Tuesday, February 13, 2007

The Importance of Entrepreneurial Culture

An article in the February 12 Wall St. Journal by Columbia University Professor Edmund Phelps, the 2006 Nobel Prize winner in Economics, suggests that the reason for poor economic performance in Continental Western Europe is a lack of entrepreneurial culture. He writes:

"...the Continental economies' root problem is a dearth of economic dynamism - loosely, the rate of commercially sucessful innovation...Where there is more entrepreneurial activity - and thus more innovation, as well as all the financial and managerial activity it leads to - there are more jobs to fill, and those added jobs are relatively engaging and fulfilling."
He blames part of the problem on the economic institutions:

"They typically exhibit a Balkanized/segmented financial sector favoring insiders, myriad impediments and penalties placed before outsider entrepreneurs, a consumer sector not venturesome about new products or short of the needed education, union voting (not just advice) in management decisions, and state interventionism."
The other part of the blame goes to the culture:

"Relative few [working age people] in [France, Italy, and Germany] want jobs offering opportunities for achievement and chances for initiative in the job...In countries where [the spirit of stimulation, problem-solving, mastery, and discovery] is weak, an entrepreneurial type contemplating a start-up might be scared off by the prospect of having employees with little zest for any of those experiences. And there might be few entrepreneurial types to begin with."
Phelps contrasts these countries with the United States, which has better economic institutions and a workforce with a more entrepreneurial spirit. But everything is relative; what if the same analysis was done within the United States? How would the Pittsburgh Region rank?

The lesson in this is if we want the Pittsburgh Region to grow, we need to encourage entrepreneurship - not just among people who might start a company, but among those who might work for one, too - and we need to insure our financial and economic institutions welcome and encourage entrepreneurial companies, rather than resist them.


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