So far, governments the world over have been handing large financial packages to big banks, auto companies, and large infrastructure items, trusting the blue-chip corporations to create new jobs. However, a survey of the academic literature unambiguously shows that small entrepreneurial firms are the engines of job growth: in sum they create more jobs than large established firms (van Praag & Hersloot 2007). According to data collected by the Small Business Administration in the US, small businesses created 78.9% of net new jobs in 2004-2005. In part, this is due to the innovative capabilities of smaller firms, they are 13 times more innovative than their larger counterparts, and the impact of their patents are expected to be twice as high (Baumol 2005). Indeed, there is no better time than in the midst of a crisis to invest in growing the entrepreneurial society. Yet in the current financial crisis, support for entrepreneurs has been sparse. In the US for example, of the $825 billion stimulus package approved by Congress, only 10% has been allocated to helping entrepreneurs, mostly in the form of loan guarantees.

So what can governments do to promote entrepreneurship directly in the current crisis? Should governments also become venture capitalists, in addition to owning banks and auto companies? The short answer is no, bureaucrats are ill-equipped to enter the dynamic ecosystem of entrepreneurship in such a direct way. Instead, governments should focus on creating the context for entrepreneurship to flourish. Broadly speaking, they can take action in two areas: 1. regulations and policies, 2. education and training. While the latter is more of a long-term investment than an immediate fix, it is imperative to focus attention on it now, in order to reap the benefits of an entrepreneurial society in the future.

Last year, the World Economic Forum’s Global Education Initiative began a task force to advance entrepreneurship education globally, deeming it as one of the critical drivers of sustained social development and economic recovery. Its recent report, “Educating the Next Wave of Entrepreneurs”, it recommended focusing on three areas: youth (with a focus on disadvantaged youth), higher education (focusing on high growth entrepreneurship) and social inclusion (with a focus on marginalized communities). In Europe, the Oslo Agenda for Entrepreneurship Education aims to embed entrepreneurship into the education curriculum from primary school to post graduation studies. With this agenda, the leaders of the EU membership hope to raise awareness, stimulate creativity and innovation, and ultimately engage more people in the creation of new businesses.

In Europe’s largest economy, Germany, the rate of entrepreneurial activity is calculated to be 7.7% of the adult population, according to the Global Entrepreneurship Monitor (GEM). This is in the lowest quartile of the 43 countries in the survey. At the same time, Germany has the highest rate of patent registration per capita. Germany is a perfect example of a country that scores high on knowledge creation but low on new business creation. The missing ingredient are the mindset and skills to turn their innovations into viable businesses.

Once we begin to train our citizens from a young age that entrepreneurial thinking and action are imperative to the growth and renewal of our economies and societies, we can rest assured that future storms, like this one, will pass.

Niels Billou
Assistant Professor
ESMT