Economic slowdown reflected in entrepreneurship report

The number of people trying to start businesses with the potential to boost the economy and create new jobs declined 10% in the wealthiest nations during the recent global slowdown, according to the most recent Global Entrepreneurship Monitor (GEM) report.

Co-authored by Dr Jonathan Levie of the Hunter Centre for Entrepreneurship, the GEM report is based on more than 180,000 detailed interviews with working age adults. The economic slowdown has led to investors holding back financing and consumers buying less. However in 2009 even as the number of people trying to start businesses in wealthy countries declined, a quarter of new entrepreneurs felt the prospects for their businesses were rosier than a year earlier - new entrepreneurs tended to be more optimistic than established business owners.

The GEM report, which was published in January, also covered social entrepreneurship for the first time, looking at individuals engaged in entrepreneurial activities with a social goal, whether Professor Levieprofit or non-profit, public or private.

GEM researchers identified an overlap between business and social entrepreneurship, where businesses were started to meet a social need - often health or educational - by individuals who needed to make a living.

Socially oriented entrepreneurs are found in a variety of areas though specific issues differed across economic groups. For example, many social entrepreneurs in factor-driven economies provide basic health services, sanitation, and fresh water, while many of those in innovation-driven countries focus on recycling, nature protection, and providing services for disabled persons.

"Rates of social entrepreneurship may reflect what the state is doing," said Dr Levie. "A lot of entrepreneurial activity starts because people see needs that aren't being met by the state or private industry, or around issues that may not seem profitable for private industry."

Countries with the highest prevalence of social entrepreneurs in the 2009 GEM sample include United Arab Emirates, the US, Iceland and Argentina.

The report also showed:

- throughout the world, would-be entrepreneurs are having greater difficulty in obtaining financial backing for their start-up activities, especially from informal investors such as families, friends and strangers.

- countries with strict employment protection regulations have fewer entrepreneurs who have a high potential to create jobs. Strict legislation makes it risky for entrepreneurs to create jobs and for experienced people to quit their job and help build new businesses.

- factors needed to support entrepreneurship include financial support, supportive government policies and programmes, education and training, and supportive commercial, professional, physical infrastructures and social and cultural norms.

"We're not saying all entrepreneurship is great, so the more the better," added Dr Levie, "It is a matter of relative importance. Governments in factor-driven countries may be disappointed at the returns from, say, subsidies for entrepreneurship if the basic building blocks for growth are not in place. It would make more sense for them to invest in infrastructure first so that entrepreneurs can get their goods and services to market."

The findings also suggest flexibility in the labour market may help entrepreneurs to recruit the best people. "If good people feel it is unsafe to leave their current employment because jobs are hard to come by, it is difficult to put good new teams together to exploit new opportunities," said Dr Levie, "On the other hand, if there is considerable churn in the job market, good people know they can always get a job, so they will be more willing to take the higher risk route with a new high potential business."