Is America Really Different?
Put aside your preconceptions. We're in a global economy, and the comfortable assumption that the United States is and always will be the world leader in entrepreneurship no longer stands up to scrutiny.
Granted, we have a high rate of start-ups, along with a correspondingly high rate of business failures. Our capital markets and customs encourage new companies and tolerate failure more readily than those of most countries. But try to figure out whether entrepreneurship is really more significant here than elsewhere, and you run into problems of data and logic.
Paul D. Reynolds, Paul T. Babson Professor in Entrepreneurial Studies at Babson College, in Wellesley, Mass., points out that the information we have doesn't allow us to make easy comparisons. "The best we can say is that most industrialized nations have comparable rates of entrepreneurial activity," he says, adding that regional variations within countries are much more dramatic than variations among countries. There was always a certain amount of hubris in our assumption of superiority anyway. As Peter Drucker argues in " Flashes of Genius," countries such as Taiwan and Korea became economic powerhouses from a virtual standing start. Did we really think it was big old-line corporations that engineered those transformations?
Consider a few of the many other developments that are pushing the "we're number one" picture of world entrepreneurship into the historical dustbin:
- In most European countries, small and midsize companies have always played a more important role as job providers than they do in the United States. Today that role is growing in most European nations -- a critically important phenomenon because job growth overall has been sluggish.
- The character of small companies in Europe is changing as well: fewer sleepy, family-owned businesses; more growth-oriented international competitors.
- Although good numbers about the importance of new and small companies in Asia are hard to come by, experts believe that entrepreneurship is flourishing. Mainland China is the scene of an entrepreneurial revival that in sheer numbers dwarfs every other country's, argues Chris Hall, a professor at the University of Technology in Sydney, Australia. "Since the reforms of 1978 encouraging small entrepreneurial companies, the number of town and village enterprises has risen from 1.4 million to 20.8 million. And their contribution to production has increased at 31% a year."
Sustainable job growth depends on the strength of an economy's "entrepreneurial engine," the endless cycle of start-up and dissolution that redirects resources to where they add the most value. By all accounts, that engine is revving up in many countries these days, not just our own.* * *
In Europe small companies play a critically important economic role
|Percentage of companies Europe||Percentage of companies U.S.||Percentage of jobs Europe||Percentage of jobs U.S.|
|"Micro" enterprises (1-10 employees)||93.3%||78.2%||31.8%||12.2%|
|Small enterprises (11-99 employees)||6.2%||20.0%||24.9%||27.0%|
|Midsize enterprises (100-499 employees)||0.5%||1.4%||15.1%||14.4%|
|Large enterprises (500+ employees)||0.1%||0.3%||28.1%||46.3%|
Note: Numbers may not add up to 100% because of rounding.
Source: Organization for Economic Co-operation and Development (OECD) Working Party on Small and Medium-Sized Enterprises, "High-Level Workshop on 'SMEs: Employment, Innovation and Growth' Synthesis Report," secretariat and consultant Paul Reynolds, Washington, D.C., June 1995.* * *
And that role is growing in nearly every country
Annual employment growth: small and midsize companies versus large companies, 1988-1995
|Small and midsize||Large|
Source: European Network for SME Research, The European Observatory for SMEs, Third Annual Report, The Netherlands, 1995.
The new companies are often more durable than our own
Three-year survival rates of new companies
The Netherlands 74%
United Kingdom 62%
United States 65%
Sources: European Network for SME Research, The European Observatory for SMEs, Third Annual Report, The Netherlands, 1995; United States: Inc. estimate.* * *
New companies are a bright spot in a sluggish employment picture
Percentage new jobs
|Country||Jobs created||Jobs destroyed||from start-ups|
Note: Calculated over varying five- to eight-year periods.
Source: European Network for SME Research, The European Observatory for SMEs, Third Annual Report, The Netherlands, 1995.* * *
Research assistance for this article was provided by Mary Furash.