Competencies and Institutions Fostering High-growth Firms

High-growth firms (HGFs) are critical for net job creation and economic growth. We analyze HGFs using the theory of competence blocs, linking firm growth to property rights and the interaction of complementary expertise. Specifically, we discuss how the institutional framework affects the prevalence and performance of HGFs. Firm growth is viewed as resulting from the perpetual discovery and use of productive knowledge. A key element in this process is the competence bloc, a nexus of economic actors with complementary competencies that are vital in order to generate and commercialize novel ideas. The institutional framework determines the incentives for these individuals to acquire and utilize knowledge. We identify a number of institutions that foster the emergence of competence blocs and the creation of HGFs. In particular, our analysis points to the pivotal roles played by tax structures, labor market regulation, and the contestability of currently closed service markets. Finally, we characterize institutions beneficial for sclerotic or dynamic capitalism, respectively, depending on whether they provide a favorable environment for the emergence of competence blocs and the creation of HGFs.Competence Bloc; Dynamic Capitalism; Entrepreneurship; Flyers; Gazelles; High-growth Firms; Industrial Policy; Innovation; Institutions; Labor Security; Product Market Regulations; Property Rights; Sclerotic Capitalism; Self-employment; Tax Policy

Gazelles as Job Creators – A Survey and Interpretation of the Evidence

It is often claimed that small and young firms account for a disproportionately large share of net employment growth. We conduct a meta analysis of the empirical evidence regarding whether net employment growth rather is generated by a few rapidly growing firms – so-called Gazelles – that are not necessarily small and young. Gazelles are found to be outstanding job creators. They create all or a large share of new net jobs. On average, Gazelles are younger and smaller than other firms, but it is young age more than small size that is associated with rapid growth. Gazelles seem to be overrepresented in services.Firm growth; Flyers; Gazelles; High-growth firms; Rapidly growing firms

Economics without Entrepreneurship or Institutions: A Vocabulary Analysis of Graduate Textbooks

A teacher’s words reflect the theory and methods he uses. Words reveal theoretical structures, the problems identified as relevant, and how those problems should be analyzed. I investigate whether entrepreneurship-rich and institutions-rich theories are represented in Ph.D. programs in economics. I analyze textbooks for the presence of terms that fall naturally into two sets. One set deals with the knowledge and discovery: entrepreneur, innovation, invention, tacit knowledge, and bounded rationality. The other deals with social rules: institutions, property rights, and economic freedom. When the words appear I examine the meaning. I examine the textbooks used in required courses in microeconomics, macroeconomics and industrial organization in all Ph.D. programs in economics in Sweden. The investigation is not specific to Sweden, however, because Ph.D. programs in Sweden are virtually identical to programs in the United States. The same textbooks are used, and nearly all of the textbooks examined are written by economists in the United States. I find that (i) all programs are in the tradition of “mainstream” economics; (ii) by and large, the eight expressions scarcely appear in the textbooks; and (iii) when they do appear, their meaning is diluted or distorted, compared to their meaning in theories where the idea is more central. In my judgment, the results constitute powerful evidence that today’s doctoral programs do not train young economists to identify and analyze important economic issues in a relevant way.Bounded rationality; Economic freedom; Entrepreneur; Innovation; Institution; Invention; Property rights; Tacit knowledge; Textbooks; Ph.D. programs; Education

Firm Tunrover and the Rate of Macroeconomic Growth - Simulating the Macroeconomic Effects of Schumpeterian Creative Destruction

The positive effects of new innovative entry and fast and efficient allocation of resources are balanced against the efficiency of price signaling in markets in a non-linear micro based simulation model of an Experimentally Organized Economy (EOE). In this model increasingly rapid reallocation of resources over markets, moved by innovative new entry and competitive exit (the rate of firm turnover) generates faster growth in output, but eventually, if too fast, is shown to affect the reliability of price signaling in markets and to raise the frequency of investment mistakes. Beyond a certain level of the rate of firm turnover the aggregate effects at the macro level, therefore, turn negative. This optimal growth trajectory depends on the balance between the rates of entry and exit and on the performance of new firms compared to incumbents, their size compared to incumbents and the variation in the same characteristics.Business Mistakes; Economic Systems Stability; Endogenous Growth; Experimentally Organized Economy (EOE); Firm Turnover

Simulating the New Economy

The IT, the Internet, or the Computing & Communications (C&C) technology revolution has been central to the economic discussion for several decades. Before the mid-1990s the catchword was the “productivity paradox” coined by Robert Solow, who stated in 1987 that “computers are everywhere visible, except in the productivity statistics”. Then the New Economy and fast productivity growth fueled by C&C technology suddenly became the catchword of the very late 1990s. Its luster however, faded almost as fast as it arrived with the dot.com deaths of the first years of the new millennium. With this paper we demonstrate that the two paradoxes above are perfectly compatible within a consistent micro (firm) based macro theoretical framework of endogenous growth. Within the same model framework also a third paradox can be resolved, namely the fact that the previous major New Industry creation, the Industrial Revolution, only involved a handful of Western nations that had got their institutions in order. If the New Economy is a potential reality, one cannot take for granted that all industrial economies will participate successfully in its introduction. It all depends on the local receiver competence to build industry on the new technology. We, hence, also demonstrate within the same model the existence of the risk of failing altogether to capture the opportunities of a New Economy.Industrial simulation; Innovation and growth; The New Economy; Non-linear dynamics

