While entrepreneurs can be found anywhere, I take particular interest in what the most populous countries are doing to comb their citizens for entrepreneurs. Italy is the sixth most populous country in Europe, and the twenty-third most populous in the world. It also has the world’s seventh-largest nominal GDP. Unfortunately, it also has the sixth highest government budget and a large public deficit, such that the economic confidence crisis in the Euro zone that sparked in Greece put a spotlight on Italy´s economy, which faces similar insolvency risk. With Italy´s public debt around 120 percent of GDP and growing, policy options are increasingly constrained. Fortunately, spurring entrepreneurship is not necessarily expensive (although it does take political commitment) and is a proven source of economic energy.
Resolving some structural weaknesses in the country´s economy could give potential entrepreneurs an incentive to start creating jobs. For example, Italy´s rigid labor regulations currently hinder the growth of new businesses´ payroll, according to the latest Global Competitive Report, which ranked Italy 118th in the world for its labor market efficiency. Financial markets are not sufficiently developed to provide needed finance for business development (ranked 101st in the Global Competitive Index), and to make matters worse, Italian angel and venture capitalists prefer to invest in other countries. Italian entrepreneurs have also long suffered from the effects of a stifling and sometimes corrupt bureaucracy, high taxes and overregulation in general, all of which increase the costs of entrepreneurial activity. Probably in part reflecting these barriers, only a minority of respondents to the 2009 Eurobarometer Survey on Entrepreneurship in Italy (4%) said they were considering starting up a business.
Some observers admire how the country’s entrepreneurs have survived and even thrived by remaining small and nimble, like the shoe manufacturers clustered in the northern industrial districts, which deal with inflexible labor laws by employing fewer than 15 workers each. But can an army of small companies guarantee sustained job creation? Research in other developed countries suggests that the answer is no. The engine of job creation is composed of young companies that scale.
Changes won´t happen from one month to the next. Cultural capital for entrepreneurs will take a time to build, probably longer than the policy changes. For cultural changes to take place, education is key. Development of scientific and entrepreneurship skills must be present in the curriculum at educational institutions, especially if Italy wants entrepreneurs driven by opportunity recognition, as opposed to necessity.
Recognizing the need for more cultural capital, many Global Entrepreneurship Week/Italy activities last November focused on creating awareness and appreciation of entrepreneurship. For example, “Failing to Succeed” brought together a panel including David Thorne, US Ambassador to Italy, Mario Moretti Polegato of Geox, Gianluca Dettore of DPixel and Luigi Amati, president of GEW host META Group, to discuss the role of failure in entrepreneurial success. Ambassador Thorne said, “To make a real impact as an entrepreneur, you have to be willing to take risks, think creatively, and do something that no one else is doing. Of course, with every attempt at innovation comes the possibility of failing. Failure is a part of the entrepreneurial process. It’s how we learn what works, what the market is interested in, what is possible. In the U.S., we wear failure as a badge of honor. You’ll hear entrepreneurs almost bragging about the number of start-ups that failed before they were able to succeed. As an investor, I expect 4 out of every 10 start-ups I invest in to actually fail, 4 to do okay, and 2 to really succeed. But those that succeed are worth the risk.”
While developing cultural capital will take time, building a policy environment more conducive to entrepreneurship is an urgent task for Italy. The current state of entrepreneurship is costing the country its chance to develop into an innovation economy reflective of the extraordinary creativity and talent of most Italians. That means less job creators and that is bad news not just for Italy, but for Europe. The upcoming elections offer a chance for new leadership on startups and the economy. I hope the election campaign takes this discussion to the Italian people.
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Jonathan Ortmans is president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues. In this capacity, he leads the Policy Dialogue on Entrepreneurship, focused on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as a senior fellow at the Kauffman Foundation.