professor anokhin

Entrepreneurship and innovation: The popular belief

Entrepreneurs are widely thought to be the agents behind economic growth and innovation. They're, we're told, the movers and shakers who create new industries, unseat current leaders from their thrones, and open new frontiers for everyone. Popular culture tirelessly propagates one success story after another - from Facebook's Mark Zuckerberg, who was glorified in "The Social Network" movie, to Tesla's Elon Musk, an immigrant who became a household name, to Google's Sergey Brin, whose internet se name has officially become a verb in English.

So persuasive is the narrative of the entrepreneurial technological prowess and success, that lots of countries - including developing countries that feel they are lagging behind - develop comprehensive policies to aid and promote entrepreneurship and even put aside sizeable funds to buy startups via government-run venture capital programs. But is this fascination with and belief in entrepreneurs justified? How likely are entrepreneurs to push the technological frontier and bring about the sort of change that governments want? Entrepreneurship Professor Sergey Anokhin from Kent State University says the hard evidence is much less convincing than the popular culture makes you believe. professor anokhin

The dark side of entrepreneurship

In a study of 35 countries over a 7-year period, Professor Anokhin from Kent State and Professor Joakim Wincent from Sweden's Lulea University of Technology show that there surely is no universally positive relationship between entrepreneurship and innovation. While for the world's leading economies including the United States the positive link between startup rates and innovation might be true, for the developing economies the partnership is clearly negative. Such countries are prone to see innovation championed by the present companies, not startups. With few exceptions, entrepreneurs there pursue opportunities of a different kind that are based on imitation and dissemination of others'ideas, and aren't equipped to create truly advanced "grand" innovations. On average, startups are less efficient than existing firms. Accordingly, if local governments support entrepreneurship, economic effectiveness may suffer, and innovation is less likely to occur. Actually, successful technological development in emerging economies is frequently associated having an aggressive entrepreneurial behavior of large corporations, not individual entrepreneurs. Such is the case, as an example, of South Korea with its chaebols.

The figure below shows the vastly different impact of startup rates on innovation and technological development (as measured by patent applications) across countries. Only rich countries can get more entrepreneurship to end up in more innovation, says Dr. Anokhin. For the lesser developed countries, while the plot demonstrates, an increase in startup rates will only result in less, less innovative activities. The situation, in accordance with Sergey Anokhin, is that developing countries often look as much as the leading economies when trying to design their own policies. Moreover, quite naturally, the textbooks that the students across the planet use, are published by the scholars from the world's leading countries, and don't take developing economies'context into account. Taken together, it often locks policy makers in assuming the partnership between entrepreneurship and innovation that will not hold in their particular elements of the world. The pro-entrepreneurship policies will not bring about the results expected, and the limited resources is going to be wasted to aid activities which can be largely detrimental. professor anokhin

What it all means

It is time to identify that the partnership between entrepreneurship and innovation varies across countries, says Professor Anokhin. That's why World Economic Forum's Global Agenda Council for Fostering Entrepreneurship explicitly acknowledges that Silicon Valley success stories do not necessarily resonate in the rest of the world. Broad-strokes policies that aim at fostering entrepreneurship to improve country innovativeness may well be misguided. A contingency approach that takes regional specifics into account should really be employed instead.