Inclusivity Increases Economic Productivity in Entrepreneurship Ecosystems

We often use many arguments to encourage further inclusive entrepreneurship ecosystem building. One of these arguments is often the positive long-run impact on the nation and local economies by ensuring that inclusivity is a normal practice in our ecosystems. One of the things I have rarely heard outside of the discussion around demographic shifts and which companies create the most net new jobs is an explanation as to WHY inclusivity creates better and more economically efficient output. I will explain this in this article. Also, I will share some research from Nobel Prize economist Gary Becker, and his origination of the economic concept, “taste for discrimination” to explain how discrimination creates economic inefficiency.

I argue that you cannot claim to be a good ecosystem builder unless you focus on inclusivity in your ecosystem. Why? Because if you are not an inclusive ecosystem builder, you are allowing lower economic output and the inefficient allocation of resources in your community.

Economic Productivity and Resource Allocation

By tolerating bias in all facets of entrepreneurship, from culture, socialization, and into the more specific areas of funding, education, and networking, we harm the national and local economies. This harm occurs due to the inefficient allocation of resources in the entrepreneurship ecosystem, and this inefficiency produces diminished entrepreneurial output. We currently have many demographic groups, such as different communities of color, women, the intersection of them, and geographic groups including rural and urban core, that are not functioning at full entrepreneurial capacity. I argue that this reduction in entrepreneurial output has had negative economic consequences, and these consequences will increase over time if we do not create more inclusivity in our ecosystems.

Imagine you want to create more efficient output in your ecosystem. To achieve this efficiency, you would have to allocate more resources to entrepreneurs with more talent. In effect, more talented entrepreneurs would receive more resources, and less talented entrepreneurs would receive fewer resources. To demonstrate this, I want to provide you a few barebones hypothetical scenarios that will serve as an example of how efficiency and inefficiency occur.

Scenario A — Unequal Talent, Unequal Resources

In this scenario, the total productivity between the two entrepreneurs is equal to 100. But what if we chose to allocate the resources based upon skill level? It would look something like Scenario B.

Scenario B — Equal Talent, Equal Resources

In this scenario, the total productivity between the two entrepreneurs is equal to 125. By simply allocating resources in relation to talent, we increase productivity by 25. Let’s run one more scenario.

As you can see in these basic scenarios, equalizing resources or allocating resources according to talent (all else equal), creates more economic output, and therefore is a more efficient way of allocating entrepreneurial resources in the ecosystem. Keep these models in mind as we discuss inclusivity in ecosystems.

Inclusive Ecosystem Implications and “The Taste for Discrimination”

As practitioners, we know that there is much more complexity in developing entrepreneurs and building entrepreneurship ecosystems than the simple scenarios above. However, the fundamental principle remains the same. If you allocate resources more efficiently to entrepreneurs with more talent, the economic productivity of your ecosystem will increase. What we, practitioners, also know is that this does not happen most often, particularly when we look at resource disparities provided for entrepreneurs of color, women, and often in rural communities.

If the ecosystem efficiency is a product of ensuring that entrepreneurial talent is rewarded with equivalent entrepreneurship resources, then why has inclusivity in entrepreneurship ecosystems been such a challenge? We can turn to economic research to help understand why. According to David Autor from M.I.T., discrimination is, “…when members of a minority are treated differently (less favorably) than members of a majority group with identical productive characteristics.” [1] Discrimination can be both individualistic and systemic. In ecosystem building, we most often focus on the systemic side of things, so let’s discuss that in the context of discrimination and inclusivity. In ecosystem building, systemic discrimination occurs when individuals from non-majority groups are intentionally or unintentionally not provided equal access to that same information, resources, or various other inputs that support entrepreneurship even if they have equal (or greater) talent.

Similar to scenario A above, entrepreneur A had inferior talent but was provided superior resources than entrepreneur B. If this variation in resource allocation occurred specifically because the entrepreneur receiving less support was a minority, it would be considered discrimination.

Nobel Prize-winning economist, Gary Becker, called this form of discrimination in the labor market economic research, a “Taste for Discrimination.”

