Sarika Pruthi
With more than 60 countries that are home to around 4.2 billion people holding elections in 2024, voting will take center stage around the world. And while those running for office will undoubtedly focus on economic issues such as jobs, inflation, and the cost of health care, all too few will focus on perhaps the most important component of economic success: entrepreneurial activity.
According to the Global Entrepreneurship Monitor, total entrepreneurial activity (the percentage of the adult population that has taken some action towards creating a new business in the past year, or who are owner-managers of an active business less than 42 months old) varies across world economies. Not only does this data vary by country, but also in regions within countries. For example, in the United States, seven of the 10 largest initial public offerings for U.S. venture-backed companies in 2018 originated in California.
Entrepreneurship is the engine of economic development. As per The Guardian, with a per capita gross domestic product of $128,308, residents of Silicon Valley, Calif. out-produce almost every nation on the planet. Half the world’s billionaires live in Silicon Valley; a sizable proportion of the remainder lives just north of the area. Aspects of the external environment such as the prevalence of technology infrastructure or top-class educational and research institutions can aid international entrepreneurs’ location choice in starting new ventures. Thus, it is important to bridge gaps in the underlying conditions to make countries entrepreneurial.
What else has been done so far?
Recognizing Silicon Valley’s outstanding performance, others have attempted to emulate its success in the United States, the first serious efforts being helmed by a consortium of high-tech companies in New Jersey and Texas in the mid-1960s. Led by top research labs, business leaders decided to build institutions like Stanford University to complement the regions’ strong technology bases. However, the lack of collaboration with industry due to the latter’s reluctance to share their best researchers with a university failed to yield the desired outcome.
Governments are working to replicate Silicon Valley outside the United States. According to the World Economic Forum, at least four of GEM’s 13 National Entrepreneurial Context Index framework conditions are the direct responsibility of national governments, which can directly support the entrepreneurial process through the provision of resources and investments in research and development.
In Israel, for example, the government succeeded in promoting entrepreneurship by creating a venture capital industry to crowd-in private investments and build one of the most successful high-tech powerhouses outside the United States. However, the top-down formula of selecting a hot industry, building a science park next to a research university, creating a VC pool, and providing subsidies for chosen industries in hundreds of other regions across the world has failed to recreate the same magic.
So, what makes a country entrepreneurial?
An environment conducive for innovation includes favorable aspects of the political, economic, and socio-cultural landscape. A democratic political system fosters private enterprise and wealth creation whereas a centrally planned communist system hinders it. The level of economic development impacts the motivations for entrepreneurship. Per GEM, an average 35% of entrepreneurs in low-income economies are necessity entrepreneurs who start up due to dissatisfaction with, or absence of, conventional work options rather than to exploit an opportunity. Hofstede’s dimensions of “national” culture also determine the degree of enterprise. Indeed, professional networks between faculty and industry leaders and the culture of risk taking and learning from failure have lent Silicon Valley a unique advantage compared to other regional clusters even within the United States, like Boston.
Notwithstanding some possible generalizations, direct comparisons of the international environment for entrepreneurship are complex. First, each economy has its own profile comprising both enablers as well as challenges. Whereas a strong economy bodes well for Japan, for example, in terms of the availability of support resources for early-stage start-up activity, a collectivist culture that penalizes risk-taking mars entrepreneurial initiative.
Second, the goals of entrepreneurship vary across countries. Whereas innovation in developed economies is often synonymous with technology entrepreneurship, that in developing economies like Asia and Africa is often associated with social innovation. Third, entrepreneurial activity manifests at various levels, especially where external conditions for mainstream enterprise are far from ideal. Whereas independent start-ups are often most studied and analyzed in the West, entrepreneurship in collectivist Asian countries like China assumes the form of large organizations and family businesses.
So, what can be done to make countries entrepreneurial?
First, governments need to recognize that no one size fits all. It is important to examine each national or regional context prior to blindly replicating a foreign ecosystem. Second, while initiatives like establishing research universities or lending financial support to launch new ventures may be necessary, they are not sufficient. Support infrastructure like incubation, social networks, and information and communication technologies are needed to scale up new ventures. Openness to inward and return migration can help attract talent to identify and exploit opportunities and build global networks regardless of geography.
Relatedly, and most critical perhaps, is the need to create a culture conducive for innovation. A culture that questions, rather than accepts, the status quo and rewards, rather than penalizes, risk-taking and experimentation is necessary to instill confidence for new venture creation. Whereas early education can condition mindsets, a lens of equity and diversity in investing and team-building can lead to identifying wide ranging problems and mobilizing a variety of resources to address those problems for making our countries truly entrepreneurial.
Sarika Pruthi is an associate professor of entrepreneurship at the Lucas College & Graduate School of Business, San Jose State University, and a public voices fellow with The OpEd Project.
