Entrepreneurship and Culture

Whenever we look around in society today we see the importance of the entrepreneur. In many countries, the entrepreneur is revered as a disruptor,[1] visionary, risk taker or a contrarian; many of whom have become household names such as Henry Ford, Steve Jobs, Mark Zuckerberg, Oprah Winfrey and the list goes on. The entrepreneur has also attained a seat at the policy maker’s table[2] allowing the former to help influence policy in order to increase the rate of startups. But, the entrepreneur also lives a life fraught with risk, uncertainty, booms and busts and myriad of other factors that could lead to the destruction of his/her business. One of the main factors that could affect a person’s intention to undertake a startup is the specific culture of a society or country.  If an entrepreneur is frowned upon in society then it will be harder to attain funds and support resulting in fewer startups in that particular region[3]. Thus, particularities of culture will be analyzed in detail in order to understand why entrepreneurs are more prevalent in some societies than others.

The Entrepreneur

Firstly, what is an entrepreneur? There could be multiple essays written about this question and still there would be no full-drawn conclusion. However, the entrepreneur’s duties could be broken down into a few parts. Chiefly, an entrepreneur is a risk-taker.  He is someone who leaves a fixed-earning job to attain variable profits.[4] An entrepreneur has to work under risk and uncertainty trying to forecast demand while paying for his/her costs through the variable revenue streams coming in.

Additionally, the entrepreneur is an innovator. Joseph Schumpeter noted how the entrepreneur had to take in whatever raw materials were available and turn into something consumers would want.[5] But, in order to innovate, a person must also be alert to the opportunities available. Israel Kirzner wrote about the entrepreneur being ‘alert to price differentials which others have not already noticed’.[6] Through the person’s alertness, profits can be made and the price differential gap can be reduced to equilibrium.

Finally, an entrepreneur needs to be a leader and motivate himself and the people around him in order to attain the vision. These leadership qualities are the hallmark of entrepreneurship and something that must be taken into consideration when analyzing entrepreneurs.

Thus, entrepreneurs are leaders and risk-takers who are alert to market opportunities and willing to grasp them through innovation.

The Importance of the Entrepreneur

Other than the propensity for risk-taking, why should society revere the entrepreneur? Why are governments spending money in order to increase startups in their respective countries? Since entrepreneurs innovate then they are likely to find either the ‘next big thing’ or something to aid society. This could help society grow economically and socially as more inventions may benefit the populace[7]. Dr. Mokyr has noted how ‘cultural entrepreneurs’, such as Francis Bacon and Isaac Newton, helped create an environment that was ‘more friendly’ to innovation that eventually led to the industrial revolution.[8]  Also, more entrepreneurs lead to a happier populace as they do what they want to do and they tend to lower the unemployment level.[9]

But, countries must be wary because entrepreneurs have the tendency to take excessive risks that could lead to grievance and failure[10]. Also, some entrepreneurs may do more bad than good by making products that don’t actually benefit society – any sort of malicious drug innovations are not particularly useful.

After looking at both the ups and downs of the entrepreneur, it can be concluded that they play an integral role in a country. This makes it important to study the entrepreneur more than economists have done so in the past and also look clearly at what affects this entrepreneurial class in society.

Cultural Factors and Entrepreneurship

According to research by Sobel et al. culture is ‘an amalgamation of both formal and informal institutions of a country and is reflective of practices taken up by nationals in every aspect of life and living.’[11]  Formal institutions are those that are ‘legally introduced and enforced by state institutions’ while informal institutions are laws, customs, traditions promulgated by communities[12].  Culture is all around us and something that affects how we act in society. If a culture forbids a certain act, it becomes increasingly difficult to practice it. This is not an exhaustive list but a number of interesting and overlooked ones that can help increase the level of entrepreneurship in a country. Thus, culture has a role to play and can either help entrepreneurship flourish or flounder.

One of the first factors that aids the formation and growth of entrepreneurship is to know whether they are accepted in society or not. An entrepreneur with a higher standing in society the more likely society will try to cultivate as many startups as possible[13]. This is known as the social legitimation approach.[14] Thus, a society that appreciates their entrepreneurs may spend more on them succeeding and this is seen in South Korea at the top with the United States at 15th place[15]. This showcases the importance of accepting the disruptors and innovators in the country and allowing them to take the risks in order to succeed.

