealand’s public service employed 36,000 people – 50,000 less than was the case in 1984. The nation was operating on an annual surplus. Public debt, in 1995, was 34% of GDP, down from 51% in 1991. The unemployment rate was 6.6%, down from 11% in 1991. During the fiscal year ending March 31, 1995, GDP grew 6%. Trade barriers were brought down, and by the late 1990s, most tariffs were negligible. The New Zealand dollar, however, tumbled from above 70 US cents in 1996, to below 40 cents in 2000. Defining “competitiveness” as the set of institutions and economic policies supportive of high rates of economic growth in the medium term, Competitiveness Report 1999, released by the World Economic Forum in Geneva, ranked New Zealand as N°13. The following year, when the definition was expanded to include what drives growth and how it affects standard of living, New Zealand fell to position N°20. In June 2000, the Ministry of Research, Science and Technology announced its intention to become a leader, a facilitator, a broker, a partner and an investor in innovation. New grants were established to encourage R&D. In 2001, Lehman Brothers released a report that measured economic health, based on a database of 400 variables. The study considered three distinct categories of microeconomic policies: (i) those that increase the long-term potential growth rate of an economy, taking into consideration education and R&D; (ii) policies that affect labour-market performance, taking into account wages, costs, flexible working practices, employment protection, and taxes; and (iii) policies that cause reductions in costs, such as the dismantling of monopolies. Analysing the structural policies of New Zealand, the report ranked this country as having the third best economic health, in the world. New Zealand, today, has one of the world’s most open economies, with one of the most deregulated business sectors. A problem, however, is that financial liberalisation has facilitated 17

borrowing, while the tax system does not encourage savings. Both the OECD and the International Monetary Fund (IMF) have warned that New Zealand’s very high net foreign debt makes the nation vulnerable. Fletcher argued, “The level of our savings must equal the amount needed for investment (1999, p. 78).” He elaborated, “We must have an effective savings policy, so that New Zealanders fund the required level of investment…If we can increase New Zealand’s private savings, hopefully we can also increase the availability of venture capital (1999, p. 79).” The Ministry of Commerce has instituted a Business Development Programme, which includes the Enterprise Growth Development Scheme. The purpose of this scheme is to improve the nation’s competitiveness, by providing grants to help enterprises become more efficient and effective in the marketing of their goods and services. Operated by 21 Business Development Centres across New Zealand, the Enterprise Growth Development Scheme offers financial assistance to applicants requiring protection of intellectual property rights, market research, trade fair participation, promotion and advertising. The Ministry of Commerce has also established the Export Assistance Grant Scheme, which provides grants to establish small-scale and medium-sized enterprises engaged in international business. The grants are provided for the purpose of hiring business consultants in key management areas, where improved performance will yield sustainable increases in efficiency and competitiveness. The target areas of this scheme include marketing strategy, research and development.

Settlement and the Chatham Islands Travelling on the HM Brig Chatham, between Australia and Tahiti, Lieutenant William Robert Broughton and his crew – the first Europeans to discover the Chathams (on November 29, 1791) – claimed these islands on behalf of King George III, and named them after their vessel. Neighbouring Pitt Island was so named after William Pitt, the first Earl of Chatham.

18

At the time, 2,000 Moriori people of East Polynesian origin inhabited the islands. Although they were distant cousins of the Maori, they had a different dialect and culture. In contrast to the Maori people, the Moriori society discarded the class system that distinguished between chiefs and commoners. For detailed studies of these people, refer to Skinner (1923) and King (1989). In 1835, 900 Maori – divided on two ships – sailed from Wellington to the islands, and renamed the group Wharekauri. While the Moriori elders had outlawed war and slavery, the Maori newcomers were willing to fight for the land, and they successfully occupied it. The invaders ate large numbers of Moriori people and enslaved others. The introduction of cats to the Chathams caused four endemic species of birds to become totally extinct between 1840 and 1906. Another eight species disappeared shortly thereafter. Victims of recreational hunting, the brown teal was last seen in 1915, and the New Zealand shoveler in 1925.

Fishing off of the Chathams Sealers arrived in the Chathams, from Australia, in the early 19th century. These hunters did not settle on the islands, and the local people did not benefit from the harvests until Jacob Tealing organised a sealing expedition that supplied foreign ships with skins. The sealers plundered the surrounding waters killing fur seals (Arctocephalus forsteri) and Hooker’s sea lions (Arctocephalus hookeri), until there were so few left that the hunt no longer produced an economic return. By 1844, seals were so scarce that sealing was abandoned. Attention then shifted to whales, as 700 whaling ships roamed the area until the whale population was diminished; for a detailed discussion, see Richards (1982). As whaling declined, during the 1850s, the Chathams were used as a depot, for smuggling liquor and tobacco to mainland New Zealand.

