Entrepreneurship plays a key role in every economy on earth, whether they are sanctioned or not (even in North Korea!) By innovating, providing jobs and creating wealth, the businesses that these entrepreneurs build play a huge role in the development of the economy.
But what makes some places more successful than others in encouraging start-up and risk-takers? Well, it has everything to do with the “entrepreneurship ecosystem.”
Defined broadly, the entrepreneurship ecosystem is the combination of institutions, rules, and resources that impact entrepreneurs in their day to day operations. David Isenberg of Babson College breaks all of these characteristics into six domains: Policy, Finance, Culture, Supports, Human Capital and Markets. The domains are inclusive of dozens of smaller components, such as educational institutions, civil society, and tax policy.
Each of these domains play a key role in the ability of the entrepreneur to function, but in many places one or more of these domains hinder, rather than support, entrepreneurs. This could take the form of corruption in government, or uncertain property rights, or lack of qualified staff.
In these instances, the good news is that even highly dysfunctional entrepreneurship ecosystems can be revived. As CIPE Senior Program Officer Anna Nadgrodkiewicz points out in the latest Feature Service Article, policy reform is the key to such revitalization:
“The types of needed policies are broadly agreed upon by development experts and entrepreneurs alike, and they include protection of private property rights, enforceable contracts, and efficient government administration. Another key but often overlooked set of policies has to do with bankruptcy laws. It is hardly a surprise that in places where a business failure can land one in jail – like in Egypt and a number of countries in the Middle East and North Africa – entrepreneurship does not flourish.”
Nadgrodkiewicz highlights another characteristic of these ecosystems as well: that entrepreneurship ecosystems and democratic governance are mutually reinforcing. With representative government, entrepreneurs are able to make their demands heard in policy debates. And with a strong entrepreneurship ecosystem, there is diversity within the business community, adding to economic pluralism and created a more level playing field for businesses.
Like a real ecosystem, entrepreneurship ecosystems are complex, interdependent, and uniquely adapted to their specific circumstances. But their ability to function properly is a function of strong institutions, and may have a great impact on these same institutions in the long run.
Colin Buerger is Program Officer for Global Programs at CIPE.