Can Government Policies Promote Entrepreneurship? Evidence from Costa Rica, Uruguay and Chile

Governments around the world have begun to look to small-and medium-sized enterprises (SMEs) as sources of employment and economic growth for their domestic economies. However, neither public policy makers nor researchers have a solid understanding of which government policies are most likely to be most effective. We examined government policies towards entrepreneurship in three Latin American countries to identify the programs that appeared to the most promising avenues for success. Governments in each country implemented three types of policies toward entrepreneurship. They improved their regulatory environment for entrepreneurship by offering SMEs financial assistance and simplifying bureaucratic rules. They improved their cognitive environment for entrepreneurship by offering programs to teach would-be entrepreneurs the knowledge and skills necessary to run a small enterprise. And they strengthened their normative environment for entrepreneurship by working to improve society's perception of the entrepreneurial sector. We conclude that the most effective policies were those that targeted all three of these dimensions. In particular, programs that brought SMEs together into a community of entrepreneurs helped them gain market power, obtain economies of scale, share knowledge, and achieve a range of other advantages. While specific policy prescriptions depend on a country's circumstances, we recommend that public policy makers and small business owners 3 consider forming communities of entrepreneurs to further their national and individual interests. 4 In 1993, several small wine producers in the Maule region of Chile were struggling for survival. They knew that some of the most successful wine producers in the world were growing large enough to achieve scale economies and devote substantial resources to process innovations and global marketing strategies. Unfortunately, these small Chilean firms lacked the resources to match this approach, and their own technology was becoming more obsolete by the day. These entrepreneurs lacked an understanding of the global market for wine, had little experience with managing growing business concerns, and were becoming increasingly afraid that they might begin to lose even the small level of export sales that they had already achieved, valued at approximately US $83,000 a year. With such a small sales volume and so many global competitors, these winemakers had little chance of obtaining bank loans to improve their process technologies, build larger vineyards, or undertake strong marketing efforts on the world market (Cabrera Gajardo, 2001). Firms in a wide range of industries and countries face dilemmas similar to the circumstances of these Chilean wine producers. National governments …