Taxation, Labor Market Policy and High-Impact Entrepreneurship

Public policy affects the prevalence and performance of both productive and high-impact entrepreneurship. High-impact entrepreneurship prospers when knowledge is successfully generated and exploited in the economy. This process depends on complementary key actors who use their competencies in what we denote a competence bloc. Although variations in economic contexts make prescribing a general panacea impossible, a number of relevant policy areas that affect key actors can be identified. In this paper this is done in the areas of tax policy and labor market policy. It is shown that high and/or distortive taxes and heavy labor market regulations impinge on the creation and functioning of competence blocs, thereby reducing high-impact entrepreneurship.Entrepreneurship; Gazelles; High-growth firms; High-impact entrepreneurship Innovation; Institutions; Labor market policy; Tax policy

Using Self-employment as Proxy for Entrepreneurship: Some Empirical Caveats

Research on entrepreneurship has received an increased amount of interest in recent years, with self-employment being used as the most common proxy for “entrepreneurship” in empirical studies. However, there are various ways of defining selfemployment, making it a somewhat dubious proxy. This may flaw the analysis, especially in cross-country studies, since the documentation of data often is insufficient and difficult to access due to language barriers. We present an analysis of Swedish self-employment data. We show that the measurement of self-employment has changed over time to noticeably affect the reported number of self-employed in the two major statistical sources on self-employment. The reported development of self-employment sometimes differs diametrically depending on source. Sweden is occasionally erroneously reported to show the largest increase in selfemployment in cross-country studies. Our study mimics the results of other country-specific analyses and we conclude that well-grounded conclusions require that the advantages and disadvantages of different statistical sources are recognized.Labor Force Survey; RAMS; self-employed; self employment; entrepreneurship

Firm Growth, Institutions and Structural Transformation

This essay argues that the economic contribution of certain firms – be they small, young or rapidly growing – has to be understood in a broader context of creative destruction. Growth of some firms requires contraction and exit of some other firms to free up resources that can be reallocated to expanding firms. Entry and expansion are flip sides to exit and contraction and the process through which the factors of production are put into different use defines structural transformation. We analyze institutions and policies conducive to structural transformation, in particular the expansion of high-growth firms (HGFs), since they have empirically been shown to contribute disproportionately to economic development. Firm growth is viewed as resulting from the continuous discovery and use of productive knowledge. Rapid firm growth requires a set of economic actors with complementary competencies that work together to identify and commercialize novel business ideas. The institutional framework determines the incentives for these individuals to acquire and utilize knowledge. We identify a number of institutions that encourage the creation of HGFs and promote structural transformation. In particular, our analysis points to the key roles played by tax structures, labor market regulation, and the contestability of service markets. Even in advanced economies, there is a large untapped economic potential which can be unleashed by institutional changes, such as the opening up of closed markets for entrepreneurial competition. However, there is no “quick-fix” that will boost the frequency of HGFs and structural transformation. Our analysis suggests that policymakers need to adopt a broad approach and implement a wide array of complementary institutional reforms to increase the prevalence of HGFs and to facilitate structural transformation.Entrepreneurship; Firm growth; Gazelles; High-growth firms; High-impact firms; Institutions; Job creation; Rapidly growing firms

Family Business, Employment, and GDP

We analyze the proportion of family business and its contribution to employment and gross domestic product (GDP). Our analysis adds to the literature by including all listed firms and by investigating a longer period than has heretofore been reported. The main contribution is to extend the analysis to include all firms in the economy using census data. Our study is devoted to the case of Sweden. Family business makes up half of the listed firms, and three quarters of all firms, accounting for one-fourth of total employment, and one-fifth of GDP. Their importance has increased during the period studied.Family Firms; Employment; GDP; Sweden; Ownership

Institutional Effects on the Evolution of the Size Distribution of Firms

In this paper it is argued that the size distribution of firms may largely be determined by institutional factors. This hypothesis is tested in an exploratory fashion by studying the evolution of the size distribution of firms over time in Sweden for a period spanning from the late 1960s to the early 1990s. The data used is divided into finer size classes compared to most previous studies. This gives more scope for investigating the impact of institutions. Moreover, we use a unique data set, starting in 1984, to take account of corporate groups and government ownership. The analysis shows a poor development for intermediate-sized (10-199 employees) firms. This is likely to reflect the existence of a threshold that many firms are either unwilling or unable to cross. The analysis of the institutions and rules of the game determining the entrepreneurial and business conditions in Sweden indicate that the conditions have been unfavorable for small firms, and hence that too few small firms have managed to grow out of the smallest size classes. The conclusion is supported by an international comparison of the number of firms in different size classes. Data indicate that Sweden has fewer small (10-99) employees), and more large (500+) firms per capita than other European countries.Business taxation; Industrial policy; Industrial structure; Size distribution