Another important approach is to understand the level of trust in society. As unsurprising as this may seem, trust is often overlooked and could be a critical factor for entrepreneurship. If corruption is rampant in a society and is overlooked by its people then there will be fewer startups. If there is more trust among the members of a population then there will be fewer uncertainties of what the one will do leading to fewer information asymmetries[16].  An analysis of the corruption perception index ranks India a lowly 94 out of 175 countries indicating a country struggling to deal with corruption. China comes in at 80, Brazil at 72, United States at 19, and UK at 14 leaving Denmark as the least corrupt country in the world[17]. Of course there is more to entrepreneurship than corruption and trust, but it does play a part in the life of a startup.

Also, the appetite for risk of the populace would play a big part in the rate of creation of startups. While this may be more of a personality aspect, it still plays a part when the trait is shared by the rest of society. If a population is more risk-averse then they may want jobs that provide a regular stream of income rather than the uncertainty that may plague a startups life. In addition, lenders who are more risk-averse may lead to fewer funding opportunities for entrepreneurs. In recent research it was shown that Bangladeshi lenders are ‘leaning towards low risk taking ventures.’[18] However, riskier projects that have better risk management will lead to higher return. Unfortunately, it seems that out of the 152 interviews collected by Hagigi et al. only 43.3% would accept a project that would ‘result in a lower rate of return… but it has a small (and significant) probability of having an exceptionally high rate of return.’[19] As a populace learns to embrace calculated risks then we may see it as a boon to entrepreneurship.

Along with risk-aversion is the populace’s sentiment on failure. Small and medium sized enterprises (SMEs) fail often. If the populace believes that people who go bankrupt should be given a second chance then there will be more programs to address these issues. There will be no marginalization of failures and more chances to entrepreneurs to get back on their feet[20] – of course, everyone fails from time to time. The percentage of the populace who think that entrepreneurs who fail should be given a second chance is above 90% for Brazil, China, and South Korea among other countries while it remains at 80% for the United States.[21]  The graph below reflects these statistics. As more countries embrace those who fail and give them another chance then we may see a rise in startups in many other countries.

 

Entrepreneurs and Culture

Policies

As can be seen from the list there needs to be a way to enact ‘business friendly’ laws. The term ‘business friendly’ requires the help of the government along with the populace in order to succeed. Culture can take a long time to change and has the ability to lead to strong infighting between communities. However, with the prevalence of good institutions promoting the rule of law, property rights and free media there will be a better order for cultural integration.

Additionally, governments and the community must foster cultural diversity. This could be done in two ways: Allow for friendly immigration policies and promote competition in the industries. People from diverse countries will bring with them different experiences, skills and knowledge that will build bonds between different people[22]. This will create powerful synergies between people and may lead to new and better strategies and entrepreneurial discoveries.

Competition is usually touted as a better system for a country to realize. This is true in order to promote entrepreneurship as well. Economist Benjamin Chinitz noted that ‘an industry which is competitively organized… has more entrepreneurs per dollar of output than an industry which is organized across oligopolistic lines.’[23]  In 1961, Chinitz looked at New York and Pittsburg to see the differences in entrepreneurship and he found that the former had more competition than the latter increasing the possibility of creating new entrepreneurial talent[24]. Thus, the government should try to promote healthy competition by curtailing the rise of the oligopolies and monopolies.

Along with that, there should be more structural benefits as well. As there is more spending towards educating children and showcasing that entrepreneurship is a viable career then a cultural change will occur. More networking opportunities should be provided to allow nascent entrepreneurs to link with their successful peers. As more information, funds and networks are available to entrepreneurs there will be an increase in the rate of startups.

Lastly, give entrepreneurs the respect they deserve. It takes a lot of perseverance, courage and ability to start a firm and build it up. Time, money and other resources are some of the factors that the entrepreneur must sacrifice. A society’s culture must respect and acknowledge their entrepreneurial talent otherwise, this important class of innovators will move elsewhere in search of greener pastures.

If all these and more policies are to be utilized then there may be an increase in the level of startups. As this happens there will be a gradual immigration of entrepreneurial talent. Places with ‘high levels of entrepreneurial aptitudes may attract more individuals with similar personality traits’.[25] Thus, a virtuous cycle is created enabling more entrepreneurs to benefit from the arrival of likeminded individuals.

There are a number of factors that affect entrepreneurship in the world. The US (specifically Silicon Valley) is prized as the hotbed for entrepreneurial spirit and some of this is down to cultural aspects. This article was not written to provide an exhaustive list of cultural factors that affect entrepreneurship rather to showcase that even the smallest cultural aspect (such as trust) can affect the rate of startups in a country. Thus, governments should work in tandem with people in order to foster an environment that will lead to an increase in entrepreneurial zeal and – hopefully – an increase in economic growth.

