OECD and the Evolution of Entrepreneurship Policy Université du Québec à Trois-Rivières Anders Hoffmann, Ph.D. Creative Director, FORA Ministry of Economic

OECD and the Evolution of Entrepreneurship Policy Université du Québec à Trois-Rivières

Anders Hoffmann, Ph.D.Creative Director, FORA Ministry of Economic and Business Affairs, Division for Research and Analysis

Copyright 2007 © FORA, Langelinie Allé 17, 2100 Kbh Ø - www.foranet.dk

Research, Statistics and Policy

• “Es ist nicht genug zu wissen, man muss es auch anwenden; es ist nicht genug zu wollen, man muss es auch tun”

Johann Wolfgang von Goethe, 1749-1832

• ”With data you are just another guy with an opinion”

FORA’s slogan


Two levels of my work

• A political motivation:• Denmark aims at being one of the most

entrepreneurial economies in the OECD by 2015

• An analytical objective:• Develop a better understanding of the drivers of

entrepreneurship and support fact based policy formulation


Political motivation: SME policy in Denmark


Political motivation:Entrepreneurship policy

The Political Platform for the Danish Government, 2005

• The Government will draw up an ambitious, holistic and multi-year strategy to make Denmark a leading growth, knowledge and entrepreneurial society

• Our goal is for Denmark, by 2015, to be one of the societies in the world where most growth enterprises are launched


Analytical objective

• Provide policy makers with a prioritised list of policy areas to promoting entrepreneurship


Entrepreneurship

• Entrepreneurship cannot be seen as a single event.

General population

Want-to-be 30%

Entry 1%

Survival 70%

Exit 25%

Growth 5%GEM

Eurostat

ICE


Defenitions need to come from the policy objectives?

• Job creation

• Economic growth, productivity improvement, and competitive innovation

• Poverty alleviation and social opportunities

• Others?


Why is entrepreneurship important:Job creation and destruction - by age group

0

10

20

30

40

50

60

70

0 1 2 3 4 5 6 7 8+

%

0

10

20

30

40

50

60

70

Pct.

Job Creation Job Destruction

New Plants

New firms


Why is entrepreneurship important:Job creation - by different types

Employmentfirst year

Employment after 5 years

Average number of employees after 5 years

Entrepreneurs 34 100 14 700 0.8

Growth Entrepreneurs

3 200 12 300 15.0

Total 37 300 27 000


Why is entrepreneurship important:Impact on productivity

• Growth Entrepreneurs had a 40% higher productivity (MFP) than the average Danish firm

• Growth Entrepreneurs had a higher share of highly educated people

• A doubling of the number of growth entrepreneurs would increase GDP by 0.6%


Why is entrepreneurship important:- average wage level by firm type

260.000

270.000

280.000

290.000

300.000

310.000

320.000

GrowthEntrepreneurs

Existing firms Entrepreneurs Closing firms

10

00

DK

R


Define performance based on policy objectives

• This study defines entrepreneurship as • entry and exit of firms and • creation of high growth firms,

…as analyses link these two stages in the entrepreneurship process directly to productivity growth (Audretsch and Thurik, 2000; Scarpetta et. al. 2002, OECD 2003, Brandt, 2004).


Comparing PerformanceEntry of new firms

The EU:• EUROSTAT Business Demography provides start-up rates

for 11 countries (more countries will be available soon)

• The US:• Four main sources (US Census Bureau, Small Business

Administration and Bureau of Labour Statistics) of start-up rates - varying from around 10% to around 20%. The US data only includes employer firms

Apply the US definition in the EU (joint work with the OECD and Statistics Denmark)


Comparing Performance- Creating New Firms (Business Demography)

0

2

4

6

8

10

12

14

GBR NOR ESP NLD FIN ITA PRT SWE

Pct.

DNK0

2

4

6

8

10

12

14

CAN USA

Pct.

DNK

0

2

4

6

8

10

12

14

GBR NOR ESP NLD FIN ITA PRT SWE

Pct.

DNK0

2

4

6

8

10

12

14

CAN USA

Pct.

DNK

EUROSTAT Employee-firms


Comparing Performance - high-growth entrepreneurs/firms

• The share of firms with a growth rate (turnover and employment) higher than 60% over a three-year period and with a growth rate of at least 20% each year. (Based on Birch Gazelles definition)

• The data is from the Bureau Van Dijk (BvD)


Comparing Performance- Generating High-Growth Entrepreneurs

0

5

10

15

20

25

30

35

40

Employment Turnover


“Concluding” on policy focus….

