Friday, March 29, 2024

Life of The Disenfranchised Entrepreneur: Discrimination, Success, and Stigma

We love the stories of entrepreneurs who advanced from poverty to success and riches. How much do these stories reflect reality, and not wishful thinking? What are these stories missing? Recent research by Leandro S. Pongeluppe published in Administrative Science Quarterly examines a more modest – and so more realistic – story of social advance through entrepreneurship, and it offers a piece of realism and some important lessons.

The story of entrepreneurship being the path to success is quite realistic because poverty is often a result of labor market discrimination, so there is no way out except through entrepreneurship. Labor market discrimination is a powerful exclusion because employers discriminate against those who are visibly different: often minorities or women. In this research, such discrimination was against people living in the Brazil slums (“favelas”), who are easy to distinguish by their language dialect and address.

Entrepreneurship by the disenfranchised is not easy, though, and the whole foundation for the research was a set of programs teaching favela residents skills for forming and operating businesses. The skills were useful, because those who received the training were able to start businesses more often than their peers. Importantly, this happened even though those who received the training were no more likely to get a job after the training than those who did not—despite the fact that training someone for running a business also makes them more capable as an employee of a business. Labor market discrimination is a powerful exclusion.

So, with more entrepreneurship and higher income, after training we have a nice story of success, right? That’s where the traditional success story is incomplete. We are forgetting that discrimination against groups happens because they are not supposed to be successful, so when they succeed against the odds that’s wrong too in the eyes of others. They carry the stigma of their disenfranchised background in the favelas, and this stigma is imposed more strongly by others the more successful they are. More income means more prejudice and more stigma from those who are fortunate enough to be born to a middle-class life.

What to do? Obviously, training the disenfranchised for entrepreneurship is still right, and equally obvious it is hard, or impossible, to control the irrational responses of others. Even the old stories of entrepreneurs who advance from poverty are not enough. But we know the reason, of course. In the novels and the movies, those entrepreneurs looked just like the audiences. The stigma will not fade until we tell more stories of favela dwellers and minorities who succeed through entrepreneurship, and we learn to celebrate them too.

Pongeluppe, Leandro S. 2024. The Allegory of the Favela: The Multifaceted Effects of Socioeconomic Mobility. Administrative Science Quarterly, forthcoming.