--By Wim Lancsweert

 

The importance of entrepreneurship for achieving economic growth in contemporary economies is widely recognized, both by policy makers and economists. Empirical analysis, investigating the relationship between entrepreneurship and economic growth at the country and regional level has indicated that a country’s development depends greatly on a dynamic entrepreneurship sector. It also shows that the impact of entrepreneurship on economic growth varies with the development level of an economy, with the sector of economic activity and with the quantity and quality of entrepreneurial supply.

 

Entrepreneurship is difficult to analyze using the traditional tools of economics e.g. calculus and general equilibrium models. These equilibrium models are central to mainstream economics but they exclude entrepreneurship. Both Schumpeter and Kirzner, who brought entrepreneurship on center stage, argue that entrepreneurs do not tolerate equilibrium. Schumpeter introduced the notion of creative destruction as a competitive process in which entrepreneurs are continuously looking for new ideas that will render their rivals’ ideas obsolete. The fundamental element that induces that creative destruction is innovation. We have evolved from the traditional, neo-classical theory which holds that the economic growth of a country is driven by enhancement to capital and labour input and have come to realize that the level of technological innovation contributes significantly to economic performance, particularly at the firm and industry level. So innovation can be easily linked to output and productivity growth. 

 

Entrepreneurship is the missing link between investments in new knowledge and economic growth, but it is also conducive to innovative activity and unrestrained competition. It is the efforts of an individual, the entrepreneur, who goes against the odds in translating a vision into a successful business enterprise. It is a process of searching and exploiting an opportunity, a previously unexploited opportunity. So, entrepreneurship can be defined as “undertaking the organization and management of an enterprise involving innovativeness, independence and risk, as well as the opportunity for profit” (Timmons and Spinelli 2006, 10)

 

As mentioned earlier, entrepreneurship is difficult to analyze, using traditional econometric models. However, there is now a multi-country survey effort, known as the Global Entrepreneurship Monitor (GEM) project, which is making headway in understanding how different types of entrepreneurship affect development. The GEM research programme is an annual assessment of the national level of entrepreneurial activity. Initiated in 1999 with 10 countries, expanded to 21 in the year 2000 and 69 countries in 2012, the program covers both developed and developing countries. It measures the Total Entrepreneurial Activity (TEA), defined as percentage of adult population (18 – 64 years old) that is either actively involved in starting a new venture or is the owner/manager of a business that is less than 42 months old. Its objectives are:

• To allow for comparisons with regard to the level of entrepreneurial activity among different economies.

•To determine the extent to which entrepreneurial activity influences economic growth within individual economies

• To identify the factors which encourage and/or hinder entrepreneurial activity

• To guide the formulation of effective and targeted policies aimed at stimulating entrepreneurship

 

 

It is widely recognized that, in examining the relation between entrepreneurship and economic growth, a distinction should be made between ‘necessity entrepreneurship,’ which is having to become an entrepreneur because you have no better option, and “opportunity entrepreneurship,” which is an active choice to start a new enterprise, based on the perception that an unexploited or underexploited  business opportunity exists. While it is easy to see that starting a new business to exploit a perceived business opportunity would lead to economic development, it is also possible that necessity entrepreneurship may not lead to economic development. Being pushed into entrepreneurship (self-employment) because all other options for work are either absent or unsatisfactory can even lead to underdevelopment.

 

Innovation is not the only important prerequisite for entrepreneurship development, there are other conditions, major features of a country’s socio-economic milieu, that are expected to have a significant impact on the entrepreneurial sector. Much research has been done on creating an environment where entrepreneurship can flourish and grow. Besides the personal traits, like alertness, creativity, ambition, perseverance, that, according to experts, lie at the origin of successful entrepreneurship, there are conditions, favourable to enhance entrepreneurial activity, which are largely dependent on government interventions.

 

 

These Entrepreneurial Framework Conditions (EFCs), favourable to enhance the rate of entrepreneurial activity, can be:

• Cultural : open mindedness, acceptance of risk, long term orientation, “business culture”: a more business friendly environment

• Institutional: stability in government, regulatory incentives (taxation, property rights...)

