Is there a relationship between entrepreneurship and economic growth? Is there international evidence to support that?
According to Small Business & Entrepreneurship Council, in 2009 Florida ranked 6th in more flexible states to pursue business. The ranking was based on the list of policy environment for entrepreneurship in the US. Entrepreneurship is a business activity that needs policy makers to move forward to generate economy growth.
Definitely a vision in policymakers to develop entrepreneurship could represent a vast different in economic results. If you do not believe that, just take a look to the three greatest economies in the world USA, Japan and China.
Let’s first get into China and America. Overall entrepreneurship rate in the US is 8.7% vs. 14.6% in China. This money-making development laid on the binomial government – private investors to booster country growth. China posses the third greatest economy in the world, it represents 8% of world GDP, while the US still represents 25% of the overall economy. This is down from 46 % just after World War II.
Annual average GDP growth for China is nearly 10% the fastest growing economy in the world. Unfortunately, the very bad thing is the lack of democracy and the lack of individual liberties as we know.
Despite of that and considering just financial factors, the mix of public and private sector efforts in the small business really helps Chinese economy to become a world superpower. After Mao Zedong and the Communist Party took over power in 1949, China made all operations state owned. By 1956 the private sector was completely eliminated. For the next thirty years entrepreneurship did not exist except for in the very small scale, street vendors mostly, what many would simply consider self-employed. In the 1980s, constraints on private enterprise continued to exist, notably a law limiting employment in a private enterprise to seven people and the difficulty of finding funding. In 1987 a change of policy and repeals of some old laws began the true re launch of the private sector and the era for entrepreneurship was about to begin.
In a survey conducted by the Pew Research Centre in 2009, 44 % of Americans named China as “the world’s leading economic power.” Just 27 % chose the US. In China, the government is often the entrepreneur. It is in many instances a very efficient entrepreneur. Of course there are bankrupt state-owned enterprises, but there are equally dynamic companies starting out in villages, small towns, and major cities, often with a sizable amount of investment or involvement by local government authorities.
To complete our hypothesis, let’s take a look to the infamous Japanese example to make point on the relationship between economic growth and entrepreneurship. In 2000-2009, Japan recorded one of the lowest rates of entrepreneurial activity amongst the world’s leading nations. Just 3% of Japanese are involved in some kind of entrepreneurship. Entrepreneurs face many difficulties when starting their own ventures. Some of these difficulties include receiving loans from banks, the pressures of deflation, weak domestic demand, and tough competition within the country. But the worst thing is that Japanese do not know how to be entrepreneurs, they just know how to be loyal workers. Plummeting demand for Japanese products, everything from cars to flat-screen TVs and digital cameras, has forced manufacturers to lay off thousands of jobs in Japan and reduce production for exports. Currently Japan is far from being a supremacy economy in the world.
In view of these facts from the three leading economies in the world, perhaps is time to be more serious about entrepreneurship incentives in our economy.