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Hunting for Heffalumps

David Burnett
Founder, Technopreneurial.com
September 2000

The Entrepreneurial
The History of
Entrepreneurship Theory
& Economic Development
The Supply of
Two Case
Calling for

The supply of entrepreneurship is affected by many factors, not all of which can easily be controlled or changed. Nonetheless, policymakers can implement certain policies in order to encourage entrepreneurship. Based on the above characteristics of entrepreneurs and the factors that affect the supply entrepreneurship, the following policy prescriptions may serve as a general guide for implementing policies that foster economic development through increased levels of entrepreneurship (the recommendations are in no particular order):

  1. Increase the market incentives for entrepreneurs: As stated earlier, one of the primary determinants of the supply of entrepreneurship is the willingness of an individual to become an entrepreneur. Willingness is largely determined by the anticipated economic benefits that will accrue to an entrepreneur if his enterprise is profitable. In many countries market regulations limit the incentives that could encourage would-be entrepreneurs to start their own enterprises. For example, price ceilings that are set below market equilibrium lower the amount of revenue that an entrepreneur could earn in a certain industry. If the anticipated economics benefits are lower than the opportunity cost, than the would-be entrepreneur will not start his own enterprise. Thus, in many countries policies should be implemented to increase and improve the incentives for entrepreneurs. Additional policy possibilities include tax incentives for entrepreneurs.

  2. Improve the availability of credit and capital: The second major determinant of the supply of entrepreneurship is opportunity. In order for an individual to start his own enterprise, it is necessary for him to have the credit or capital to finance the initial start-up costs. One of the primary problems facing would-be entrepreneurs in LDCs is a lack of such capital. Without initial capital, many entrepreneurs do not have the funds to start enterprises of their own. Governments could attempt to correct for this problem by encouraging the development of venture capital companies and by implementing micro-credit programs. The specific type of capital programs that are implemented would need to be crafted specifically for each country, depending on where the country is along its course of development. In the poorest of LDCs, the focus would most likely be on micro-credit programs, like the Grameen Bank in Bangladesh. However, in countries with higher levels of human capital, entrepreneurial firms would derive greater use from venture capital.

  3. Develop entrepreneurship encouragement programs: By passing legislation that is friendly towards entrepreneurs, countries can make it more culturally acceptable and less risky to be an entrepreneur. Additionally, entrepreneurship encouragement programs, like the Technopreneurship 21 Initiative in Singapore5, can assist entrepreneurs in finding capital, setting up a business plan, and complying with the various business and tax regulations.

  4. Initiate entrepreneurship educational programs: New education initiatives should be created to teach entrepreneurship. By equipping more people with the skills to become entrepreneurs, a country can effectively increase its supply of competent entrepreneurs. Economists disagree as to whether entrepreneurial skills can be taught or whether they are intrinsic. Nonetheless, there have been successful results from such educational programs. One example of such a policy is the Malaysian Entrepreneurship Development Centers in the rural, indigenous areas of Malaysia. These centers teach the indigenous people entrepreneurial skills and assist aspiring entrepreneurs with the development of their business plans.

  5. Reform market regulations to facilitate entry into the market: Countries can increase their supply of entrepreneurship by improving the ease of entry into the formal sector. Many LDCs use licenses and permits to regulate who can participate in the formal sector. Although these policies may earn government revenue or protect state-owned enterprises, they effectively make the markets inefficient (by limiting competition) and prevent would-be entrepreneurs from starting their enterprises. By reforming their market-entry laws, some countries will be able to increase their supplies of entrepreneurs. As an example, Nigeria's abolition of its marketing boards provided new opening for a large number of small entrepreneurs to enter the market with creative imitations.6

  6. Increase entrepreneurial opportunities available to women and young persons: As Saeed suggests, many women and young persons are excluded from the formal sector in LDCs because of cultural values or legal restrictions. By preventing these groups from participating in the formal market, these countries are essentially limiting the size of their pool of would-be entrepreneurs. By eliminating discriminatory employment and licensing policies, countries could create an influx of possible entrepreneurs. Unfortunately, such polices may not be culturally popular in some countries (Saeed, 1998).

All of the above recommendations are general policy suggestions that governments can pursue. The specific policies that a country implements, however, must be made appropriate for the specific circumstances that the country faces. For example, in a country where the majority of entrepreneurship takes the form of small family-owned enterprises, there is initially little need for venture capitalists; instead it would be more appropriate for this country to implement micro-credit programs to assist potential entrepreneurs. Thus, the policies that an LDC implements to increase its supply of entrepreneurship must be crafted individually for the country's specific case and stage of development. Additionally, like most development policies, many of the above recommendations require government expenditure. However, since entrepreneurship is necessary for economic development, expenditure on encouragement policies is as justified as much as expenditure on any other development policy.

 Two Case Studies

5 See the case study on technopreneurship for additional information.
6 See the case study on Nigerian entrepreneurship for more specific information.

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