 

 

Bibliography

Bergmann, Heiko. Cultural Aspects of Entrepreneurship. Organization of Economic Cooperation and Development

Bonte, Wener, Stephan Heblich, and Monika Piegeler.Latent Entrepreneurship and Psychological Geography: Empirical Evidence from a Cross-Country Study, http://www.unamur.be/ecfed/papers/C23.pdf

Cantillon, Richard. An Essay on Economic Theory. Auburn: Ludwig Von Mises Institute, 2010

Chinitz, Benjamin. Contrasts in Agglomeration: New York and Pittsburg, 1961

Currie, Daniel. Boston University Undergraduate Economics Association, “Preference Falsification and the Turkish Revolution.” Last modified June 23, 2013. http://buuea.com/preference-falsification-and-turkish-revolutions/.

Entrepreneur, “The Disruptor 2013: The Entrepreneurs Who are Changing their Industry.” Last modified June 27, 2013. http://www.entrepreneur.com/article/227205.

Glaeser, Edward, Stuart Rosenthal, and William Strange.Urban Economics and Entrepreneurship. working paper., National Bureau of Economic Research, 2009. (9) – ‘Silicon Valley investors, for instance, did not blackmail entrepreneurs who had failed previously, a forgiving attitude that is credited with the Valley’s entrepreneurial culture’

Culture: Attitude toward Failure. Organization of Economic Cooperation and Development, 2013.

Glaeser, Ed. New York Times, “Why are Some Cities more Entrepreneurial than the Others.” Last modified November 24, 2009. http://economix.blogs.nytimes.com/2009/11/24/why-are-some-cities-more-entrepreneurial-than-others/?_r=2.

Hagigi, Moshe and Lin, Ling. Attitude Towards Risk and Entrepreneurship Development in Emerging Economies: The Case of Bangladesh. 2012

Kim, Byung-Yeon, and Youngho Kang. Social capital and entrepreneurial activity:A pseudo-panel approach, 2013

Kirzner, Israel. The Alert and Creative Entrepreneur. Research Institute of Industrial Economics, 2008

Mazumdar-Shaw, Kiran. Linkedin, “India Needs to Embrace a Start-Up Culture.” Last modified December 19, 2013. http://www.linkedin.com/today/post/article/20131219140052-28180694-india-needs-to-embrace-a-start-up-culture?goback=.nmp_*1_*1_*1_*1_*1_*1_*1_*1_*1_*1&trk=object-title.

Mokyr, Joel. Cultural Entrepreneurship and the Origins of Modern Economic Growth. 2013.

Naudé, Wim. United Nations University, “Entrepreneurs and Economic Development.” Last modified March 23, 2011. http://unu.edu/publications/articles/are-entrepreneurial-societies-also-happier.html.

Ranganathan, C.R., K. Palanisami, K.R. Kakumanu, and A. Baulraj. ADBI Institute, “Mainstreaming the Adaptations and Reducing the Vulnerability of the Poor due to Climate Change.” Last modified December 10, 2010. http://www.adbi.org/files/2011.12.19.wp333.adaptations.reducing.vulnerability.poor.climate.change.pdf.

Sobel, Russell, Nabamita Dutta, and Sanjukta Roy. Does Cultural Diversity Increase the Rate of Entrepreneurship. 2010

The White House, “Jobs & The Economy: Putting America to Work.” http://www.whitehouse.gov/economy/business/entrepreneurship.

Thurik, Roy, and Marcus Dejardin. The Impact of Culture on Entrepreneurship., European Business Review, http://people.few.eur.nl/thurik/Research/Articles/TEBR jan-feb 2011 Impact of Culture on Entrepreneurship.pdf.

Transparency International, “Corruption Perceptions Index 2013.” : http://www.transparency.org/cpi2013/results.

Wilson, Steven. FundingStore.com Blog, “Which Country Backs Its Entrepreneurs The Most? [Infographic]Which Country Backs Its Entrepreneurs The Most? [Infographic].” Last modified September 19, 2013. http://www.fundingstore.com/blog/which-country-backs-its-entrepreneurs-the-most-infographic/.

 

Footnotes

[1] Entrepreneur, “The Disruptor 2013: The Entrepreneurs Who are Changing their Industry.” Last modified June 27, 2013. http://www.entrepreneur.com/article/227205.

[2] The White House, “Jobs & The Economy: Putting America to Work.” http://www.whitehouse.gov/economy/business/entrepreneurship.

[3] Sobel, Russell, Nabamita Dutta, and Sanjukta Roy. Does Cultural Diversity Increase the Rate of Entrepreneurship. 2010, 4 – ‘One interesting finding is that cultural diversity increases entrepreneurship, but with diminishing returns.’

