The entrepreneurship conundrum

In recent decades, governments around the world have ploughed huge resources into trying to increase entrepreneurship rates in their countries.

It’s not hard to see why. New businesses create a disproportionate share of new jobs. Some analyses have attributed differences in employment growth between countries to the existence of even a small number of new firms. Stimulating entrepreneurship can, therefore, be seen as a worthwhile goal.

Yet policymaking in this area has often been expensive and ill-advised. For instance, a lack of due diligence in dispensing funding via the Start-Up Loans Scheme established under the Coalition government in 2012, was subsequently discovered to have resulted in a 30 per cent default rate. It proved a classic case of moral hazard.

It is, of course, more common for new businesses to fail than reach a sustainable position. Of all firms started in the UK in 2010, for example, only 41% remained active five years later. Nevertheless, in their haste to promote start-ups, policy-makers have paid concerningly little attention to the longer-term survival of firms.

Fortunately, while the market forces responsible for business failure are mostly far beyond the influence of start-ups and SMEs, there are other variables which do appear to have a positive influence on entrepreneurship. Chief among them are education and training.

The link between education levels and quality of entrepreneurship is well-documented, and a recent global emphasis on STEM education (science, technology, engineering and maths) follows research indicating that education in these subjects is especially integral to innovation, adoption and integration of technology. Economic research suggests that efforts to recruit and invest in a well-educated, appropriately skilled workforce can also represent money well spent.

A new analysis from the Centre for Education Economics builds on this picture, investigating the kinds of education that best predict firm size, based on survey results from around 10,500 business owners. It finds those with qualifications in business, social science and law to be best at driving growth.

Author Gabriel Heller-Sahlgren suggests that entrepreneurs with business degrees have a comparatively stronger track record because they are oriented and trained in strategy, marketing, and adaptive decision-taking – skills associated with stronger management practices (monitoring, targets, and incentives, etc.). The theory is consistent with what we know about the way management practices relate to a range of different indicators of firm success. He believes the effect is highly likely to be causal.

Of course, the type and quality of business education matters. Sadly, as the IEA Editorial Fellow Professor Len Shackleton, and others, have argued, relevance for practice is an ongoing issue in the output of British business schools – largely arising from the way they are funded and incentivised.

If we are to promote investment in start-up leadership and maximise the returns to productivity, employment, and overall economic performance, then more bespoke, accessible and on-demand learning alternatives to the MBA are necessary. Providers need to work much more closely with owners of small and medium sized businesses, and engage their education and training needs more realistically. Policymakers should also consider incentivising investment in business education and training through the offer of tax relief for small-business owners to invest in life-long learning.

But it’s imperative, from a macro-economic perspective if nothing else, that this be accompanied by the establishment of proper research frameworks for identifying more precisely what works. Politicians compromise, and policy memory, even when it’s valued, is short. Without randomised trials of promising training approaches, where education and training for entrepreneurial quality is concerned, governments will simply repeat the misadventures of the past and end up with more of the same – to all our cost.

‘Human capital and business stay-up’ is published today and reports on research commissioned by The Entrepreneurs Network (TEN) and funded by the Association of Business Executives (ABE) to inform its Business Stay-Up campaign.

Business Stay-Up is a research-led campaign to raise awareness of the pressures and challenges business owners face as they seek to survive and scale, and understand what can be done to increase the probability of success.

IEA Education Research Fellow

James Croft is the IEA's Education Research Fellow and Chair and Acting Director of the Centre for Education Economics.

Leave a Reply

Your email address will not be published. Required fields are marked *