We are not a nation of great entrepreneurs. It is past time we stopped pretending we were. It is about time we started asking why more people don’t start their own businesses and what can be done to make that happen.
The publication last Friday of the Global Entrepreneurship Monitor report for Ireland showed declining rates of company start-ups in 2012. Worse still, it found that fewer people here aspire to starting businesses than in most peer countries.
This is a big change on previous monitor reports, which are commissioned by Enterprise Ireland, the State body tasked with encouraging indigenous business, and which have formed the sole basis for frequent claims by politicians of Irish entrepreneurial overachievement. On the basis of subjective surveys, past monitor reports had found Ireland to be among the most entrepreneurial countries in the world despite hard comparative data, such as corporate demographics and levels of business spending on research and development, which have long shown that home-grown companies have collectively underperformed.
If there is a killer fact that illustrates the inherent weakness of indigenous business it is that Irish companies account for a mere 10 per cent of the economy's exports. It is unique among OECD economies for indigenous companies to export so little. Without the foreign-owned sector, Ireland would be the most closed economy in the developed world and would almost certainly be among the poorest countries in western Europe.
Why are we not better at business?
For more than a century, there have been no major barriers to company formation and growth – natural or government-made – that mark Ireland out among its neighbour peers. As such, it is hard to avoid the conclusion that the explanation is cultural.
Using national cultural characteristics as explanations for big social phenomena is fraught. Having said that, two factors unique to Ireland among its western European peers may be relevant: limits on property rights over the three centuries when the modernisation process across the continent was taking hold; and the collapse of the population in the 120 years to the 1960s.
Rise of the merchant middle class
Most economic historians believe that enforceable private property rights are a foundation stone of economic development. In most of western Europe from around the 16th century the expansion of property rights was continuous, if unsteady. This was a cause and effect of the rise of the merchant middle class – the societal strata that has made the modern world what it is today.
In Ireland, the penal laws severely restricted property rights from the 16th to the 19th century. Apart from the pockets where feudalism persisted in western Europe, nowhere outside Ireland did such a large proportion of the population have their property rights curbed for so long. This is likely to have hampered the rise of an independent commercial class and it is no accident that the only part of the island to industrialise was the northeast, where a much larger proportion of the population enjoyed property rights.
A second factor that is likely to explain the weakness of indigenous industry is depopulation from the 1840s to the 1960s. Just as the penal laws were gradually being repealed, the Famine struck. It triggered a tradition of mass emigration that is unmatched anywhere – having scoured international population databases I cannot find a patch of territory in the world in which the number of inhabitants did anything but rise substantially over that 120-year period.
A market in continuous contraction and the loss of generation after generation of those with most initiative and capacity for innovation can only have inhibited the creation and growth of indigenous companies. The small number of successful firms may have created a self-perpetuating cultural dynamic in which limited financial rewards and low social status caused the ambitious in each generation to be less enthusiastic about careers in business and chary about embarking on entrepreneurial enterprises. Instead, the professions came to be seen as conferring greater reward and social status. All this remains true to this day.
But culture is not immutable. It changes of its own accord. And it can be changed by, for instance, reforming education, giving entrepreneurs the same access to the social welfare system so that the costs of failure are lessened, and by incentivising self-employment rather than penalising it (that the self-employed pay a marginal tax rate of 55 per cent – a full three percentage points above their salaried counterparts – is not only grossly inequitable it is economic madness).
But until we stop telling ourselves the untruth that we are especially entrepreneurial we will not start working seriously to bring about change.
danobrien@irishtimes.com
