Evidence capitalism works

December 28, 2007

I recently came across the following entrepreneurship ranking which I found quite interesting. The list is produced by amalgamating the World Bank’s Doing Business Report and the Global Entrepreneurship Monitor produced by Babson College and the London Business School to create an entirely new ranking referred to simply as the “FSB score”. Combining both these sources with equal weighting creates a new figure that takes many things into account, including: starting a business, operating a business and something called high-expectation entrepreneurship.

Those individuals, who can get good jobs, become entrepreneurs because they see a chance to build substantial companies. They aren’t starting subsistence businesses for lack of other opportunity. Only 7.4% of business launchers in GEM’s 53-nation survey fall into the high-expectation bucket, but such men and women are responsible for 70% of the jobs created by small business.

When the GDP per capita (IMF) ranking is graphed against the FSB entrepreneurship ranking, the following results.

click to enlarge

There you have it, the data indicates a strong correlation between entrepreneurship and wealth as measured by GDP per capita.There are a few points to keep in mind, the entrepreneurship ranking includes the usual things like taxes and governmental bureaucracy, but it also includes the people. If the people do not value business then no amount of tax policy adjustments will necessarily improve economic realities.

Similarly, correcting the systematic problems that typically prevent a business friendly economy will not yield instantaneous results — New Zealand is a good example of an economy that is recovering from many years of Socialist rule.

Other important factors that are not adjusted for in either of the data sets that constitute the FSB ranking — war, freedom, corruption and political stability.