Rethinking Enterprise Policy

Rethinking Enterprise Policy

Also by Simon Bridge: UNDERSTANDING ENTERPRISE, ENTREPRENEURSHIP AND SMALL BUSINESS (first and second editions with Ken O Neill and Stan Cromie, third edition with Ken O Neill and Frank Martin) UNDERSTANDING THE SOCIAL ECONOMY AND THE THIRD SECTOR (with Brendan Murtagh and Ken O Neill)

Rethinking Enterprise Policy Can Failure Trigger New Understanding? Simon Bridge

Simon Bridge 2010 Softcover reprint of the hardcover 1st edition 2010 978-0-230-23558-8 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-31398-3 ISBN 978-0-230-28983-3 (ebook) DOI 10.1057/9780230289833 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Bridge, Simon. Rethinking enterprise policy : can failure trigger new understanding? / Simon Bridge. p. cm. 1. Industrial policy. 2. Entrepreneurship Government policy. 3. Small business Government policy. I. Title. HD3611.B8775 2010 354'.234 dc22 2010023773 10 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10

Contents List of Tables List of Figures List of Illustrations List of Cases Preface Acknowledgements vi vii ix x xi xiii 1 Introduction 1 Part I The Current Models and Approaches 2 Government Agenda 17 3 Models of the Influences on Entrepreneurship 37 4 The Problem: The Facts Do Not Fit the Theory 63 Part II Exploring the Position 5 Different Perspectives 81 6 Perspectives on Entrepreneurship and Enterprise 95 7 Nature or Nurture? 118 8 Comparisons 134 Part III An Alternative Model 9 An Enterprise is a Goal- Realisation Device 149 10 The Basis of Choice 160 11 The Social Dimension 177 12 An Alternative Approach 194 13 A View Forward 214 Index 223 v

List of Tables 2.1 The possible components of a policy framework 19 3.1 Attributes and resources, and how they are acquired 47 3.2 Interpretation of components of the GEM conceptual model 49 3.3 Policy areas with an impact on the five factors 55 4.1 Variations in business start- up rates across the UK 74 5.1 Organisations and activities which are neither in the public nor the private sector 85 6.1 E- numbers: Interpretation and some comparable uses 107 9.1 Reasons why people might want to work 151 9.2 Some of the means by which people can obtain resources for life 153 9.3 Different kinds of entrepreneurs 154 9.4 How enterprise (and entrepreneurship) might be viewed from venture and people perspectives 157 11.1 Some domains of social capital 184 11.2 The components of social capital? 189 vi

List of Figures 1.1 The transition route from data to wisdom 12 2.1 A diagram of a policy framework 18 2.2 The OECD/EUROSTAT framework for entrepreneurship indicators 27 3.1 The perceived key business start- up needs 39 3.2 A hierarchy of enterprise needs 42 3.3 A formula for entrepreneurial success 44 3.4 Shane s model of the entrepreneurial process 46 3.5 Intentions model of entrepreneurial potential (simplified) 46 3.6 Attributes and resources model 47 3.7 GEM conceptual model (the total process) 49 3.8 The determinants of nascent entrepreneurship 51 3.9 Stevenson s portrayal of the entrepreneurship system 52 3.10 Comprehensive model of factors leading to entrepreneurial activity 53 3.11 Factors impacting entrepreneurship 54 3.12 Casson s demand and supply of entrepreneurs 56 3.13 The layers of the small business support network 57 3.14 A default assumption about influences on entrepreneurship? 58 3.15 Simple form of the OECD/EUROSTAT framework for entrepreneurship indicators 60 4.1 Invest NI presentation of GEM TEA measurements 68 4.2 Plot of UK and Northern Ireland GEM TEA indicators 2000 8 69 5.1 An economic development agency s world view? 89 5.2 An individual s world view at the start of working life? 90 6.1 Two dimensions of entrepreneurship: Stage and type 105 vii

viii List of Figures 6.2 E- numbers: A categorisation of enterprise and entrepreneurship 108 7.1 Mechanisms through which genetic factors might influence entrepreneurship 126 9.1 What you see is not everything 156 10.1 A default model of the impact of an influence on crime 173 10.2 Predictions of the incidence of criminality in a society 174 12.1 The default assumption about influencing entrepreneurship? 201 12.2 A possible model of the level of entrepreneurship 202 12.3 Diagrammatic presentation of Ajzen s Theory of Planned Behaviour 208

List of Illustrations 1.1 Terminology: Is it enterprise or entrepreneurship? 2 2.1 Examples of the prominence of enterprise and entrepreneurship in government policy 17 2.2 Small Business, Entrepreneurship and Enterprise policy 20 2.3 Stevenson s summary of policy evolution 24 6.1 Recognising the process for what it is, rather than what we would like it to be 113 7.1 Can the supply of entrepreneurs be increased? 127 8.1 An example of bridging the research practice divide 139 8.2 What is the basis of policy? 143 10.1 Examples of the assumption of individual risk return analysis 166 10.2 The social brain 170 11.1 Measuring social capital 184 11.2 An analogy with vitamins? 187 11.3 Who are a person s peers? 190 11.4 Entrepreneurship capital 190 12.1 Enterprise and deprivation: The rationale for UK public policy 195 12.2 The bias of the classic dissertation 200 12.3 Entrepreneurship and the Theory of Planned Behaviour 207 ix

