Magazine Article

Commentary In Entrepreneurship We Trust Alan McCormick, 12.03.10, 12:00 PM ET Early this year U.S. Secretary of Commerce Gary Locke said the following about the economy: "As has always been the case, we will look to America's entrepreneurs to help chart the path back to prosperity." When Secretary Locke made this comment the U.S. economy was in bad shape. The number of unemployed persons stood at 15.3 million, which translated into an unemployment rate of 10%. A poll for the Kauffman Foundation had just revealed that 61% of the population believed the economy was heading in the wrong direction. And that same poll revealed that a staggering 71% of business owners did not expect to create any new jobs in 2010. In the face of such a dire outlook, what inspired Sec. Locke to make such an optimistic statement? The answer is simple: throughout history, entrepreneurship has consistently proved to be the primary engine of growth in the global economy. Even in times of economic downturn, the entrepreneurial flame burns bright: U.S. business statistics from the last two years reveal the number of new businesses created during the 2007-2009 recession years increased steadily year to year. In 2009 27,000 more businesses were created per month than in 2008, and 60,000 more, per month than in 2007. New businesses create much needed local employment right across the globe from downtown New York to rural Ethiopia. President Barack Obama supported this point when, speaking at the 2010 Summit on Entrepreneurship, he said, "Entrepreneurship [is vital] because throughout history, the market has been the most powerful force the world has ever known for creating opportunity and lifting people out of poverty." Over the last three decades, new startups have accounted for nearly all of the increased employment in the American private sector. In 2009 558,000 new U.S. businesses were created each month (an increase for the second straight year) and this translated into domestic entrepreneurial earnings of close to $1 trillion--more than the entire GDP of Australia. Further, nearly 80% of American annual small-business revenue is derived from entrepreneurial endeavors. Most people recognize the valuable work of entrepreneurs in the economy and in wider society whether it be their role in creating jobs or their production of much needed goods and services. Entrepreneurial societies raise levels of expectation and produce a culture in which human potential is released, healthy risk taking is encouraged, and where the fledgling business ideas of today become the global selling products of tomorrow. But the case for entrepreneurship is not one dimensional. There is more than just a purely economic argument to be made for increasing levels of entrepreneurship. The newly published Legatum Prosperity Index finds that a country's ability to foster a climate of entrepreneurship and opportunity has the greatest effect on that country's overall wellbeing. It finds that entrepreneurial societies are by-and-large happier societies in which citizens have high levels of freedom and opportunity to determine the course of their own lives. It is no coincidence that 19 out of the top 20 most prosperous countries, in the Index, are also the most entrepreneurial countries in the world. The Index, which assesses 110 countries covering more than 90% of the world's population, uses a groundbreaking definition of prosperity that includes economic factors as well as measurements of life-satisfaction. But what about countries sitting at the other end of the scale? Take Zimbabwe, for instance, the lowest-ranking country in the Prosperity Index where some 80% of the population is unemployed. Can a strong entrepreneurial spirit alone launch a country like Zimbabwe to the top of the Prosperity Index? The answer, of course, is no, but what is demonstrably clear is that the world's most prosperous countries are those that establish, nurture, and protect their entrepreneurial environments. This realization was made recently by Nelson Mandela, Sir Richard Branson and others who joined forces to establish Enterprise Zimbabwe, an independent nonprofit organization whose mission is to ignite and support entrepreneurship in the embattled country. This is a seed of hope planted into thorny ground. It is the first step on a long and difficult journey. Those who have not yet given up on Zimbabwe stand united in hope that it is one of many seeds that will be planted and the first of many steps that will be taken to turn around the fortunes of a country in such desperate need of change. So what can policymakers do to improve their nations' levels of entrepreneurship--and thus prosperity? As the top-performing countries in the Legatum Prosperity Index prove, national leaders must cultivate an environment friendly to entrepreneurs--one free of bureaucratic barriers to business creation and punitive taxation. They must dramatically adjust the incentives that drive entrepreneurship by decreasing the restrictions on enterprise and increasing the rewards for endeavor. Only then will enterprising citizens feel free to undertake the innovative growth-producing activities that improve national wealth and individual well-being. Alan McCormick is a managing director at Legatum Limited. The Legatum Prosperity Index is available at www.prosperity.com.

Posted via email from Brian's posterous