Social entrepreneurship through cultural heritage-CHEER - EN

2.2.1 Introduction

The importance of entrepreneurship for economic growth and development is well understood. However, when most people think about entrepreneurshipⁱ, they tend to conceptualize it as an innate skill or talent. Hence the debates on nurture versus nature which lie behind the policy question of “educating” people to become entrepreneurs. However, this debate misses an important point, as it ignores the regulating influence of national context and institutions in shaping entrepreneurial activityⁱ. When myopically focusing on the supply of entrepreneurs, policymakers ignore that, most often, the real bottleneck is not supply, but rather, the quality of entrepreneurial efforts that we observe in any given economy. This is why institutions and incentives are important: they regulate how entrepreneurial effort is channelled into productive use. Depending on institutions and incentive, entrepreneurial effort may go into productive or unproductive uses, and it may not materialize in new entrepreneurial ventures at all. Thus, the prevalence as well as the forms of entrepreneurship that we observe in different countries will be affected by institutional structures, the level of development, as well as country-specific cultural and policy factors. For many analysts of developed economies, the existence of an elaborate framework of constraints, created and enforced by institutions, is simply taken for granted and not specifically addressed. Thus, it is possible largely to 'ignore' the impact of institutions in advanced market economies where for the most part, market institutions are present and functioning. However, there is a growing recognition of the importance of the institutional environment for not only entrepreneurship but for fostering national economic growth and stability.

2.2.2 Incentives, institutions and entrepreneurship

As Baumol noted in his seminal work, entrepreneurship development is a continuous process. The types of entrepreneurs that will be 'activated' (actually start their businesses) is largely affected by the existing incentive structure that results from the combination of formal and informal institutions discussed above, such as rules, norms, rules and beliefs present in a given environmentⁱⁱ.

The dynamics of the entrepreneurial process can be vastly different, depending on the incentive structure within a particular economy. As institutions become stronger, in the sense of supporting market-based economic activity, increasingly more entrepreneurship activity is shifted toward productive entrepreneurship, thus strengthening economic growth and development. In consequence, it is important to understand not only the individual characteristics of the entrepreneur but also the context in which they operate: the incentives, institutions as well as the stage of economic development. The interdependence between incentives and institutions also affects other characteristics such as quality of governance, access to capital and other resources and what entrepreneurs perceive. Institutions are critical determinants of economic behaviour and economic transactions in general, and they can have both direct and indirect effects on supply and demand of entrepreneurs.

2.2.3 The key institutions for entrepreneurship

Informal institutions based on networks can positively affect entrepreneurial development. In the absence of strong market supporting formal institutions, informal structures such as networks can become significance, assisting entrepreneurs to mobilize resources and to cope with the constraints of highly bureaucratic structures and officials. Networks have been found to be important for access to resources (such as information, finance and labour) but also to greatly enhance the entrepreneur’s opportunity recognition capabilitiesⁱⁱⁱ. Social networks have also been identified as an antecedent for entrepreneurial alertness which constitutes a necessary condition for opportunity recognition. Some scholars have argued that a cohesive or densely embedded network provides a competitive advantage for entrepreneurs but others have proposed that sparsely connected networks full of ‘structural holes’ provide a competitive advantage^iv. In weak institutional environments, networks between enterprises and officials are paramount for business survival and growth. New businesses without such connections are in most cases bound to fail. You will learn more about networking in unit 4 of this course.

2.2.4 Institutions and the GEDI Index (Global Entrepreneurship and Development Institute)

The GEDI index represents the first attempt to measure productive entrepreneurship on a national level, embedded in a specific institutional context. As such, the rankings generated by the index go beyond those of traditional indicators of start-ups, such as the Total Entrepreneurial Activity (TEA) index produced by the Global Entrepreneurship Monitor, integrating measures of national entrepreneurial activity with country-specific measures of the quality of institutions. The GEDI framework is based on the idea that entrepreneurship represents the dynamic reaction of three factors, each representing an integration of individual behavioural variables and institutions. These are entrepreneurial attitudes; entrepreneurial activity; and entrepreneurial aspirations respectively. For each, the particular talents of individuals for entrepreneurship are weighted by the national institutional context in which the entrepreneurial activity takes place. Thus, for example, entrepreneurial activity is measured by various indicators of start-up activity, derived from the GEM database. However, in the GEDI index, these are weighted by indicators of the quality of institutions, notably indicators of institutional quality from internationally recognized organizations such as the World Economic Forum and the Heritage Foundation. Thus, the index builds on the insights from Baumol that the effects of entrepreneurial effort on economic growth will depend upon the national institutional context in which those efforts are placed.

Specifically, in the GEDI index, institutional influences are divided into the three sub-indices: Entrepreneurial Attitudes, Actions and Aspirations. Institutional measures for Entrepreneurial Attitudes include market size, level of education, the general business riskiness of a country, the population’s use of the Internet, and cultural support for entrepreneurship as a good career choice. The institutional variables included in the Entrepreneurial Action sub-index measure the business regulatory environment, technology adsorption capacity, the extent of existing human resources improvements through staff training, and the dominance of powerful business groups in the domestic market. Finally, the Entrepreneurial Aspirations sub-index includes institutional variables that measure R&D potential, the sophistication of the business and of innovation, the level of globalization, and the availability of venture capital. One of the main criteria for constructing the GEDI Index is selecting the key institutional (and individual variables) that affect entrepreneurial performance. Even though 'property rights' and 'rule of law' are seen as key factors affecting entrepreneurial development and performance, they tend to cover a wide range of issues and no internationally acceptable measure currently exists that includes GEDI's participating countries. Instead, the GEDI Index captures aspects of property rights through its variable ‘Freedom’, which represents the overall regulatory burden for starting, operating and closing a business. In general, the institutional variables included in GEDI tend to be highly correlated with one another.

Global Entrepreneurship Index 2018 of the Partnership-countries incl. first and last place

Rank	Country	GEI
1	USA	83,6
14	Austria	66
15	Germany	65,9
44	Latvia	40,5
46	Romania	38,2
48	Greece	37,1
69	Bulgaria	27,8
137	Chad	9