19

In 1908, at Owenga (a major port on Chatham Island), the New Zealand blue cod (Parapercis colias) fishing industry was launched. When the freezer in Owenga was closed in 1937, the one in Kaingaroa continued working, and blue cod provided good profits until the 1950s. The 1960s saw the rise and fall of an industry that prospered from the New Zealand rock lobster (Jasus edwarsii), commonly referred to as crayfish. This crustacean is fishable at seven years of age. The Chatham crayfish export industry was born in 1965, when one boat harvested 2 tonnes of crayfish. In 1966, 36 boats collected 1,271 tonnes. The crayfish boom peaked in 1968, when 150 vessels landed 5,958 tonnes; between 1966 and the end of the decade, helicopters were used to lift baskets from boats to processing plants. With the crayfish craze of the 1960s, the formerly quiet Chatham town of Waitangi became the largest fishing port in New Zealand; the town’s male population doubled within a two-year period. Alcohol consumption and crime increased with population. In 1969, tonnage began to fall. Shortly thereafter, Arbuckle noted, “Until recently nothing was done to save and process the legs, claws and body meat of the crayfish. Once the tail was cut off the remainder was crushed and piped out to sea (Arbuckle, 1971, p. 23).” By 1974, crayfish were scarce (Holmes, 1993). When natural supplies were depleted, people realised that the “crayfish boom from the late 1960s until the early 1970s turned out to be the most disruptive, frenetic, and dangerous period in Chatham Islands history. It was lucrative too, but ultimately not for the islanders (King and Morrison, 1990, p. 109).” By the 1980s, the crayfish were no longer in abundance. In 1988, 121 tonnes of scallops were landed at the Chathams. Tonnage fell to 74, in 1989, and to 37 the following year. By 1991, scallops were too scarce to be economic. Recent years have seen a revival of blue cod fishing. This variety is a bottom dwelling fish, usually found on reef edges, gravel or sand that is close to rocky outcrops. Males are territorial and they often occupy large areas, with up to five females. The fish are endemic to New Zealand, and 20

concentrated around inshore Southland and the Chathams. Through tagging experiments it has been learned that blue cod engage in seasonal migration, associated with spawning; however, 60% of returned fish covered a distance of less than 1km (Carbines, 2002). It can be deduced, from this, that blue cod are susceptible to local depletion. About 30 boats are moored at the Chathams, from where – usually with one crew-member each – they work up to 60km offshore. Carbines expressed concern that “fishing pressure will lead to further depletion of blue cod in several areas (2002, p. 32).” In addition to catching blue cod and crayfish, people on the Chathams harvest Blackfoot abalone (Haliotis iris), locally known by their Maori name, paua. Meanwhile, Chatham farmers have focused on meat stock, and in 1965 entrepreneur Pat Smith established an abattoir. In 1966, a collective of farmers bought it and formed the Chatham Islands Meat Company Limited (Holmes, 1993). The year 1967 brought a fall in wool prices, making sheep-farming less attractive than in the past. Meanwhile, the crayfish boom caused a shortage of labour for the abattoir. Many people were attracted to fast incomes associated with crayfish, and neglected long-term opportunities inherent in breeding livestock. Arbuckle (1971) pointed out that in 1968, it took $3.30 to deliver a sheep from the Chathams to mainland New Zealand; at a selling price of $4 per unit, this yielded the farmer 70 cents per animal, before tax. The Chatham Islands Meat Company Limited went into receivership in 1969. Another meat works was subsequently established, and it operated thanks to generous government subsidies; subsidies stopped and the plant closed down during the early 1990s.

Toward the Future Reporting the findings of his ethnographic study of entrepreneurs on New Zealand’s Stewart Island, Levine noted, “the values typical of small businessmen and primary producers, such as the importance of hard work, fair competition, meeting the demands of the market, productivity … are 21

widely held on the island (1985, p. 294).” The study also found that the subjects accepted unequal reward under conditions of equal opportunity, a concept discussed by Bell (1979). The same appears to be true among many of the residents of the Chatham Islands, an area of New Zealand even more remote than Stewart Island. Small business is nevertheless constrained by external variables. Quota owners and paua-divers on New Zealand’s Stewart Island are shifting from having been hunter-gatherers to becoming farmers of this seafood; their project involves reseeding a commercial catch of paua. To avoid over-fishing, the annual catch has been voluntarily reduced from 150 tonnes to 90 tonnes; at $35 million per tonne, this means that the local community is foregoing $2 billion this year, to ensure the long-term survival of paua-fishing on Stewart Island. Meanwhile, on the Chathams, people are harvesting wild swan eggs, and eating Bluff weka (hectori), a flightless bird that has become extinct in the wild of the New Zealand mainland. What about the future of the Chathams?

What brings on disentrepreneurship?

