To some local economic development leaders, the problem with making entrepreneurship the centerpiece of a community's or region’s economic development scheme is that it just doesn’t matter that much to the economy. It’s certainly valid to focus local investments on those economic opportunities that are likely to generate the highest returns. But, is it true that entrepreneurship is of only minor importance to the economy? In a word, "no."
The Global Entrepreneurship Monitor (GEM) Project is a comparative international study assessing entrepreneurship’s importance to economies worldwide. It concludes that:
* the correlation between the level of entrepreneurial activity and economic growth is greater than 70 percent;
* all nations with high levels of entrepreneurial activity have above-average rates of economic growth; and
* economies with higher rates of entrepreneurial activity are stronger and more competitive.
(GEM 2000 Executive Summary as cited in "The Case for Entrepreneurship," June 2003)
What about the U.S. economy? The 2003 GEM report notes that the United States has the seventh highest rate of entrepreneurial activity among the 31 countries surveyed and the highest rate among the G7 countries (GEM 2003 Executive Summary as cited in Dabson’s "New Jobs, New Strategies: Recruitment, Regionalism and Rural Development," April 2005). According to Chad Moutray, Chief Economist, U.S. Small Business Administration:
* 60 to 80% of net new jobs are created by small firms;
* the bulk of these small firms are less than two years old; and
* small firms are driving innovation with more important patents than large company patents.
According to the Small Business Administration’s Office of Advocacy (or David Birch, "Job Creation in America: How Our Smallest Companies Put the Most People to Work," Fortune, 2002), 44 percent of new jobs in the United States are created by startup companies, 55 percent by the growth of existing firms, and only 1 percent by relocation. These startup firms create about 70 percent of new economic growth (February 2004). Contrary to popular misconception, most new businesses don’t fail. According to the U.S. Small Business Administration (2002), 66 percent of new businesses survive for two years or more. Many are sold to other firms or morphed into different enterprises as they outgrow their original structure and seize new market opportunities. It’s been estimated that by the year 2025, one-half of the North American workforce will be self-employed. (Wall Street Journal, 9/12/2000).
Researchers offer insights into entrepreneurship in terms of both breadth and depth (Sarah Low, Kansas City Federal Reserve Bank, Mainstreet Economist, September 2004). Breadth is the level of entrepreneurial activity, while depth measures the value created by entrepreneurs. We’ve provided some sense of the breadth of activity, but what about the depth? David Birch coined the term "gazelles" to describe those relatively few entrepreneurial companies that have extraordinary growth over a sustained period. Also known as entrepreneurial growth companies or EGCs, these firms have a remarkable impact on our economic growth. According to the National Commission on Entrepreneurship, EGCs account for:
* two-thirds of all job creation;
* two-thirds of business growth; and
* more than one-half of all business innovation.
(NCOE’s High Growth Companies: Mapping America’s Entrepreneurial Landscape, 2001, as cited in "The Case for Entrepreneurship," June 2003)
