We should also be careful about whether countries are the proper unit of analysis, especially when considering institutional and cultural factors, as this nice essay from Robert Schiller points out. In examining the "culture of entrepreneurship," Schiller cites several studies that show, within a single country, significant regional or even municipal-level variation in amounts of and attitudes toward entrepreneurship. A recent study of entrepreneurs in Sweden found a variation in the percentage of the population involved in entrepreneurial activity varied across 289 municipalities from a low of 1.5% to a high of 18.5%. This variation wasn't a result of national policies. Rather, it reflected how different areas of Sweden responded to national policies in the 1980s and 90s that offered greater entrepreneurial opportunities and resulted in an overall doubling of entrepreneurship during that period.
Cultural variables seem to explain a lot: religion and politics accounted for about half of the variation across municipalities. Municipalities tended to have more entrepreneurs if they had a high proportion of pensioners who were members of the Church of Sweden (the official state church until 2000) and a high proportion of right-wing voters. [ed. Max Weber, are you listening?]
Beyond that, a feedback mechanism appears to be in place: cities with more entrepreneurs tend to beget still more entrepreneurs. Once an entrepreneurial culture takes root, it typically spreads locally, as people learn about business and begin to feel attracted by it – even if it doesn't’t yield an immediate or certain payoff.
Indeed, Giannetti and Simonov discovered that the average income of entrepreneurs was lower in high-entrepreneurship municipalities than in the low-entrepreneurship ones. Similarly, studies from other countries show that entrepreneurs often have lower initial earnings and earnings growth than they would have as employees). [...]
... Giannetti and Simonov... argue that differences in the prestige of entrepreneurs across municipalities may account for differences in levels of entrepreneurship. In some municipalities, entrepreneurs enjoy high social status, regardless of whether they are already successful; elsewhere they are looked down upon and other occupations are more admired.
The idea that prestige is important is not new. In her book Money, Morals & Manners, the sociologist Michèle Lamont compared definitions of success in France and the United States. She interviewed people in both countries and asked them what it meant to be a “worthy person.” In essence, she was asking people about their sense of what is important in life and about their own personal sense of identity.
Lamont’s study confirmed the conventional wisdom that Americans value business success, while the French place greater value on culture and quality of life. Likewise, open contempt of “money-hungry” businesspeople and competition is expressed more often in France than in America.
But, while Lamont focused on differences between the French and the Americans, her study’s most interesting finding was that of significant differences between regions within France. She compared Clermont-Ferrand, the capital of Auvergne, in the center of France, with Paris. Auvergne’s inhabitants have a reputation for being parsimonious and stern, and, despite substantial recent progress, for a relative dearth of high culture.
Lamont found that people in both Paris and Clermont-Ferrand tended to express contempt for “money-grubbing.” But the Clermontois valued “simplicity, pragmatism, hard work, and resolve,” while the Parisians put more stress on “pizzazz and brilliance.” She concluded that, “In many respects the Clermontois are closer to the Hoosiers (as the residents of the US mid-Western state of Indiana are called) than to the Parisians.” Her evidence suggests that in Clermont-Ferrand, as compared to Paris, there is a higher intrinsic demand for starting small businesses.
Innovation, risk-taking and entrepreneurship are increasingly understood as building blocks of long-term economic growth. Politicians and academics, in both the developed and developing world, who are looking for ways to stimulate entrepreneurship will often consider building geographically concentrated "innovation centers" or hubs. Commonly-cited advantages of hubs include increasing social capital through cross-fertilizing knowledge and information, encouraging business connections such as supply-chains, attracting a sizable pool of qualified labor, and stimulating specialized services such as finance or transport. Schiller's observations give added support to the notion of geographic concentration. But Schiller's cultural factors also provide a note of caution -- he points to conditions that are likely to be necessary for geographic centers to take root and be sustainable, only some of which are in the control of policymakers.
Economists and others often tend to look at countries as a whole and emphasize national attitudes and national policies as the main factors in encouraging or discouraging entrepreneurship. But, in fact, the national success in entrepreneurship depends on the evolution of local cultures and their interaction with national policies. Entrepreneurship can take root in culturally congenial regions of any country after economic barriers against it are lifted [ed. critical caveat], and then feed on itself to grow to national significance.
These studies remind us that countries are actually what Schiller calls "a pastiche of local cultures that differ in how they motivate people and shape their personal identity.... define what it means to be a worthy person, and how worthiness is signaled...." This in turn has implications for how we approach development assistance.
First, as development focuses more and more on the institutional level, and on getting incentives right (or removing counter-productive incentives), the cultural dimensions that are part of individuals' incentives "calculus" must be taken into account. Assistance providers must be "culturally aware" -- in the sense not only of possessing a general body of knowledge about a country, but of knowing how to learn about and appreciate the importance of a range of (often conflicting) cultural dynamics within the country. Schiller's emphasis on culturally-based incentive structures is also consistent with one of my hobby-horses: that development is as much a change of "mentality" as it is a change in the more visible structures of social, political or economic relations. If a "culturally congenial" mentality doesn't already exist, changes may require a generation or more.
[ed. all emph added]
The first afoe European weblog awards