Entrepreneurial activity and its extraordinary economic impact

Ignacio de la Vega. Director Entrepreneurship Area. Instituto de Empresa

1 December 2004

Society today understands the phenomenon of the entrepreneur and its impact on a national or regional macroeconomy much better than 25 years ago.

Today, citizens and governments alike know that a significant part of a society’s economic well-being is the result of the efforts of hundreds of thousands of entrepreneurs who assume a more or less high rate of personal and financial risk in the development of their business projects.

We know that an important part of any nation’s GDP (and the more developed the country, the higher the percentage) is based on new business projects or on the growth of recently created companies. We also know that the latter have fuelled the creation of a high percentage of jobs, particularly today, when globalization of the economy has led to the unstoppable progress of delocalization - or, put more correctly, relocation of business activities in areas where salary costs are lower. Finally, thanks to varied research, we know that a high percentage of the great innovations of recent decades are the result of entrepreneurial activities.

This change in our awareness over the last 25 years has placed the figure of the entrepreneur in a more balanced position on our society’s scale of values. Furthermore, it has provoked the reaction - albeit somewhat reticently as yet - of our social actors and public administrators, who - aware of the importance of the phenomenon - have begun to include entrepreneurial activity in development of their political strategies.

Our country, which has a traditional base of entrepreneurs whose efforts are aimed at creativity within our society, has undergone significant growth in this sector. The GEM Report (Global Entrepreneurship Monitor) - drawn up annually in almost 40 countries, and headed in Spain by Instituto de Empresa - confirms the size of the phenomenon: in the GEM area, 9 percent of working-age people are involved in creation of new businesses, in comparison with an estimated 2 percent in 1980.

Enhancing entrepreneurship

Despite recovery of the Total Entrepreneurial Activity Index in 2003, which shows that business creation is highly sensitive to the social, political and economic situation, the GEM Report positions Spain halfway up the ranking of developed countries in the entrepreneurial activity index. As indicated above, this usually has negative consequences on the macroeconomic health of any society.

Why is this? Why are we still far removed from societies as entrepreneur-oriented as North America, Norway or Australia? A closer look at what supports or slows the work of the entrepreneur offers evident conclusions. The factors with the greatest influence in any modern society on the growth of entrepreneurial activities are these: government programs and policies, existence of appropriate financial instruments, specific training and education, technological transfer and R&D, the opening of internal markets and existence of adequate infrastructures.

These are the formulas public administrations must implement to increase and improve entrepreneurial activity on both a quantitative and qualitative level, which, as has been already pointed out, remains a key factor in the generation of collective wealth and innovation in our society.

Of all these factors, two are essential because of our tardiness compared to our competitors, and have led to a clear competitive disadvantage: these are consolidation of a diversified financial structure to serve the sector of new companies, and development of a new training policy in entrepreneurial matters to enable introduction of these concepts at early stages in the training cycle.

The greatest void from the financial point of view lies in development of a sound network of business angels, who provide financial resources to business projects during their initial stages and enable innovative projects to appear on the market with a potential for growth. The key here, and our governments know this, lies in the taxation of capital gains.

Training, the subject still pending in our study plans, is another key factor to development. This is not only because of what it provides in differentiation and management tools, but also, as our French neighbors know, thanks to their macro-campaign of the 1980s, because of what it provides society in diffusion and popularization of entrepreneurial activity. Our new government is still designing its policy, and we hope, for our economic well-being, that they get it right.

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