D.J StoreyUniversity of Sussex, UK

Presentation to Regional Meeting of the GCC countries on SME, Entrepreneurship and Access to finance Indicators, 6-7 December 2011,

Dubai, UAE

Four economic benefits of entrepreneurshipjob generation; innovation; productivity and growth; A valid career option for individualsthe potential to increase the ‘utility’ of

individuals by increasing their, for example, satisfaction or income.

The role of governmentFrom the viewpoint of business owners

Governments can exert either a positive or a negative influence on the extent to which these benefits materialise.

PositivesCreate an enforceable legal framework for

business in which fair competition takes placeProvide a stable macro economic environmentCreate a low tax and low regulation environmentProvide “support” for new and small firms in the

form publicly funded training/ advice/ financeMore generally provide an education framework

for its citizens from which business benefits

NegativesHigh barriers to starting a business –permits/

cost/ timeHigh regulations in operating a businessHigh taxes on business ownersCan favour powerful cartelsCorruption

A Simple Model

Determinants of Entrepreneurship

Entrepreneurial Performance

Impact of Entrepreneurship

A Framework for Indicators

Economic Growth

Determinants

Poverty Reduction

Employment-based Indicators

Other Indicators of Entrepreneurial Performance

CultureAccess to Finance

Market Conditions

Job Creation

EntrepreneurialPerformance

Impact

Regulatory Framework

R&D and Technology

Entrepreneurial Capabilities

Firm-based Indicators

R&D and Technology

Market Conditions

Regulatory Framework

Culture

Public ProcurementCourt & Legal

Framework

Administrative Burdens for Entry

Administrative Burdens for Growth

Bankruptcy Regulations

Access to Debt Financing

Determinants

Safety, Health and Environmental

Regulations

Access to the Domestic Market

Desire for BusinessOwnership

Access to Foreign Markets

Technology Diffusion

Access to Finance

Anti-Trust Laws

Training andexperience ofentrepreneurs

Competition

Entrepreneurial Capabilities

R&D InvestmentRisk Attitude

in Society

Attitudes TowardsEntrepreneurs

Degree of PublicInvolvement

Business AngelsBusiness and

EntrepreneurshipEducation (skills)

Access to VC

Technological Cooperation

Between Firms

Access to Other Types of Equity

University/ Industry Interface

EntrepreneurshipEducation (mindset)

Patent System; Standards

Stock MarketsBroadband

Access

EntrepreneurshipInfrastructure

Immigration

Social and Health Security

Income, Wealth,Business and Capital Taxes

Product & Labour Market Regulation

The 2 big decisions1. Focus on general firm creation or Focus on

high potential firms - Selectivity?2. Focus on Macro policies or Focus on Micro

policies?

The case for general firm Creation policiesSource : Paul. D. Reynolds Higher levels of firm (and job) churning is associated

with subsequent increases in net job growth and productivity increases

New (not small) firms are one major source of jobs (some for short periods of time, some for longer).

Some firms grow (creating create jobs) by expanding the economy, others by driving out competitors leading to offsetting job losses with less net job creation.

Numbers involved in business creation

Source : Paul D. Reynolds

Nascent Entrepreneurs

New Firm

Owner-managers

Egypt 3,372,889 1,496,645

Jordan 253,576 191,916

Morocco 1,117,332 1,523,067

Tunisia 149,848 488,697

UAE 169,794 213,980

The Case against general firm creation policiesPromoting firm creation is a waste of

resources – 2/3 die in six years and <1% of new firms have >20 employees after 5 years.

It encourages optimistic but poorly resourced individuals to take a risk and in many cases make their own position worse

The link between general firm creation rates and economic development remains opaque

The case for SelectivitySignificant job creation takes place in only a tiny

proportion of firms It is the gazelles that transform an economy by

changing the economic and competitive landscape

There are examples of long run, government-funded selective technology projects -SBIR

Business Support programmes that are selective are successful – UK Business Links

There are too many businesses for everyone to be helped

The case against selectivitySelecting the businesses to support is very

difficultThe VC sector gets most of its investments

“wrong” – but makes its money from the extreme successes

It is too politically risky for governments to have this form of payoff

The net impact on employment – in a sector/region/ economy of gazelles can be much less than the gross impact

The Case for Micro policiesEvery developed country has themInformation; Training; Advice ; access to finance;

public procurement; export support etcSMEs expect this form of support on the grounds

that governments also help large firms (even more!)

Self-report data indicates those using this support find it helpful.

It can be targeted at specific types of firms [high tech?]or owners [females?] or locations [areas of deprivation?]

The case against Micro policiesCareful evaluation studies assessing whether

the assistance influences the performance of the assisted firms point to very weak and sometimes no impact.

Delivering micro policies requires a substantial bureaucracy and an enlightened and well-informed political system

It can be very expensive indeedImpact is only apparent in the medium term

Macro Policy componentsEase of doing businessGovernanceMacro-Economic stabilityTax regimeFormal/ Informality Ethics/ ReligionRole of FemalesSMEs respond to, rather than lead, changes

in welfare

So, what policies seem to work?Varies by country and regionVaries by “problem” being addressedVaries by assessment method usedVaries with macro-economic circumstancesVaries with level of economic developmentSo, no “one size fits all”BUT

Where is the Jury still out?Policies to improve access to financePolicies to change “attitudes”Policies to encourage SMEs to provide more

workforce trainingPolicies to provide firms or individuals with

“advice”

ConclusionNew and small firms can contribute to economic

welfare and developmentGovernments can contribute or reduce that

contributionThe effectiveness of policies depends on the

circumstances of the country/regionVery broadly there seems clearer evidence of the

impact of macro policies –regulation, tax, macro-environment, competition, policy delivery

Less evidence of impact of micro policies on access to finance, advice, training or cultural change