Entrepreneurship

Entrepreneurship has a cyclical component, raising two questions. Is the entrepreneurship cycle related to the business cycle? And is there causality? A two-way relationship between entrepreneurship and the business cycle would be in line with the two faces of entrepreneurs: as agents of change creating upswings (opportunity entrepreneurship) and as rational actors escaping unemployment by setting up a business (necessity entrepreneurship). Nascent entrepreneurship can indeed be precyclical, implying that the two faces of entrepreneurship also show up in the business cycle, with promising policy implications.

In many countries, ethnic minority groups are over-represented in self-employment compared with the majority community. The kind of work done by minority entrepreneurs can therefore be an important driver of the economic well-being of their ethnic group. Furthermore, growing the self-employment sector is a policy objective for many governments, which see it as a source of innovation, economic growth, and employment. While self-employment might offer economic opportunities to minority groups, it is important to understand the factors that underlie the nature and extent of ethnic entrepreneurship to evaluate whether policy measures should support it.

Because entrepreneurial activity can stimulate job creation and long-term economic growth, promoting entrepreneurship is an important goal. However, many financial, bureaucratic, and social barriers can short-circuit the process of actually starting a business, especially in transition economies that lack established institutional systems and markets. The main obstacles are underdeveloped financial markets, perceptions of administrative complexity, political and economic instability, and lack of trust in institutions. Gender disparities in the labor market are also reflected in less entrepreneurial activity among women than men.

In the transition from central planning to a market economy in the 1990s, governments focused on privatizing or closing state enterprises, reforming labor markets, compensating laid-off workers, and fostering job creation through new private firms. After privatization, the focus shifted to creating a level playing field in the product market by protecting property rights, enforcing the rule of law, and implementing transparent start-up regulations. A fair, competitive environment with transparent rules supports long-term economic growth and employment creation through the reallocation of jobs in favor of new private firms.

Globalization brings both good and bad job news. The bad news is that jobs will be outsourced from high-cost developed countries into lower-cost locations as soon as the associated economic activity becomes mechanized and predictable. The good news is that globalization creates opportunities that can be realized by people bold enough to transform new ideas and knowledge into innovations. In that way, entrepreneurs will play a vital role in creating the jobs of the future by transforming ideas and knowledge into new products and services, which will be the competitive advantage of the advanced economies.

Entrepreneurship is essential to job creation and to productivity growth and therefore is an important matter for government policy. However, policymakers face a difficult challenge because successful growth for a few firms—which cannot easily be identified in advance—is accompanied by widespread failure for most other new firms. Predicting which firms will fail and which will succeed is nearly impossible. Instead of futilely trying to pick winners, governments can play a useful role in facilitating the growth of the most promising firms by setting the conditions for efficient trial-and-error experimentation across firms.

Female-led ventures that are market-expanding, export-oriented, and innovative contribute substantially to local and national economic development, as well as to the female entrepreneur’s economic welfare. Female-led ventures also serve as models that can encourage other high-potential female entrepreneurs. The supply of high-potential entrepreneurial ventures is driven by individuals’ entrepreneurial attitudes and institutional factors associated with a country’s conditions for entrepreneurial expansion. A systematic assessment of those factors can show policymakers the strengths and weaknesses of the environment for high-potential female entrepreneurship.

Family and kinship networks are important in helping people get jobs and start companies, as statistics for developing countries show. Promising new research has begun to assess the positive and negative effects of these family and kinship ties on entrepreneurial success. To what extent, and why, are family networks used, and do they result in better economic outcomes for entrepreneurs? Results point to the need for policymakers to identify and emulate efficient informal networks in order to develop innovative support policies for vulnerable entrepreneurs, especially for those who are attached to weak or inefficient networks.

Policymakers rely on entrepreneurs to create jobs, provide incomes, innovate, pay taxes to support public revenues, create competition in industries, and much more. Due to its highly heterogeneous nature, the choice of entrepreneurship measures is critically important, impacting the diagnosis, analysis, projection, and understanding of potential and existing policy. Some key aspects to measure include the how (self-employment, new firm formation), why (necessity, opportunity), and what (growth). As such, gaining better insight into the challenges of measuring entrepreneurship is a necessary and productive investment for policymakers.

Entrepreneurship is an important lever for spurring transition in the economies of the former Soviet Union and Central and Eastern Europe. Utilizing diversity, in terms of religion or gender, can positively affect entrepreneurial development. Programs that encourage entrepreneurial initiatives (such as business start-ups) in culturally diverse localities should rank high on the policy agenda. Prompting women to start a business, along with female-friendly measures (including targeted legislation), can positively affect entrepreneurial behaviour and the performance of existing enterprises.