Like a good parent, governments can nurture entrepreneurship

Posted: Friday, November 16, 2001

NEW YORK (AP) -- In dealing with constituents, governments concerned with promoting economic progress can benefit from a lesson familiar to any parent: Strike a balance between security and self-sufficiency.

Too much security can thwart initiative, leaving a nation's potential economic development unfulfilled. Too little can deny benefits to those who really need assistance to fulfill their role in society.

The reminder comes in a worldwide study of new-business initiatives for the Kaufman Center for Entrepreneurial Leadership, a Kansas City, Missouri nonprofit organization. It is only one of the findings, but a significant one since entrepreneurship is equated with economic growth and renewal.

''If a country is to fully realize its potential for entrepreneurial activity,'' the report states, ''government should avoid creating a welfare state where everyone is provided for regardless of personal initiative.''

The study, conducted last year among the adult population of 29 countries by Babson College, London Business School and IBM, shows countries with a finely woven social safety net ranked near or at the bottom in small-business formation.

Heading the most-entrepreneurial list were Mexico, New Zealand and Australia, followed by Brazil, Ireland and Hungary. At the bottom were Belgium, Japan, Singapore, Israel and The Netherlands.

The study showed most European Union nations, along with the United Kingdom, were among the least entrepreneurial. And, while ranked in the top 10, Brazil and the United States showed sharp declines from 1999.

The so-called GEM study, for Global Entrepreneurship Monitor, distilled what it called propositions that seem to apply to all countries regardless of their level of economic development.

The first of them is that ''a strong commitment to edcuation, both general and entrepreneurship-specific, is clearly justified across all national contexts.''

The study ''clearly identified government regulatory burdens as a major deterrent to higher levels of entrepreneurial activity,'' especially in regard to time consumed and costs involved.

It also found ''a strong negative association'' between the level and duration of jobless benefits and the occurrence of new-business creation that results from necessity, as opposed to opportunity seeking.

If a country is to realize its potential for small-business formation, it contends, ''its government should avoid creating a welfare state where everyone is provided for regardless of personal initiative.''

The researchers explain that since entrepreneurship ''is the means by which societies extract value from innovation,'' they propose that increased investment in technology development has positive results.

And they point out that a consequence of encouraging entrepreneurs is the inevitability of business failures, while contending that such failures should never be confused with personal failure.

In fact, they argue that in the broadest view business failures are necessary for the efficient operation and adaptation of an economy, since a failed business's resources are reallocated to more productive uses.

The GEM program is scheduled to expand the number of participating countries in coming years, the goal being to extract new and more precise explanations for business formation and success.

End Adv PMs Thursday, Nov. 15.

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