Monday, January 23, 2012


As governments around the World look to reignite their economies, there is increasing interest in developing policies to encourage greater entrepreneurship. This is not surprising given that a range of studies have demonstrated the impact of both new and small firms on the economic prosperity of many nations.

Earlier this week, a major study from the European Commission showed that 85 per cent of net new jobs created in Europe between 2002 and 2010 came from small and medium sized enterprises (SMEs), far higher than their 67 per cent share of total employment. That, in itself, shows the vital importance of small firms at this critical time for Europe.

However, the one statistic that screams out for politicians to take notice and reach out for new policies immediately is the finding that all net employment growth has been generated by newly born SMEs (i.e. those aged up to five years old). In fact, the number of jobs created by new firms – 17.5 million - more than compensated for the 8.9 million jobs lost through business failure.

In contrast, employment in businesses over ten years old declined by seven per cent over the same period. This is a critical finding and demonstrates unequivocally that entrepreneurship, rather than large firm expansion, is key to the job creation potential of the Welsh economy. More importantly, entrepreneurial activity is not limited to a small number of people.

According to the latest edition of the Global Entrepreneurship Monitor (GEM) released on Thursday, it is estimated that 388 million entrepreneurs were actively engaged in starting and running new firms in 2011. And who are these entrepreneurs?

The average profile of the individual running new businesses remains largely unchanged from previous GEM studies. Through a survey undertaken in fifty-four countries, the results showed that most were often young to middle-aged (25-44 years) although there is a tendency toward younger entrepreneurs in many developing economies. In terms of gender, they tend to be overwhelmingly male although it does vary by nation.

For example, Singapore and Switzerland have comparatively high levels of female participation in entrepreneurship whilst only one in four of the entrepreneurs in France and the Republic of Korea are women.

The GEM study also confirms the findings of the European study in that new firms are job creators, with 141 million early-stage entrepreneurs expecting to create at least five new jobs in the next five years. Given this, it is not surprising that a proportion are also innovative and export-driven - 69 million new firm creators are involved in developing new products and services and 18 million sell at least a quarter of what they produce to international markets.

So what does this mean for policymakers in Wales and the UK? Certainly, it is time for politicians to start walking the talk if the economy is going to recover from its current doldrums during the next 12-18 months.

The Westminster Government should continue with programmes such as UK Start-Up to encourage a greater number of new businesses. But there needs to be more urgency to ensure a greater focus by legislators on reducing red tape and simplification. In particular, ensuring that the needs of new and small firms are taken into consideration when any laws or regulations are developed is critical.

There is also a desperate requirement for better long-term finance for new firms, something that has been sadly missing since the banking crisis despite the efforts of the Coalition government through the Merlin project. In Wales, the recently published report on micro-businesses is a step in the right direction and some of the recommendations could make a real difference. But whilst it is a valuable study in itself, it mainly deals with the issues of firms already in existence rather than addressing how a greater number of new businesses can be created and supported.

And as this blog has been stating time and time again during the last eight years, Wales, through its Entrepreneurship Action Plan (EAP), already has the structure and strategy that is light years ahead of anything else globally in terms of driving forward the creation of an enterprise culture. Through the implementation of that plan between 2000 and 2004, the number of new firms increased considerably in Wales and, not surprisingly, so did private sector employment.

And this was not done by concentrating on a ‘picking winners’ strategy of focusing on high growth start-ups, as the Welsh Government has recently adopted but by developing an enterprise culture in which more people would be encouraged to start a new business.

Unfortunately, the EAP was abandoned in 2005 by a Government that was more in favour of a “Fields of Dreams” strategy which focused on building expensive white elephants such as Techniums rather than having a comprehensive approach to developing an entrepreneurial nation rich in new employment opportunities.

And whilst attracting inward investment is of some importance to Wales, encouraging more entrepreneurs is more critical to the nation’s future, an issue that the Institute of Welsh Affairs seems to have singularly ignored as part of the theme of its third Welsh Economy conference in March.

More importantly, if the new Minister, as she has stated on numerous times, is focused predominantly on creating new jobs, then with the evidence showing that the vast majority of these come from start-ups, it is surely time for the resurrection of the EAP to create more new firms, and therefore more wealth and prosperity, in the Welsh economy.