GOLDEN GROWTH
Box 5.5: Where does entrepreneurship flourish? A hundred years ago, the Austrian economist Joseph Schumpeter published his first major work, The Theory of Economic Development, laying the foundation for a large literature examining the role of the entrepreneur in economic development. For most economists, entrepreneurship is an activity responsive to material incentives such as competition, income taxes, or bankruptcy laws, and their influence on risk (Aghion and Howitt 2006). Some economists offer cultural theories of entrepreneurship, which emphasize how value systems encourage people to invest their talents in economic activities (rather than achieving cultural excellence, for instance; for a useful summary, see Shiller 2005). To explain why some regions develop economic clusters and others do not, Glaeser, Kerr, and Ponzetto (2010) examine the supply
of entrepreneurship versus the relative role of economic incentives stimulating demand for entrepreneurial activity, using an established empirical correlation between average company size and employment growth across locations in the United States. Their findings indicate that the supply of entrepreneurship matters. Some regions have a higher density of enterprises to start, reducing costs for others, and allowing clusters to grow (see also Delgado, Porter, and Stern 2010). But some regions are simply lucky to have more entrepreneurial people who, at the right juncture, were able to exploit new economic opportunities. This insight seems confirmed by evidence that attitudes toward values associated with entrepreneurship—such as risk-taking, thrift, and preference for work over leisure—vary across not only countries but also
regions within a country (Shiller 2005). It is likely that a combination of cultural, structural, and economic factors foments entrepreneurial clusters such as Silicon Valley or route 128. In the United States, such clusters have grown to international significance because labor is more mobile, venture capital more developed, and the home market large enough to nurture domestic companies to a global scale. Whether Europeans as a whole are less entrepreneurial than Americans is not clear. The challenge for Europe is to create a network of smaller innovation clusters that achieves the global reach of Silicon Valley. If Europe integrates its services markets, the livability of its historic cities and the quality of its transport network may enable it to compete with California (Crescenzi, RodríguezPose, and Storper 2007).
example of other innovators operating in similar markets. These are factors that influence the supply of ideas that innovators can use. Intermediating between supply and demand are a host of other factors, some specific to innovation, some affecting any investment. Key among these are: the availability of credit, venture capital and “angel” investors (for innovators specifically), and direct public support; intellectual property rights (IPR); regulatory barriers that may discourage innovation (for example, the costs of licensing new technologies, starting up or closing a business, and changed complementary inputs such as hiring and firing labor); and other factors such as the structure and efficiency of the tax or legal system, which influence the probability that an innovator will retain profits. Another factor influencing both supply and demand—and recently receiving considerable attention—is the existence of an “entrepreneurial culture.” There is strong evidence suggesting that attitudes to entrepreneurship vary across countries and regions (box 5.5). Moreover, the presence of other entrepreneurs may stimulate innovators to start a new venture. This explains the interest of policymakers in creating innovation clusters (Lerner 2009; Delgado, Porter, and Stern 2010). Below are three additional observations on the National Innovation System framework (figure 5.12): · Discussions of National Innovation Systems often overemphasize supply-side factors and inputs into the innovation process, neglecting the fact that the best test for any innovation is its success with customers. Understanding and reinforcing incentives for firms to innovate and for entrepreneurs to enter new markets is key to a successful innovation system. Without “market pull,” resources can be wasted. The painful transformation of public R&D institutes
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