Entrepreneurship: A Weak Link in the Welfare State

Entrepreneurship is largely ignored or treated in a highly simplified way in endogenous growth theory. Still, it is now widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. This study consists of an in-depth examination of how the supply of productive entrepreneurship is likely to be affected by the kind of tax and welfare arrangements that typically prevail in a mature welfare state. Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is shown how key welfare state institutions have systematically reduced economic incentives both for opportunity-based and necessity entrepreneurship. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are consistent with the identified structure of payoffs. A number of measures can be implemented to strengthen entrepreneurial incentives within extensive welfare states, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions.Economic growth; Entrepreneurship; Innovation; Swedish model; Welfare state

Entrepreneurship and Institutions

In this paper entrepreneurs are defined as agents who bring about economic change by combining their own effort with other factors of production in search of economic rents. The institutional setup is argued to determine both the supply and direction of entrepreneurial activity. Four key institutions are explored more closely: property rights protection, savings policies, taxation and the regulation of labor markets. Institutions have far-reaching effects on entrepreneurship, and they largely determine whether or not entrepreneurial activity will be socially productive. Due to the responsiveness of entrepreneurship to the institutional setup it is maintained that in-depth analyses of specific institutions are required in order to further our understanding of the determinants of entrepreneurial behavior and the economic effects of entrepreneurship. The paper also demonstrates that it is problematic to use self-employment as an empirical proxy for productive entrepreneurship.Entrepreneurship; Industrial policy; Innovation; Institutions; Labor security; Property rights; Regulation; Self-employment; Tax policy

Swedish Economic Growth and Scholarly Objectivity: An objective sociologist vs. subjective economists, or the other way around?

Walter Korpi argues in a previous issue of Challenge (March/April 2000) that Swedish economists’ claim that Sweden’s growth performance has been inferior to that of other industrialized countries is at odds with the facts. Since Sweden has not grown slowly relative to other countries, there is no basis for the claim that ”the Swedish model”, characterized by a large public sector and comprehensive redistributive policies, could be growth impeding. Moreover, Korpi maintains that the discussion reveals a lack of objectivity among Swedish academic economists. In this article Magnus Henrekson argues that Korpi is wrong regarding Sweden’s relative growth performance. Available data indicate that Sweden was lagging behind during the 1970s and 80s, and this tendency is further strengthened when the time period is extended. Then it is clear that the lagging behind began in the mid 1960s and continued through the mid 1990s. As a corollary, examining the factors behind Sweden’s slow growth must be considered an important research issue. Finally, Henrekson maintains that the available evidence, if anything, demonstrates that Walter Korpi is the one who has been lacking in scholarly objectivity.Catching up; Economic growth; Swedish economic performance; Scholarly objectivity; Swedish Model.

Perspectives on the Success and Early History of the Industrial Institute for Economic and Social Research (IUI)

The Industrial Institute of Economic and Social Research (IUI) was founded in 1939. In less than ten years, IUI grew from a small survey bureau to a leading research institute focused on microeconomic research relevant to industrial development. Based on a number of new commemorative essays and biographies written by or about former IUI researchers published in Henrekson (2009), this essay describes the Institute’s accomplishments and the particular research environment at IUI. It also discusses the conditions conducive to a creative, productive research environment. While most of these accounts do not extend beyond the end of the 1970s, the insights provided are highly relevant for contemporary research institutes.Applied research; Creativity; Entrepreneurship; Research institute

Where Schumpeter was Nearly Right - The Swedish Model and Capitalism, Socialism and Democracy

In Capitalism, Socialism and Democracy Joseph A. Schumpeter concluded that socialism would eventually displace capitalism in Western democracies. This would come about as a result of the superior performance of capitalism. We extract six "stylized" propositions that are essential elements of Schumpeter's prediction about the fate of capitalism. These propositions are confronted with the development of the Swedish economy. The three main results of the analysis are: (1) The evolution of the Swedish economy closely followed Shumpeter's predictions until about 1980: Large firms became increasingly predominant in production and innovative activity, ownership of firms became more and more concentrated, individual entrepreneurship waned in importance, the general public grew increasingly hostile towards capitalism, and by the late 1970s explicit proposals for a gradual transfer of ownership of firms from private hands were launched. (2) Design of tax and industrial policies fueled a development of the economy along the lines predicted by Schumpeter. In general, the policies discouraged private wealth accumulation. In particular, the policies favored concentration of firms and concentration of private ownership. (3) The turning point away from the path to socialism coincides with real world developments that disclosed two major flaws in Schumpeter´s analysis. First, the ever more obvious failure of socialism in Eastern Europe went against Schumpeter's assertion that socialism can work. Second, Schumpeter, who thought that modern technology would make the giant corporation increasingly predominant, did not foresee the revival of entrepreneurship that took place in the Western countries around 1980.Corporatism; Entrepreneurship; Industrial Policy; Schumpeter; Swedish Model