In 1957, Becker wrote a book called The Economics of Discrimination. In discussing Becker’s model of discrimination, Autor shared that:

Becker’s 1957 book introduced the first economic model of discrimination. In this model, employers hold a ‘taste for discrimination,’ meaning that there is a disamenity value to employing minority workers. Hence, minority workers may have to ‘compensate’ employers by being more productive at a given wage or, equivalently, by accepting a lower wage for identical productivity.[2]

To put it simply, a woman may have to do the same job for fewer wages than a man (on average.) Or conversely, a woman may have to do more work than the man to get the same pay (again, on average.) The amount of increased work required to get the same pay or the amount less she would take to do the same job is called the “discrimination coefficient.” Also, there are certain instances where “tastes for discrimination” are so high that regardless of whether the woman would do the work for less, or produce more, the man would never hire her. While the theory is much more complex and dynamic than what I shared above that is the nuts and bolts.

In short, taste for discrimination is when a minority has to:

Do more work to get the same amount.

Or

Charge less for the same goods or services.

The Ecosystem Building Implications of “Taste for Discrimination”

What then does a taste for discrimination look like in entrepreneurship ecosystems? To understand that, we have to slightly tweak the model above. In non-inclusive ecosystems, the minority entrepreneurs as a group have to:

Demonstrate more talent than non-minority entrepreneurs (on average) to get the same amount of resources.

Or

Receive fewer resources while having the same amount of talent (on average) than non-minority entrepreneurs.

The objective of inclusive ecosystem building is to (again, all else equal) ensure that minorities, which for this article’s sake I am defining as race/gender/certain geographic locations, are getting the same resources for the same work and talent they are putting into entrepreneurship.

Despite ecosystem building complexity and other cultural factors, all entrepreneurs in a given ecosystem that have the same talent and work ethic should have access to the same level of resources. Anything less requires the minority entrepreneur to do more work to get the same amount of resources, which creates economic inefficiency. This can be seen in Scenario C and D.

Scenario C — Equal Talent, Unequal Resources

Scenario D — Equal Talent, Equal Resources

One thing to note. In every scenario, A, B, C, D, in this article, every time resources were allocated based upon talent (B,D), the economic productivity was higher than when it was unequally distributed based upon talent (A,C).

One story before I close.

It is important to realize that “taste for discrimination” actually exists within the ecosystem and that we need to work to eliminate it to the degree we can. One story I heard recently was that of a Black woman in New Jersey, who had a stellar record of doing large multifamily property development. She shared how she still needed to have a white male with a strong balance sheet be her partner and often the one who “showed up” as the company representative to financial companies. This was despite her stellar and award-winning track record. She had to do more to get the same amount. This is but one of the 1000s of anecdotes that are often shared by diverse entrepreneurs in non-inclusive ecosystems. The problem is that for every “more” she has to do, it means she spends “less” time on developing her businesses, which equals less overall economic productivity.

In Conclusion

Inclusivity increases economic productivity in entrepreneurship ecosystems. The equal allocation of resources (all else considered) should be accessible to all entrepreneurs regardless of race/gender or geography, who demonstrate the same talent and work ethics. This should be the baseline objective in inclusive ecosystem building. Anything less and an ecosystem’s economic output is lowered and resources are provided inefficiently. Economic research by Nobel Prize-winning economist, Gary Becker, on the taste for discrimination demonstrated that discrimination in the labor market causes inefficient economic outcomes. Much of Becker’s findings can be transferred into ecosystem building. Particularly the fact that “taste for discrimination” in entrepreneurship ecosystems means minority entrepreneurs need to have more talent than non-minority entrepreneurs to acquire the same resources or have the same talent as non-minority entrepreneurs and receive fewer resources.

At the end of the day, I argue that you cannot claim to be a good ecosystem builder unless you focus on inclusivity in your ecosystem. Why? Because if you are not an inclusive ecosystem builder, you are allowing lower economic output and the inefficient allocation of resources in your community.

For more information on Gary Becker and the taste for discrimination visit:

How Gary Becker saw the scourge of discrimination

Lecture Note: The Economics of Discrimination

Wiki: Taste Based Discrimination

[1] Autor, D. (2003). Lecture note: The economics of discrimination.

[2] Autor, D. (2003). Lecture note: The economics of discrimination.

The views in this article are my own, and are not necessarily the views of any organization that I am affiliated with.

I believe that all communities deserve the right to have tools and strategies to help them prosper and be economically sustainable. www.iamdellgines.com