List of Cases 2.1 The city of Montreal 29 2.2 An earlier enterprise initiative in Northern Ireland 31 3.1 The development of enterprise support in Northern Ireland 38 4.1 Accelerating Entrepreneurship: A case study in interpreting indicators 68 4.2 Some findings from the Richard Report 72 5.1 The influence of agency agenda 88 x

Preface Two years ago, assisted by Ken O Neill and Frank Martin, I finished preparing the third edition of Understanding Enterprise, Entrepreneurship and Small Business. In the first two editions, when trying to summarise our chapter on the effectiveness of enterprise policy, we concluded that there appears to be no strong body of evidence to say that intervention works, but also there is no clear evidence that it doesn t. For the third edition, however, which we wrote in 2008, we changed that and said that there now appear to be several studies which suggest that much intervention has failed and that it seems reasonable to conclude that, overall, the evidence is that the methods so far applied have not worked in that they have not had the effect intended in improving rates of entrepreneurship or levels of business performance. Despite the similarity of policies and interventions across the world, there are few proven examples of successful best practice. The adoption of interventionist policies appears to be due more to a me too approach than any rigorous examination of their impact. If governments still want to intervene, and they will, and if they want to achieve more than just being seen to do something, they will need to change their intervention methods. For this they will need new models of what actually influences entrepreneurs and enterprises. Doing more of the same seems unlikely to yield significantly different results. That statement still seems to be accurate, but it is clearly not the end of the story. It, leads, for instance, to successive questions such as, if current methods do not work, why, and what will work? This book is an attempt to explain why and to suggest other avenues to explore in a search for new methods. It takes as its starting point the view that often a shortage of enterprise, and/or of entrepreneurship, is diagnosed as a key factor in economic underperformance and that, on this assumption, governments and their development agencies have tried to raise the levels of enterprise, especially in countries or regions with relatively weak economies. However, as indicated above, the evidence now seems to suggest that those efforts have not worked. In order to effect an economic cure, xi

xii Preface more enterprise may have been prescribed but it is not being delivered. The diagnosis therefore required is why enterprise does not respond to policies to increase it in the way that the originators of those policies both desired and assumed. This book looks at current models of enterprise and of the factors that are thought to influence it and then at a number of different perspectives on this subject. From them it derives an alternative model, based on current understandings of human behaviour, which does appear to be consistent with many observations of enterprise. That model offers an explanation for why current enterprise promotion policies may be misguided and thus provides a diagnosis for their failure. But, just as in medicine, diagnosing why a supposed cure does not work does not mean that an alternative prescription is developed and ready. However it does suggest that continuing with the old cure is likely to waste resources, and it indicates new avenues to explore in a search for working solutions. This book is illustrated by, among others, a number of examples from Northern Ireland because that is where I have been working on enterprise- related tasks for over a quarter of a century. One consequence is that I have my own memories and personal records for that period, and they provide a record of the evolution of Northern Ireland s enterprise policy in a way that it would probably not now be possible to assemble from official sources. If anyone feels that I have misinterpreted the evidence, I am sorry, but I have tried to present the story as I saw it. Thank You I have been encouraged and helped in my search by many people, both directly in face- to- face conversations and indirectly through articles, papers and books. I hope therefore that I have given appropriate acknowledgement for all such contributions, for which I am very grateful. There are however two people to whom I owe a particular debt of gratitude. One is my wife Irene who has tolerated the time I have spent on writing the book, even to the extent of taking my laptop with me on holiday so that I could apply myself without the danger of phonecall interruptions. The other is my former co-author Ken O Neill who, although not responsible for any of the content of this book, has nevertheless provided essential support, guidance and encouragement and invaluable, and seemingly innumerable, constructive reviews. I would not like to have tried it without that help.

Acknowledgements The author and publishers gratefully acknowledge the following for permission to reproduce copyright material in this book: Mark Casson, Allan Gibb, Ji- Hee Kim et al., Norris Krueger, Scott Shane and Lois Stevenson for permission to reproduce material from their work. Cambridge Alumni Magazine for permission to quote from one of its articles. The Danish Ministry of Economic and Business Affairs for permission to use the FORA model. Edward Elgar Publishing for permission to use material from Scott Shane, A General Theory of Entrepreneurship and Mark Casson, The Entrepreneur: An Economic Theory. Elsevier for permission to reproduce material from the Journal of Business Venturing. The copyright holders, who kindly granted permission to reproduce material on the Global Entrepreneurship Monitor (GEM) conceptual model, and the authors, national teams, researchers, funding bodies and other contributors who have made this possible. OECD for permission to reproduce its material. The Random House Group for permission to quote from Philip Ball, Critical Mass: How One thing Leads to Another published by Arrow Books. Sage Publications for permission to reproduce material from the International Small Business Journal. Senate Hall Academic Publishing for permission to reproduce material from the International Journal of Entrepreneurship Education. Springer Publishers for permission to reproduce material from Anders Lundström and Lois Stevenson, Entrepreneurship Policy: Theory and Practice. SystemsWiki (www.systemswiki.org) for permission to use material from its site. University of Chicago Press for its Fair Use Policy under which excerpts from The Experiential Aspects of Consumption are quoted. xiii

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