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Productive entrepreneurs can invigorate the
economy by creating jobs and new technologies, and increasing
productivity.
Entrepreneurs are a rare species. Even in
innovation-driven economies, only 1–2% of the work force starts a business
in any given year. Yet entrepreneurs, particularly innovative entrepreneurs,
are vital to the competitiveness of the economy. The gains of
entrepreneurship are only realized, however, if the business environment is
receptive to innovation. In addition, policymakers need to prepare for the
potential job losses that can occur in the medium term through “creative
destruction” as entrepreneurs strive for increased productivity.
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Nascent entrepreneurship can have some predictive
power over the business cycle
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.
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Poor paid employment prospects push minority
workers into working for themselves, often in low-reward work
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.
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Some entrepreneurs and would-be entrepreneurs
face financial and bureaucratic barriers to starting a business
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.
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Well-designed entrepreneurship programs show
promise for improving earnings and livelihoods of poor workers
Can entrepreneurship programs be successful
labor market policies for the poor? A large share of workers in developing
countries are self-employed in low-paying work or engage in low-return
entrepreneurial activities that keep these workers in poverty.
Entrepreneurship programs provide business training and access to finance,
advisory, and networking services with the aim of boosting workers’ earnings
and reducing poverty. Programs vary in design, which can affect their impact
on outcomes. Recent studies have identified some promising approaches that
are yielding positive results, such as combining training and financial
support.
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In transition economies, better property rights
protection and rule of law enforcement can boost job creation and growth
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.
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In the future, jobs will be created by those
bold enough to transform new ideas and knowledge into innovations
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.
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Government should create an enabling
environment—for entrepreneurs and investors—rather than try to pick
“winners”
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.
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