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D.J StoreyUniversity of Sussex, UK
Presentation to Regional Meeting of the GCC countries on SME, Entrepreneurship and Access to finance Indicators, 6-7 December 2011,
Dubai, UAE
Four economic benefits of entrepreneurshipjob generation; innovation; productivity and growth; A valid career option for individualsthe potential to increase the ‘utility’ of
individuals by increasing their, for example, satisfaction or income.
The role of governmentFrom the viewpoint of business owners
Governments can exert either a positive or a negative influence on the extent to which these benefits materialise.
PositivesCreate an enforceable legal framework for
business in which fair competition takes placeProvide a stable macro economic environmentCreate a low tax and low regulation environmentProvide “support” for new and small firms in the
form publicly funded training/ advice/ financeMore generally provide an education framework
for its citizens from which business benefits
NegativesHigh barriers to starting a business –permits/
cost/ timeHigh regulations in operating a businessHigh taxes on business ownersCan favour powerful cartelsCorruption
A Simple Model
Determinants of Entrepreneurship
Entrepreneurial Performance
Impact of Entrepreneurship
A Framework for Indicators
Economic Growth
Determinants
Poverty Reduction
Employment-based Indicators
Other Indicators of Entrepreneurial Performance
CultureAccess to Finance
Market Conditions
Job Creation
EntrepreneurialPerformance
Impact
Regulatory Framework
R&D and Technology
Entrepreneurial Capabilities
Firm-based Indicators
R&D and Technology
Market Conditions
Regulatory Framework
Culture
Public ProcurementCourt & Legal
Framework
Administrative Burdens for Entry
Administrative Burdens for Growth
Bankruptcy Regulations
Access to Debt Financing
Determinants
Safety, Health and Environmental
Regulations
Access to the Domestic Market
Desire for BusinessOwnership
Access to Foreign Markets
Technology Diffusion
Access to Finance
Anti-Trust Laws
Training andexperience ofentrepreneurs
Competition
Entrepreneurial Capabilities
R&D InvestmentRisk Attitude
in Society
Attitudes TowardsEntrepreneurs
Degree of PublicInvolvement
Business AngelsBusiness and
EntrepreneurshipEducation (skills)
Access to VC
Technological Cooperation
Between Firms
Access to Other Types of Equity
University/ Industry Interface
EntrepreneurshipEducation (mindset)
Patent System; Standards
Stock MarketsBroadband
Access
EntrepreneurshipInfrastructure
Immigration
Social and Health Security
Income, Wealth,Business and Capital Taxes
Product & Labour Market Regulation
The 2 big decisions1. Focus on general firm creation or Focus on
high potential firms - Selectivity?2. Focus on Macro policies or Focus on Micro
policies?
The case for general firm Creation policiesSource : Paul. D. Reynolds Higher levels of firm (and job) churning is associated
with subsequent increases in net job growth and productivity increases
New (not small) firms are one major source of jobs (some for short periods of time, some for longer).
Some firms grow (creating create jobs) by expanding the economy, others by driving out competitors leading to offsetting job losses with less net job creation.
Numbers involved in business creation
Source : Paul D. Reynolds
Nascent Entrepreneurs
New Firm
Owner-managers
Egypt 3,372,889 1,496,645
Jordan 253,576 191,916
Morocco 1,117,332 1,523,067
Tunisia 149,848 488,697
UAE 169,794 213,980
The Case against general firm creation policiesPromoting firm creation is a waste of
resources – 2/3 die in six years and <1% of new firms have >20 employees after 5 years.
It encourages optimistic but poorly resourced individuals to take a risk and in many cases make their own position worse
The link between general firm creation rates and economic development remains opaque
The case for SelectivitySignificant job creation takes place in only a tiny
proportion of firms It is the gazelles that transform an economy by
changing the economic and competitive landscape
There are examples of long run, government-funded selective technology projects -SBIR
Business Support programmes that are selective are successful – UK Business Links
There are too many businesses for everyone to be helped
The case against selectivitySelecting the businesses to support is very
difficultThe VC sector gets most of its investments
“wrong” – but makes its money from the extreme successes
It is too politically risky for governments to have this form of payoff
The net impact on employment – in a sector/region/ economy of gazelles can be much less than the gross impact
The Case for Micro policiesEvery developed country has themInformation; Training; Advice ; access to finance;
public procurement; export support etcSMEs expect this form of support on the grounds
that governments also help large firms (even more!)
Self-report data indicates those using this support find it helpful.
It can be targeted at specific types of firms [high tech?]or owners [females?] or locations [areas of deprivation?]
The case against Micro policiesCareful evaluation studies assessing whether
the assistance influences the performance of the assisted firms point to very weak and sometimes no impact.
Delivering micro policies requires a substantial bureaucracy and an enlightened and well-informed political system
It can be very expensive indeedImpact is only apparent in the medium term
Macro Policy componentsEase of doing businessGovernanceMacro-Economic stabilityTax regimeFormal/ Informality Ethics/ ReligionRole of FemalesSMEs respond to, rather than lead, changes
in welfare
So, what policies seem to work?Varies by country and regionVaries by “problem” being addressedVaries by assessment method usedVaries with macro-economic circumstancesVaries with level of economic developmentSo, no “one size fits all”BUT
Where is the Jury still out?Policies to improve access to financePolicies to change “attitudes”Policies to encourage SMEs to provide more
workforce trainingPolicies to provide firms or individuals with
“advice”
ConclusionNew and small firms can contribute to economic
welfare and developmentGovernments can contribute or reduce that
contributionThe effectiveness of policies depends on the
circumstances of the country/regionVery broadly there seems clearer evidence of the
impact of macro policies –regulation, tax, macro-environment, competition, policy delivery
Less evidence of impact of micro policies on access to finance, advice, training or cultural change