• Financial: access to finance, credit, available financial resources, including grants and subsidies

 

The GEM - 2009 Report names education and training in entrepreneurial skills as one of the entrepreneurial framework conditions that can create a favourable environment in which entrepreneurship can flourish.

 

“The extent to which training in creating or managing small, new, or growing business is incorporated within the educational and training system at all levels. Subsequent empirical studies have shown that there are two distinct sub-dimensions to this EFC: primary and secondary school level entrepreneurship education and training, and post-school entrepreneurship education and training”

 

Values of entrepreneurship and innovation can be instilled in the students by introducing entrepreneurship in the curriculum from primary school level. 

 

The government’s priority should be on how to become a nation of entrepreneurs, the job-creators, rather than a nation of job-seekers or providing employment to everyone.

 

The European Union, confronted with rapidly increasing unemployment, has recently introduced an action plan, called the Entrepreneurship 2020 Action Plan to unleash Europe’s entrepreneurial potential, aimed at fostering entrepreneurship as the main driver for economic growth. Currently 11 % of European citizens are entrepreneurs, 45% would like to be their own boss if they could.

 

Entrepreneurial education and training is one of the major action areas. Surveys suggest that between 15% and 20% of students who participate in a mini-company programme in secondary school will later start their own company. This figure is about three to five times compared to similar figure for the general population. Other initiatives will be taken at the higher education level and the key competence, “entrepreneurship”, will be imbedded into curricula across primary, secondary, vocational, higher and adult education before the end of 2015.

 

The European Commission will finance programmes aimed at developing a market for microfinance in Europe, and make resources for micro-financing available to member states and regions. Member states will be invited to consider the need for simplification of tax legislation, making it more favourable for early stage businesses, and make use of structural funds resources to set up microfinance support schemes.

 

In order to create a more “business friendly” environment, the Commission will step up entrepreneurship promotion activities and appoint known entrepreneurs as National Entrepreneurship Ambassadors to become “the face of entrepreneurship” in their countries. The member states will also be invited to improve the efficiency of national insolvency laws, including the length and costs of the period of discharge from bankruptcy.

 

By reducing administrative complexities and simplifying employment legislation, flexibility of time and place of work will be greatly enhanced. Member states are invited to reduce time for licensing necessary to start a business activity to one month by 2015.

 

Europe will also open paths into entrepreneurship for demographic groups that are underrepresented within the entrepreneurial population: women, seniors, migrants and the unemployed.

 

Looking at the situation in Nepal and examining the entrepreneurial framework, a favourable socio-economic environment seems to be lacking. In the “Doing Business Report” 2014, published by the World Bank, 29 October 2013, assessing regulations in 189 countries on the ease of doing business, Nepal ranks 105, which is below average. The report deals with areas like starting a business, getting credit, registering property, enforcing contracts, resolving insolvency, paying taxes, trading across borders and protecting investors. Clearly, regulatory hurdles, corruption, political intervention etc. influence this score and the absence of significant regulatory reforms accounts for the limited progress in ranking over the years.

 

 

Several Nepali authors argue that the first step to building an entrepreneurial ecosystem would be finding ways to tackle the stigma held by this society towards entrepreneurship and profit-making. In order to create a supportive environment to entrepreneurial activity, the government should look into emphasizing entrepreneurial sensitization in order to instill a mindset of entrepreneurship.

 

Entrepreneurial education and training should be imbedded into the curricula across primary, secondary, vocational, higher and adult education. A particular focus should be on women’s entrepreneurship, regarded by many as a crucial way to fight poverty and gender inequity in society.

 

The curriculum must be revised and teachers trained in teaching entrepreneurial skills with due attention to the gender issues involved. Simply introducing children to businesses owned by women could go a long way to changing the perception of women and work and could encourage leadership by women from an early age.

 

By implementing the right policies the government of Nepal can help provide the conditions needed to tap the immense potential in business opportunities and encourage bright men and women to explore and exploit these opportunities, generating employment opportunities, raising income and breaking the vicious circle of poverty.

 

(Wim Lancsweert is VSO Education Livelihoods Linkage Coordinator in Kathmandu, Nepal.)