Prominent blogger/economist/journalist Ikeda Nobuo links to Scott Shane’s book that there are wrong preconceptions about America on business (池田, 2009). America tends to have an image that it is a thriving capitalist society with tons of entrepreneurs. But this is partially refuted by the self-employment rate, which is very low compared to other countries. Japan even has a higher self-employment rate than the U.S., and it is considered that many Japanese businessmen are actually “salary-men“.
Since OECD collects data on self-employment, I decided to plot it below (OECD 2009).
Few of the countries show much higher self-employment rates like Turkey, Greece and Mexico. The actual numbers that the OECD gives can be debated, but in general, the smaller economic powers tend to have higher self-employment rates. This could be due to plenty of reasons, but one could conceive larger corporations having less influence on employment prospects.
However, what I really wanted to look at were entrepreneurship rates. Entrepreneurship is an important component of any economy. It provides competition and fills gaps that are not met by big businesses and governments. The Global Entrepreneurship Monitor (GEM) collects this data internationally. What differentiates GEM data from other entrepreneurial data is that they look for not only new businesses, but individuals that are planning to start a business (“Nascent Entrepreneurs”). This enables to grab a more comprehensive outlook on both entrepreneurial ability and intent (GEM 2009).
Below I showed the nascent entrepreneurs (defined as “…actively involved in setting up a business they will own or co-own; this business has not paid salaries, wages, or any other payments to the owners for more than three months”) for each country (GEM 2005).
The graph shows a differing view than the self-employment rates. Some countries (U.S., New Zealand, Iceland) had very low-self-employment rates but high entrepreneurship intent (and activity). On the opposite end, Japan, Sweden and Denmark had both low entrepreneurship and (mid-to-low) self-employment rates.
Looking at this in relative terms, I listed the ratio of self-employment rates to nascent entrepreneurship. This is only one data point, so not much can be said, but a partial reason for Japan having high values is that a relatively large part of the population is “dynastic” (Horioka 2001). Meaning, if one’s parents have their own business running, there is a high probability that the child would succeed its operations without going through the whole entrepreneurial thought process. There may be other effectively similar customs for Hungary, Brazil and China.
The GEM (2005) dataset had a number of entrepreneur related survey questions. All questions were answered yes or no, and the percentage of yes is collected for each country. In general, a higher yes percentage implies that the country has higher entrepreneurial spirit/intent/ability, etc. After standardizing the data into a z-distribution (to make comparable across questions), I decided to illustrate all of this data using a heat map. The redder spots implies relatively less approval, while the white spots indicate higher approval.
I listed the countries according to the same order as the number of nascent entrepreneurs above. Because we see a gradient from red to white, not surprisingly, low nascent entrepreneurship correlates with less approval of the questions asked. For example, NBSTAT05 asks, “In your country, those successful at starting a new business have a high level of status and respect?” where only 52% of Japanese and 35% of Hungarians answer yes (contrast to 61% for U.S.). Another question asks (SUSKIL05), “You have the knowledge, skill, and experience required to start a new business?” and Japan answers yes 13% of the time, whereas the U.S. answers yes 52% of the time. The code for the questions are included in the GEM (2005) dataset as a .pdf file.
In conclusion, low self-employment rates doesn’t necessary imply low entrepreneurship. Entrepreneurship rates and GDP growth are correlated; thus, it would be advisable to build a framework to maximize entrepreneurship as one of the wedges of economic recovery.
Refs:
- OECD Factbook 2009. Self-Employment Stats.
- GEM 2009 Global Report.
- GEM 2005 MASTER DATA SET.
- 池田信夫. 希望を捨てる勇気―停滞と成長の経済学. ダイヤモンド社 (2009/10/9).