Using both the Cathams and Newburgh as case studies of disentrepreneurship, a number of recurrent themes appear to come to light. First, there has been a consistent leadership void in these communities, whereby despite receiving opportunities for recognition and participation in the political process, community leaders elected to look inward. In the Chathams, neither the sheep farmers nor the fisherman were involved in establishing a long range view of ownership or resource management. A political process advocating sustainability or the interests of community development seemed to be absent. In Newburgh, we observed a failure to supply a member of parliament, despite Newburgh being a Royal Burgh, and the ensuing debate over one hundred years later regarding their confusion over their own constitutional legal status. This suggests a highly 22

paternalistic system was in place, whereby residents neither felt they had a voice, nor that they ought to have a voice, in day-to-day administrative and political activities. A strong highly paternalistic leader is more apt to promote dyadic relationships that create dependencies, less likely to promote independent community action or political discourse. It is a well known method of controlling a population. As Migdal, writing about Latin American village life indicates: In short, there was an inversely proportional relationship between the development of a strong, effective village social and political organization, on the one hand, and the power of local lords, on the other. The greater the scope of resources controlled, the primacy of those resources and the degree of monopoly of the lord (e.g. hacienda), the less likely was it for a village to create mechanisms to spread risks, perform collective tasks, and ensure compliance. The weaker the lords’s control, on the other hand, the stronger was the social and political organization, which provided services to and made demands upon the villager. (Migdal, 1974, pp. 42-43)

Thus, community participation yields commitment that allows for the promotion and evolution of entrepreneurial communities. For example, the factory manager of Tayside Floorcloth, Mr. Greig, recruited a pipe major as an employee in the factory on the condition that he start a village band (Pearson & Pearson, 1998). The pipe major thus becomes a factory employee, and his band became contingent on factory sponsorship. With the demise of the factory, the community runs the risk of losing an important cultural marker. In the Cathams, one resource after another was mismanaged, with the obvious exploitation leading to a rags to riches to rags cycle of development.

The tension between maintaining an inward versus and outward orientation toward the “outside” world (e.g. the urban environment, globalization) is a well documented phenomenon undertaken by people as they negotiate their way locally through the global economy. It is not simply a case of conform or fail. Rural and remote peoples may thus be able to move from a primarily inward orientation towards an outward oriented approach, with the correct balance of structure, authority, and agency (Migdal, 1975).

23

Second, our case studies demonstrate the consequences of geographical constraints that lead to periperalisation.

The Chatham sheep farmers and fisherman were obviously isolated, 800 km

from the more established community of Christchurch, N.Z.. They relied on N.Z. as a market and a source of supplies. When transportation costs rose, they became uncompetitive. Newburgh is geographically situated in a rather isolated location. It is bounded by hills on all sides. On the other hand, it does have a number of advantages. It has a small port on the estuary. It is located near craft centres that produced goods whose production and demand rose as the industrial revolution got underway. Proximately to linen, jute, woollen and cotton mills, as well as linoleum, provided distinctive advantages for the small town. Unfortunately, the town failed to keep abreast of contemporary transportation developments. An efficient road system connecting Newburgh was never implemented, certainly not during its prime production years. Reliance upon the steamer and barges that plied the Tay not only failed due to their demise, but also due to the failure of local interests to invest in the necessary dredging services that would have maintained some centrality to the port. No attempt was ever made to develop a systematic transportation system linking the port with the railway when the railway finally arrived. Further, once the railway arrived, demand was so low it finally fell into disuse and was eventually closed entirely.

Diversity is another critical component of entrepreneurial communities. Few environments are able to maintain production advantages in any one industry for more than a few decades. For the Chatham sheep farmers and fisherman, the failure to diversify led to economic failures. In the case of Newburgh, industrialisation killed the handloom weaving industry, and weavers who did not leave their homes to work in small or large mills were the ‘losers’ in the textile industry. As Steel explains:

‘In 1820, David Blair, the Board of Trustees’ General Surveyor, reported on the depressed state of the linen trade throughout the country. In 1821 he reported full employment in Forfar but 24

continued depression in Fife and Perth…1842 and 1847 were very bad years for Fife, especially for the handloom weavers’ (Steel, 1975).

At its peak, Newburgh maintained a diverse economic base, consisting of fishing, boat making, tourism, textiles, mining, and linoleum. No industry is immune from competition, and all experience the rise and fall of demand. What is unique in the case of Newburgh is that while the community once prospered with an array of businesses, it failed to transform and redevelop those resources when they faded from economic viability. In short, Newburgh entrepreneurs must either have ceased being entrepreneurial, or else they may have left – but the end result is a dearth of variety in the contemporary business environment.

In

conclusion,

we

attribute

three

main

forces

accountable

for

community

disentrepreneurship. They are: 1) a failure in community leadership 2) periperalisation resulting from both geographical and infrastructure constraints and 3) failure to adequately diversify the economic environment. We believe that further study of communities that have experienced such cycles is both warranted, and essential. We hope this comparative work inspires further study in this important arena.

