Entrepreneurship and innovation: the uncomfortable truth

Entrepreneurship and innovation: popular belief

In general, entrepreneurs are believed to be the agents behind economic growth and innovation. We are told that they are the movers and shakers that create new industries, unseat current leaders from their thrones, and open new frontiers for all. Popular culture tirelessly propagates one success story after another, from Facebook’s Mark Zuckerberg, who was glorified in the movie “The Social Network,” to Tesla’s Elon Musk, an immigrant who became a household name, and Sergey Brin from Google, whose Internet search engine name has officially become an English verb.

So persuasive is the narrative of entrepreneurial technology prowess and success that many countries, including developing countries that feel they are lagging behind, develop comprehensive policies to support and promote entrepreneurship and even set aside considerable funds for investment. in startups through government-run companies. capital programs. But is this fascination and belief in entrepreneurs justified? How likely are entrepreneurs to push the technology frontier and produce the kind of change that governments want? Kent State University professor of entrepreneurship Sergey Anokhin says the solid evidence is far less compelling than popular culture would have you believe.

The dark side of entrepreneurship

In a study of 35 countries over a 7-year period, Professor Anokhin from Kent State and Professor Joakim Wincent from Lulea University of Technology in Sweden show that there is no universally positive relationship between entrepreneurship and innovation. While for the world’s major economies, such as the United States, the positive link between start-up rates and innovation may be true, for developing economies the relationship is actually negative. These countries are more likely to see innovation driven by existing companies, not new ones. With few exceptions, entrepreneurs seek other opportunities that are based on imitating and spreading the ideas of others, and are not equipped to produce truly advanced “big” innovations. On average, new companies are less efficient than existing companies. Consequently, if local governments support entrepreneurship, economic efficiency may suffer and innovation is less likely to occur. In fact, successful technology development in emerging economies is often associated with aggressive business behavior from large corporations, not individual entrepreneurs. Such is the case, for example, of South Korea with its chaebols.

The figure below shows the vastly different impact of start-up rates on innovation and technological development (as measured by patent applications) between countries. Only rich countries can hope that more entrepreneurship will result in more innovation, says Dr. Anokhin. For less developed countries, as the plot shows, an increase in start-up rates will only lead to less, not more innovative activities. The problem, according to Sergey Anokhin, is that developing countries often look to the major economies when trying to design their own policies. Also, naturally, the same textbooks used by students around the world are written by academics from the world’s leading countries and do not take into account the context of developing economies. Taken together, it often locks up policymakers in assuming the relationship between entrepreneurship and innovation that will not hold up in their particular parts of the world. Policies in favor of entrepreneurship will not produce the expected effects and limited resources will be wasted to support activities that are largely harmful.

What all this means

It is time to recognize that the relationship between entrepreneurship and innovation varies from country to country, says Professor Anokhin. That’s why the World Economic Forum’s Global Agenda Council to Encourage Entrepreneurship explicitly recognizes that Silicon Valley’s success stories don’t necessarily resonate in other parts of the world. General policies that aim to foster entrepreneurship to drive the country’s innovation may very well be wrong. Instead, a contingency approach that takes regional particularities into account should be employed.

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