DS : 2204. 4.0 THE ROLE OF GOVERNMENT AND PRIVATE SECTOR IN MAKING ENTREPRENEURSHIP SUSTAINABLY PROFITABLE IN DEVELOPING COUNTRIES

4.0 THE ROLE OF GOVERNMENT AND PRIVATE SECTOR IN MAKING ENTREPRENEURSHIP   SUSTAINABLY PROFITABLE IN DEVELOPING COUNTRIES

4.1 Fostering the growth of entrepreneurial ecosystems

Over the past 35 years the level of government interest in entrepreneurship and small business development as potential solutions to flagging economic growth and rising unemployment has increased. It helped to spawn a new field of academic study and research.

So what are “entrepreneurial ecosystems” and what role can government policy play in their formation and growth?

The concept of the “entrepreneurial ecosystem” can be traced back to the study of industry clustering and the development of National Innovation Systems that took place in the 1990s. However, the term was being used by management writers during the mid-2000s to describe the conditions that helped to bring people together and foster economic prosperity and wealth creation.

4.2 What can government do to stimulate entrepreneurial ecosystems?

They contrast “traditional” versus “growth-oriented” policy approaches to enterprise development. The first of these approaches tends to focus on trying to grow the total number of firms via business start-up programs, venture capital financing and investment in R&D or technology transfer.

This is a “pick the winner model” and can also include business or technology incubators, grants, tax incentives and support programs. Such programs are essentially transactional in nature. It is not that they are of no value, but they cannot guarantee success via such direct intervention.

A “growth oriented” approach is more relational in nature. This focuses on the entrepreneurial leadership of these growth firms. It seeks to understand their networks and how to foster the expansion of such networks at the local, national and international level.

The most important thing is the strategic intent of the team running the business. Firms seeking to grow need to be given help in linking up with customers, suppliers and other “actors” within the ecosystem who can provide resources.

Government ministers can play a critical role in fostering enterprise and innovation. Their role is to direct the government departments and agencies to focus A minister who has a good understanding of what entrepreneurial ecosystems are, how they form and the role and limitations of government policy is well-placed to generate more effective outcomes on the problem and develop effective policies.

4.3 Key recommendations for government policy on entrepreneurship ecosystem

In summary, key recommendations for government policy in the fostering of entrepreneurial ecosystems are:

1.           Make the formation of entrepreneurial activity a government priority - The formulation of effective policy for entrepreneurial ecosystems requires the active involvement of Government Ministers working with senior public servants who act as ‘institutional entrepreneurs’ to shape and empower policies and programs.

2.           Ensure that government policy is broadly focused - Policy should be developed that is holistic and encompasses all components of the ecosystem rather than seeking to ‘cherry pick’ areas of special interest.

3.           Allow for natural growth not top-down solutions - Build from existing industries that have formed naturally within the region or country rather than seeking to generate new industries from green field sites.

4.           Ensure all industry sectors are considered not just high-tech - Encourage growth across all industry sectors including low, mid and high-tech firms.

5.           Provide leadership but delegate responsibility and ownership - Adopt a ‘top-down’ and ‘bottom-up’ approach devolving responsibility to local and regional authorities.

6.           Develop policy that addresses the needs of both the business and its management team - Recognise that small business policy is ‘transactional’ while entrepreneurship policy is ‘relational’ in nature.

The reports are rich in detail, but three points jump off the page regarding the role of government.

First, when the overall environment for business is bad, there are many entrepreneurs.  For example, while there is a great deal of variation shown by the data within Africa, it is also clear that this is a difficult place to do business, because, for example, regulation is unpredictable and property rights can be hard to defend against powerful people.

Second, the negative effects of macroeconomic policy can crush new business creation even in places with plenty of human capital and good perceived opportunities.

Third, the most difficult question is for what the report calls the innovation-driven economies, most of which are already among the richest countries in the world.  What, if anything, should the government do to promote entrepreneurship?

Government is responsible for the overall infrastructure in a country, and this includes access to education, decent roads and other transportation links.  There is also a case for supporting basic technology development, like at the university level, for example, because of the spillovers or externalities throughout the economy. (I work at M.I.T., which benefits greatly from such support and which has had a major impact on new business creation.)

In innovation-based economies (as the Global Entrepreneurship Monitor classifies them), what governments really need to do is to encourage people – entrepreneurs and the equity investors who back them – to take risk and ensure that failure is seen in a positive light, rather than as some kind of stigma.

The message should be: Go out and start a business, based on your best idea.  Find a technology with a new application or develop a different way to make customers happy.  If it doesn’t work out, you have still developed important skills and made a major contribution to society.