• Growth entrepreneurs create more jobs (at higher wages) and increase productivity

• A higher number of new firms does not automatically lead to a higher number of growth entrepreneurs!

• So why no focus on creating growth firms….


From policy objectives to policy areas

“The most important policy implication is that the stimulation of productive entrepreneurship is a much more straightforward and feasible undertaking than previously recognised”

William J. Baumol in Kaufmann Though Book 2005


Key Policy Areas for Stimulating High-growth Firms Methodology

1. The framework conditions for entrepreneurship are defined and quantified

2. The empirical links between the indicators measuring the framework conditions and the indicators measuring high growth are tested

3. Identify key policy areas for enhancing entrepreneurship performance based on regression and comparative techniques


The framework conditions are defined- what constitutes a high-growth firm

A great idea



The rightpeople

A great idea



The rightpeople

Financialbacking

A great idea



IncentivesCulture

The rightpeople

Financialbacking

A great idea


Opportunities Capital Ability CultureIncentives

Total measureof the business environmentfor entreprenurship


Entry Barriers/deregulation

Venture capital

Stock markets

Wealth & bequest tax

Restartposibilities

LoansTrad. Business

educationPersonal

Income tax

Bankruptcylegislation

Business tax &Fiscal incentive

Laubor marketregulation

Entrepreneurialmotivation

Administrative burdens

Opportunities Capital Ability CultureIncentives

Total measureof the business environmentfor entreprenurship

Initiatives towardsSpecific groups

Social securitydiscrimination

Business AngelsTechnology

transfer

EntrepreneurshipInfrastructure

(public)

Access to foreignmarkets

Entrepreneurshipeducation

CommunicationAbout heroes

Capital taxesProcurement

regulationEntrepreneurship

Infrastructure(private)

Private demandfactors


The framework conditions are quantified

• A quality assessment of indicators has highlighted 61 indicators - 18 policy areas quantified.

• Composite indicators are almost an art form in itself and highly controversial.

• The methods suggested in the Handbook on Constructing Composite Indicators: Methodology and User Guide published by the OECD and the Joint Research Centre of the EU Commission in Ispra


Links between performance and framework conditions

BelgiumDenmark

United Kingdom

FinlandFrance

Greece

Netherlands

Italy

Korea

Norway

Switzerland

Spain

Sweden

Germany

United States

Austria

R2 = 0.58

0

20

40

60

80

100

0 20 40 60 80 100

Simple average of framework condition indicators

Sha

re o

f hi

gh-g

row

th f

irm

s


Identifying key policy areas for enhancing entrepreneurship performance

0

20

40

60

80

100Tech transfer regulation

Entry barriers

Access to foreign markets

Loans

Venture capital

Exit markets

Wealth & bequest tax

Capital taxes

Restart possibilities

Entrepreneurship education

Traditional business education

Entrepreneurship Infrastructure

Personal income tax

Business tax & fiscal incentive

Bankruptcy legislation

Administrative burdens

Labour market regulation

Entrepreneurial motivation

US value EU average


-10 0

Income taxes

Administrative burdens - start

Incentives

Bankruptcy

Business taxes

10 20-20-30-40-50 30-60-70-80

Administrative burdens - growth


Distance between Denmark and the top countries


100

Change DK Change DK–T4Change T4

- 10 100- 10 100- 10

Income taxes

Administrative burdens - startup

Incentives

Bankruptcy

Business taxes

Administrative burdens - growth



Identify key policy areas- An example: Venture capital

Correlation 0.59

R2 0.34

Observation 28

Estimate t-stat P-value

Intercept -0.029 -1.82 0.08

Venture capital 0.002 3.69 0.00


Not correlated with performance

Significant correlated with performance

High priority among the Top-4

Bankruptcy LegislationLabour Market RegulationAccess BarriersVenture Capital

Entrepreneurship EducationRestart PossibilitiesIncome TaxCorporate TaxCultureEntrepreneurship Infrastructure

Low priority among the Top-4

Access to Int. MarketsBusiness EducationWealth and Bequest TaxKnowledge TransferAdm. Burdens Loan CapitalStock MarketsCapital Tax


Selected Conclusions

• Europe lack growth firms not start-ups

• Entrepreneurship policy can generate both jobs and higher productivity especially if it is targeted towards high-growth

• More new firms do not mean more high-growth!

• Important policy areas can be identified


Contact information

• [email protected]

• www.foranet.dk

• http://ice.foranet.dk/

• www.oecd.org/statistics/industry-services/entrepreneurship

Documents

OECD and the Evolution of Entrepreneurship Policy Université du Québec à Trois-Rivières Anders Hoffmann, Ph.D. Creative Director, FORA Ministry of Economic