Institutional Entrepreneurship: An Introduction

In this introductory chapter to a collective volume,* we build on Baumol’s (1990) framework to categorize, catalog, and classify the budding research field that explores the interplay between institutions and entrepreneurship. Institutions channel entrepreneurial supply into productive or unproductive activities, which likely accounts for a great deal of the disparate economic development of nations. What’s more, entrepreneurship is not only influenced by institutions—entrepreneurs often shape institutions themselves. Entrepreneurship abiding by existing institutions is occasionally disruptive enough to challenge the foundations of prevailing institutions. Entrepreneurs also have the opportunity to evade institutions, which tends to undermine the effectiveness of the institutions in question, or cause them to change for the better. Lastly, entrepreneurs can directly alter institutions through innovative political entrepreneurship. Similar to business entrepreneurship, innovative political activity can be either productive or unproductive, depending on the entrepreneurs’ incentives.Entrepreneurship; Innovation; Institutions; Property rights; Regulation; Self-employment

How Should Research Performance be Measured? A Study of Swedish Economists

Billions of dollars are allocated every year to university research. Increased specialisation and international integration of research and researchers has sharply raised the need for comparisons of performance across fields, institutions and individual researchers. However, there is still no consensus regarding how such rankings should be conducted and what output measures are appropriate to use. We rank all full professors in a particular discipline, economics, in one country using seven established, and some of them commonly used, meas-ures of research performance. Our examination shows both that the rank order can vary greatly across measures, and that depending on the measure used the distribution of total research output is valued very differently.Impact of Research; Ranking; Research Output; Research Productivity; Bibliometrics; Google Scholar; h-index; Impact Factor; SSCI

Promoting Entrepreneurship in the Welfare State

Entrepreneurship is largely ignored or treated in a highly simplified way in endogenous growth theory. Still, it is now widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. In this study we provide an in-depth examination of how the supply of productive entrepreneurship is likely to be affected by the kind of tax and welfare arrangements that may prevail in a mature welfare state. Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is argued that the Swedish welfare state early on chose a specific “Swedish Model” of trying to combine ambitious welfare programs and a high tax burden with good opportunities for economic growth. This particular view rested heavily on the assumption that innovative activity was best performed in large established firms and that entry of new firms was less important. Consequently, policy and institutions were geared to promoting certain types of activities which could deliver growth if scale economies are important and intrapreneurship can substitute for entrepreneurship. However, in an environment where entry, exit and turnover of firms are important for growth, and where scale-economies are less important, this kind of model may be more problematic. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are broadly consistent with the identified structure of payoffs. A number of measures that can be implemented to strengthen entrepreneurial incentives within extensive welfare states are discussed, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions.Economic Growth; Entrepreneurship; Innovation; Swedish Model; Welfare State

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

Promoting Entrepreneurship in the Welfare State

Entrepreneurship is largely ignored or treated in a highly simplified way in endogenous growth theory. Still, it is now widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. In this study we provide an in-depth examination of how the supply of productive entrepreneurship is likely to be affected by the kind of tax and welfare arrangements that may prevail in a mature welfare state. Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is argued that the Swedish welfare state early on chose a specific “Swedish Model” of trying to combine ambitious welfare programs and a high tax burden with good opportunities for economic growth. This particular view rested heavily on the assumption that innovative activity was best performed in large established firms and that entry of new firms was less important. Consequently, policy and institutions were geared to promoting certain types of activities which could deliver growth if scale economies are important and intrapreneurship can substitute for entrepreneurship. However, in an environment where entry, exit and turnover of firms are important for growth, and where scale-economies are less important, this kind of model may be more problematic. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are broadly consistent with the identified structure of payoffs. A number of measures that can be implemented to strengthen entrepreneurial incentives within extensive welfare states are discussed, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions.Economic growth; Entrepreneurship; Innovation; Swedish model; Welfare state