[4] Cantillon, Richard. An Essay on Economic Theory. Auburn: Ludwig Von Mises Institute, 2010, 74 –  ‘The Entrepreneurs never know how great the demand will be in their city, nor how long their customers will buy from them since their rivals will try, by all sorts of means, to attract their customers. All this causes so much uncertainty among these entrepreneurs that every day one sees some of them go bankrupt’

[5] Sobel, Russell, Nabamita Dutta, and Sanjukta Roy. Does Cultural Diversity Increase the Rate of Entrepreneurship. 2010, 9

[6] Kirzner, Israel. The Alert and Creative Entrepreneur. Research Institute of Industrial Economics, 2008, 4

[7] Mazumdar-Shaw, Kiran. Linkedin, “India Needs to Embrace a Start-Up Culture.” Last modified December 19, 2013. http://www.linkedin.com/today/post/article/20131219140052-28180694-india-needs-to-embrace-a-start-up-culture?goback=.nmp_*1_*1_*1_*1_*1_*1_*1_*1_*1_*1&trk=object-title.

[8] Mokyr, Joel. Cultural Entrepreneurship and the Origins of Modern Economic Growth. 2013.

[9]Naudé, Wim. United Nations University, “Entrepreneurs and Economic Development.” Last modified March 23, 2011. http://unu.edu/publications/articles/are-entrepreneurial-societies-also-happier.html.

[10] Ibid.

[11] Sobel, Russell, Nabamita Dutta, and Sanjukta Roy. Does Cultural Diversity Increase the Rate of Entrepreneurship. 2010, 2

[12] Ranganathan, C.R., K. Palanisami, K.R. Kakumanu, and A. Baulraj. ADBI Institute, “Mainstreaming the Adaptations and Reducing the Vulnerability of the Poor due to Climate Change.” Last modified December 10, 2010. http://www.adbi.org/files/2011.12.19.wp333.adaptations.reducing.vulnerability.poor.climate.change.pdf.

[13] Bergmann, Heiko. Cultural Aspects of Entrepreneurship. Organization of Economic Cooperation and Development, 4

[14] Thurik, Roy, and Marcus Dejardin. The Impact of Culture on Entrepreneurship., European Business Review, http://people.few.eur.nl/thurik/Research/Articles/TEBR jan-feb 2011 Impact of Culture on Entrepreneurship.pdf., 57

[15] Wilson, Steven. FundingStore.com Blog, “Which Country Backs Its Entrepreneurs The Most? [Infographic]Which Country Backs Its Entrepreneurs The Most? [Infographic].” Last modified September 19, 2013. http://www.fundingstore.com/blog/which-country-backs-its-entrepreneurs-the-most-infographic/.

[16] Kim, Byung-Yeon, and Youngho Kang. Social capital and entrepreneurial activity:A pseudo-panel approach, 2013,47
For more explanation on information asymmetries and tree diagram showcasing the difficulties in making decisions in society please check: Currie, Daniel. Boston University Undergraduate Economics Association, “Preference Falsification and the Turkish Revolution.” Last modified June 23, 2013. http://buuea.com/preference-falsification-and-turkish-revolutions/.

[17] Transparency International, “Corruption Perceptions Index 2013.” : http://www.transparency.org/cpi2013/results.

[18] Hagigi, Moshe and Lin, Ling. Attitude Towards Risk and Entrepreneurship Development in Emerging Economies: The Case of Bangladesh. 2012, 3

[19] Ibid, 6.

[20] Glaeser, Edward, Stuart Rosenthal, and William Strange.Urban Economics and Entrepreneurship. working paper., National Bureau of Economic Research, 2009. (9) – ‘Silicon Valley investors, for instance, did not blackmail entrepreneurs who had failed previously, a forgiving attitude that is credited with the Valley’s entrepreneurial culture’

[21]Culture: Attitude toward Failure. Organization of Economic Cooperation and Development, 2013. 84

[22] Sobel, Russell, Nabamita Dutta, and Sanjukta Roy. Does Cultural Diversity Increase the Rate of Entrepreneurship. 2010, 11

[23] Chinitz, Benjamin. Contrasts in Agglomeration: New York and Pittsburg. 1961, 284

[24] Glaeser, Ed. New York Times, “Why are Some Cities more Entrepreneurial than the Others.” Last modified November 24, 2009. http://economix.blogs.nytimes.com/2009/11/24/why-are-some-cities-more-entrepreneurial-than-others/?_r=2.

[25] Bonte, Wener, Stephan Heblich, and Monika Piegeler.Latent Entrepreneurship and Psychological Geography: Empirical Evidence from a Cross-Country Study, http://www.unamur.be/ecfed/papers/C23.pdf ,28

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