Unraveling the Shift to the Entrepreneurial Economy

A recent literature has emerged providing compelling evidence that a major shift in the organization of the developed economies has been taking place: away from what has been characterized as the managed economy towards the entrepreneurial economy. In particular, the empirical evidence provides consistent support that (1) the role of entrepreneurship has significantly increased, and (2) a positive relationship exists between entrepreneurial activity and economic performance. However, the factors underlying this observed shift have not been identified in a systematic manner. The purpose of this paper is to suggest some of the factors leading to this shift and implications for public policy. In particular, we find that a fundamental catalyst underlying the shift from the managed to the entrepreneurial economy involved the role of technological change. However, we also find that it was not just technological change but rather involved a number of supporting factors, ranging from the demise of the communist system, increased globalization, new competition for multinational firms and higher levels of prosperity. Recognition of the causes of the shift from the managed to the entrepreneurial economy suggests a rethinking of the public policy approach. Rather than the focus of directly and exclusively on promoting startups and SMEs, it may be that the current approach to entrepreneurship policy is misguided. The priority should not be on entrepreneurship policy but rather a more pervasive and encompassing approach, policy consistent with an entrepreneurial economy. First version: August 2010 Current version: April 2011 Document: Unraveling dba art v21 SaveDate: 4/2/2011 1:40 Acknowledgement: we would like to thank Shazhad Ansari, Joern Block, Isabel Grilo, Matthijs van der Loos, Erik Stam, André van Stel, Erik Swets, Linda Vreeswijk, Sander Wennekers, Vitalija Gaucaite and Haibo Zhou for assistance and comments. In particular, we thank José Louis González Pernía for his assistance finding sources for our section on the demise of the Soviet system. The writing of this manuscript benefited from short visits of Roy Thurik to EM-Lyon, IDS Indiana University and GSCMMontpellier Business School. Early versions have been read in Brussels, Tylösand, Leuven, Zoetermeer, Capelle, The Hague, Lyon, Woerden, Reus, Rotterdam, Caen, Nieuwerkerk, Cartagena, Bilbao, Caceres, Covilhã, Berlin, London and Cali. This paper has been written in cooperation with the research program SCALES, carried out by EIM and financed by the Dutch Ministry of Economic Affairs.