Is the U.S. Entrepreneurial Self-Image Skewed?
BY Josh Spiro
Experts agree that the United States has a proportionally low number of small businesses and rate of self-employment, but they disagree as to why.
A recent report written by the Center for Economic and Policy Research (CEPR), a think-tank based in Washington D.C., examined employment in small businesses in the U.S. and other member nations in the Organization for Economic Cooperation and Development and found that the U.S. was outstripped by many countries in areas of self-employment and small business employment.
While countries like Greece and Italy lead the pack with 35.9 percent and 26.4 percent civilian self-employment respectively, the U.S. trailed behind with only 7.2 percent of its workforce self-employed, based on data collected in 2007.
"The typical assumption in the U.S. is that we're this great entrepreneurial nation," says Scott Shane, professor of entrepreneurial studies at Case Western Reserve University. "But if you measure entrepreneurship by things like the percentage of the population that's self employed, or the size of the small business sector, the statistics don't actually show that."
Shane adds that the entrepreneurial vigor of the U.S. depends on whether the person discussing "entrepreneurship" is referring to high growth start-ups like Google or mom and pop stores.
Some economists criticized the report for positing universal healthcare as a "plausible explanation" of the more robust number of small businesses in other countries even though it was not supported in any way to the report's data. Universal health care theoretically gives business owners a safety net so that they can afford to forgo the benefits a larger employer might offer.
John Schmitt, a senior economist at the CEPR and co-author of the study, agreed that his report does not prove any correlation between small business numbers and universal health care but he notes that the study cites a number of academic sources that suggest a connection.
"I don't think our conclusion is remotely controversial," he says. "People just want to emphasize that there are a lot of other [possible causes and] we welcome a discussion about why the U.S. has a small small-business sector."
Still, some critics claim that the report's suggestion that health care is a possible explanation for the U.S. small business deficiency is calculated to garner media attention by aligning the report with a hot button issue.
Given the complexity of the American economy "it's no great surprise that fewer people in this country are employed" in small businesses, says David BenDaniel, a professor of entrepreneurship at Cornell University. In addition to the American economy's conduciveness to high-growth enterprises over small businesses, which are usually motivated by income, some other possible explanations for low numbers of small businesses in the U.S. are heavy tax burdens, cultural differences, namely Americans' willingness to take risks; and a higher per capita income.