A 10-country study conducted by researchers from Babson College, London School of Business, and the Kauffman Foundation found a wide and potentially growing disparity in entrepreneurial business activity within several of the world's developed countries is contributing to a significant gap in economic growth. According to the Global Entrepreneurship Monitor (GEM) study, while entrepreneurship is rising to the top of the public policy agenda in many countries around the world, the difference in the level of activity in new firm start-ups within the 10 countries analyzed in the report are vast, ranging from more than one in every 12 persons in the United States to fewer than one in every 67 persons in Finland.
Among the findings, the GEM study revealed that entrepreneurship is a major contributing factor to a country's economic well being, both in terms of economic growth and job creation, accounting for roughly one-third of the difference in growth rates among the 10 countries analyzed. The GEM study was conducted by an international research team over the past two years to analyze the complex relationship between entrepreneurship and economic growth in 10 countries, which include all G7 countries: Canada, France, Germany, Italy, Japan, United Kingdom, and the United States, plus Denmark, Finland and Israel. GEM researchers from Babson College, the London Business School, and the Kauffman Center for Entrepreneurial Leadership, analyzed data and conducted in-depth interviews with over 300 national experts on entrepreneurship in the GEM countries and commissioned surveys of 1,000 adults in each country. These surveys were used to determine the level of entrepreneurial activity and current attitudes towards starting a new business.
"The GEM report provides conclusive evidence that promoting entrepreneurship and enhancing the
entrepreneurial dynamic of a country should be an integral element of any government's
commitment to boosting economic well being," said Paul Reynolds, GEM project coordinator and a
professor at both Babson College and the London Business School. Adds Michael Hay, a GEM
project director and professor at the London Business School, "GEM endorses the argument that
entrepreneurship makes a difference to economic prosperity and that a country without high
business start-up rates is risking economic stagnation. Countries that are able to replenish
the stock of businesses and jobs and have the capacity to accommodate volatility and turbulence
in the entrepreneurial sector are best placed to compete effectively."
For purposes of the study, entrepreneurship is defined as: "Any attempt at new business or new venture creation, such as self-employment, a new business organization, or the expansion of an existing business, by an individual, a team of individuals, or an established business."
According to the GEM study, Canada, Israel and the United States are experiencing the highest level of entrepreneurial activity among the 10 countries analyzed, followed by Italy and the United Kingdom. Countries with the lowest levels of entrepreneurial activity (in alphabetical order) are Denmark, Finland, France, Germany and Japan. "In countries ranking high in the GEM analysis, entrepreneurship is an integral and accepted feature of economic and personal life. It is rare to find a person who does not personally know someone who is trying to start a business," said Reynolds. "In the less active countries, however, entrepreneurship through enterprise creation remains a structural and cultural anomaly. It may be rare to find a person who knows of anyone trying to start a new firm."
Key Factors For Entrepreneurship
The study further revealed that, among the many factors that contribute to entrepreneurship, perhaps the most critical is a set of social and cultural values, along with appropriate social, economic and political institutions, that legitimatize and encourage the pursuit of entrepreneurial opportunity.
In fact, the GEM researchers identified six key factors accounting for the differences in entrepreneurial activity among countries. These factors involve: the level of perceived entrepreneurial opportunity; entrepreneurial capacity or the motivation and skill to take advantage of the opportunity; infrastructure, broadly defined as the availability of financing, land, facilities, employees, suppliers, government assistance, utility costs, transportation, tax concessions, etc; the demographic make-up of the population, including age, gender and population growth; education; and, culture, particularly the expectations and participation of women in new business start-ups, the acceptance within a country of differences in the level of income among individuals, and the respect for start-ups.
"No matter how rich a country is in opportunity and how well endowed it is with capacity for business start-ups, the extent to which society regards the pursuit of opportunity as socially legitimate will impact the level of entrepreneurial activity, " said Michael Camp, a GEM project director and head of research at the Kauffman Center for Entrepreneurial Leadership. " A set of social and cultural values that encourages new enterprise is a prerequisite of entrepreneurial activity and a defining feature of an entrepreneurial society."
Global Entrepreneurship Monitor (GEM)
Public Policy Propositions
The Global Entrepreneurship Monitor (GEM) provides a framework within which national governments can evolve a set of effective policies for enhancing entrepreneurship. Ten recommendations were identified by the GEM research team:
Promoting entrepreneurship and enhancing the entrepreneurial dynamic of a country should be an integral element of any government's commitment to boosting economic well being.
Government policies and programs targeted specifically at the entrepreneurial sector will have a more significant, direct impact than programs simply aimed at improving the national business context.
To be effective, government programs designed to encourage and support entrepreneurial activity must be carefully coordinated and harmonized so as to avoid confusion and to enhance their utilization by those for whom such programs were designed.
Increasing entrepreneurial activity in any country will entail raising the participation level of those outside the core age group of 25-44 years old.
For most GEM countries, the greatest and most rapid gain in firm start-ups will be achieved by increasing the participation of women in the entrepreneurial process.
Long-term, sustained enhancement of entrepreneurial activity requires a substantial commitment to and investment in education at the post secondary level (i.e., college, university or graduate program).
Developing the skills and capabilities required to start a business should be integrated into specific educational and vocational training programs at all educational levels.
Regardless of education level, emphasis should be placed on developing an individual's capacity to recognize and pursue new opportunities.
The capacity of a society to accommodate the higher levels of income disparity associated with entrepreneurial activity is a defining feature of a strong entrepreneurial culture.
Government and public policy officials and opinion leaders from all spheres have a key role to play in creating a culture that validates and promotes entrepreneurship throughout society.