25

References Anderson, Reverend Philip Cuthbert (1882), The Chatham Islands, Christchurch: A. Turner. Arbuckle, Gerald A. (1971), The Chatham Islands in Perspective: A Socio-economic Review, Wellington: Hicks Smith & Sons. Bell, Daniel (1979), The Cultural Contradictions of Capitalism, New York: Basic Books. Campbell, R. 1980. The Rise and Fall of scottish Industry. Edinburgh: John Donald Publishers. Cameron, Alan Ferguson (1988), “Small Business – Is the New Zealand Government Doing Enough?” Accountants’ Journal, September, pp. 32-34. Cameron, Rob (1985), “A Policy of Boldness & Vision,” New Zealand Review, December, pp. 4-5. Carbines, Glen (2002), “Fish Gain or Drain: The Latest on Blue Cod in the Deep South,” Seafood New Zealand 10 (4), May, pp. 32-33. Cemmick, David, and Dick Veitch (1985), Black Robin Country: The Chatham Islands and Its Wildlife, Auckland: Hodder & Stoughton. Christainsen, Gregory B. (1996), “How New Zealand Dismantled the State and Regained Its Fiscal Health: Economic and Political Factors,” The Journal of Private Enterprise 7 (1), Fall, pp. 40-48. Cook, Peter (1995), “The new New Zealand of the North?” The Globe and Mail, Report on Business, Saturday, June 3, p. B-2. Devlin, Martin (1984), The Small Business Sector in New Zealand, Wellington: Development Finance Corporation of New Zealand. Diamond, J. 2005. Collapse: How societies choose to fail or succeed. New York: Penguin Books. Fife Today, Johnston Press. 2005. Concern in Newburgh Over Major Employer, August 5. Fife County Council. 1954. Industrial Facilities in the Burghs of Newburgh, Auchtermuchty, Falkland and Ladybank and the Villages of Stratmiglo, Freuchjie, Kingskettle and Gateside. Cupar, Scotland: Fife County Council. 26

Fletcher, Hugh (1999), “How Can New Zealand Win the Globalisation Game?” University of Auckland Business Review 1 (1), pp. 74-81. Genealogical Society. 1959. Census of Scotland, 1891. Fife. General Register Office for Scotland. 2001. Scotland's Census. Hudson, P. 1989. Regions and Industries: A Perspective on the Industrial Revolution in Britain. Cambridge: Cambridge University Press. Holmes, David (1993), My Seventy Years on the Chatham Islands, Christchurch: Shoal Bay. King, Michael (1989), Moriori: A People Rediscovered, Auckland: Viking. King, Michael, and Robin Morrison (1990), A Land Apart: The Chatham Islands of New Zealand, Auckland: Random Century. Laing, A. (Lecturer). 1872. Lecture on the History of Linen and of Linen Manufacture in Newburgh. Lecture on the History of Linen and of Linen Manufacture in Newburgh.. Cupar, Scotland. Cupar Library Local Studies.

Lenman, B. 1977. An Economic History of Modern Scotland 1660-1976. Hamden Conn.: Archon Books.

Levine, Hal B. (1985), “Entrepreneurship and Social Change: Implications from a New Zealand Case Study,” Human Organization 44 (4), pp. 293-300. Memorial for the Magistrate and Town Council of Newburgh, 1843. Fifeshire for the Opinion of Counsel.

McCloskey, S. 2003. Introduction: Whither development in the age of globalization? In G. McCann & S. McCloskey (Eds.), From the local to the global : 1-25. London: Pluto Press. McMillan, John (2002), Reinventing the Bazaar: A Natural History of Markets, New York: W. W. Norton & Company. 27

Migdal, J. S. 1974. Peasants, politics and revolution. Princeton N.J.: Princeton University Press.

Pearson, E., & Pearson, T. 1998. Old Newburgh. Glasgow: Stenlake Publishing.

Richards, E. C. (1952), The Chatham Islands: Plants, Birds and People, Christchurch, Simpson & Williams Limited. Richards, Rhys (1982), Whaling and Sealing at the Chatham Islands, Canberra: Roebuck. Skinner, H. D. (1923), The Morioris of Chatham Islands, Honolulu: BP Bishop Museum Press. Smith, Adam (1776), An Inquiry into the Nature and Causes of the Wealth of Nations Steel, D. 1975. The linen Industry of Fife in the Later Eighteenth and Nineteenth Centuries. Unpublished Dissertation. University of St. Andrews. Walker, Howell (1952), “New Zealand, Pocket Wonder World,” National Geographic 51 (4), April, pp. 419-460. Whyte, I. 1995. Scotland Before the Industrial Revolution: An Ecnomic and Social History c. 10501750. London: Longman.

28