The origin of this book was a dinner by the Persian Gulf a couple of years ago, on a balmy February evening. My host, alluding to my research on entrepreneurship, asked me what could be said to distill the definitive conclusions emerging from academic publications that could guide the design of a program to promote new businesses. The truthful answer, I had to report, was “Not much.”
This conversation brought home to me the gap between academic research and practice in the area of promoting entrepreneurship. This gap has its origins in two unhappy facts:
• First, the academic literature is comparatively sparse: economists have turned only recently to the question of how to boost entrepreneurship. In contrast to other government interventions designed to boost economic growth, such as privatizations, programs to promote entrepreneurship have received little scrutiny by economists. Not only are the theoretical foundations much less well developed, but empirical studies are much fewer in number and generally less sophisticated. While related issues—such as the impact of research and development subsidies1—have attracted more attention, definitive answers are scarce even among these better-researched topics.
• Second, the problems are complex: there are no easy answers. In many cases, policymakers face the challenge of having to consider many different policies. It is often unclear how proposed changes will interact with each other. There is no clear “instruction manual” that explains which changes will have the desired effects.
Thus, most conclusions gleaned from the academic literature will necessarily be tentative.
The relative neglect of these matters is very unfortunate. While the sums of money involved in public efforts to promote entrepreneurship are modest compared to public expenditures on defense procurement or retiree benefits, these programs—as we shall see—can profoundly shape the evolution of nations and regions.
These considerations might suggest it would be sensible to delay writing this book until more is known. But policymakers have an urgent need for guidance today. In many cases, these leaders (whether rightly or wrongly) perceive a “window of opportunity,” where investments in promoting entrepreneurial activity would be especially fruitful. The economic downturn has both made public interventions into the economy more acceptable and highlighted the poor long-run prospects for many mature industries.
These thoughts suggested the need for a book such as this. Owing to our early stage of understanding, this book is quite different from the traditional article in an academic journal. In particular, it is not an exercise where conclusions can be drawn at the 95 percent confidence level: there is much more ambiguity in many of the conclusions. But while definitive statistical evidence may be lacking for many of its arguments, this book does draw on a blend of evidence: economic theorizing, the limited number of large-sample studies on the topic, case studies, and my own experiences working with national and regional governments struggling to encourage entrepreneurial activity.
This project has had many helpers, to whom I express my gratitude. Excellent research assistance in understanding the historical track records of government programs and summarizing the relevant academic and practitioner literature was provided by Adrian Budischak, Sara Cheche, Yeguang (Shaq) Chi, Catherine Chuter, Kathy Han, Jodi Krawkow, and Yinglan Tan. Chris Allen, as always, was very helpful in assembling statistical data. Financial support for their (and my) work was provided by Harvard Business School’s Division of Research. Ralph Lerner and Marianne D’Amico read and commented on several versions of the manuscript. Princeton University Press, as always, was superbly helpful: I thank my editor, Seth Ditchik, as well as Janie Chan and Peter Dougherty.
Three other sources for this work should also be acknowledged. Many of the insights in this book originally emerged from projects for governments in Europe, North America, the Middle East, and Oceania. The chance to work on these projects, and in particular my many helpful conversations with political leaders, economic development officials, entrepreneurs, and venture capitalists, played a key role in shaping these ideas. I would particularly like to thank Colin Gosselin, Abu-Baker Khouri, Jodie Parmar, Stuart Shepherd, and Brian Watson in this regard.
This book also draws on the ideas (and occasionally the words) in my previously published research, including work with Pierre Azoulay, Paul Gompers, Felda Hardymon, Sam Kortum, Ann Leamon, and Antoinette Schoar. I thank them for permission to use here some of our jointly developed ideas, as well as for many conversations that shaped my ideas. I also had helpful conversations with several colleagues, including Ann-Kristin Achleitner, Thomas Hellmann, Peter Henry, and Scott Stern.
Finally, over the past decade, I have had the chance to organize two groups at the National Bureau of Economic Research, devoted to Entrepreneurship and to Innovation Policy and the Economy. The NBER’s chief executive officers, Marty Feldstein and Jim Poterba, encouraged these activities. Carl Schramm, Bob Litan, and Bob Strom of the Erwin Marion Kauffman Foundation were generous in supporting these groups. Those settings provided occasions for conversations with friends and colleagues about many of the ideas discussed in this book.