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Tuesday, 28 August 2012

Having Trouble Sleeping? Maybe Counting All the Entrepreneurs in China Will Help?

Try as I might, this Kat simply cannot get his analytical paws around how to understand the mass of data that are trotted out in connection with start-ups, innovation and entrepreneurship. One does not need a sea of metrics to confirm various anecdotal impressions about the current winners and losers of the on-going entrepreneurship Olympics. We all know that Silicon Valley is in a world unto itself, that Boston is a respectable trailer, that Israel punches above its start-up weight, that the press of 15 million people in Mumbai or six million in Bangalore cannot hide their innovative energy, and that Singapore strives to take its economic dynamism to a new innovative level.

And then there is Europe. As described in the 28 July article entitled "Les miserables" that appeared in The Economist , "Europe not only has a euro crisis, it also has a growth crisis. That is because of its chronic failure to encourage ambitious entrepreneurs." Those of you who wish to read the entire article are invited to do so here. My interest is the following paragraph which, in this Kat's humble view, embodies the puzzlement that he frequently senses in encountering macro-data on entrepreneurship. Thus we are told as follows:
"Data show that continental Europe has a problem with creating new businesses destined for growth. According to the Global Entrepreneurship Monitor, which compiles comparable data across countries, in 2010 “early-stage” entrepreneurs made up just 2.3% of Italy’s adult population, 4.2% of Germany’s, and 5.8% of France’s. European countries are below—in many cases well below—America’s 7.6%, let alone China’s 14% and Brazil’s 17%." 
 This Kat pondered and pondered this paragraph--and yet he still remains a bit confounded. Okay, it is a fair observation that Europe as a whole might lack some of the innovative zip of Palo Alto. But having said that, what are to make of these data? Let me explain.

First, one cannot help but notice the breathtaking precision of the percentage of entrepreneurs reported for certain reported countries. For Italy, Germany, France and the United States, the percentage of entrepreneurs has been refined to the tenth of a percent. On the other hand, the reported percentages for Brazil and China are presented in rounded numbers. Is that just an accident, or is there something about the way that the data were gathered for Brazil and China that is different from the manner in which they were collected in the U.S., Germany, France and Italy? If so, should we treat all of these results with the same degree of reliability and validity?

 Secondly, there is the issue of how one defines "entrepreneur". After all, the reported results purport to provide granular information about entrepreneurial activity across countries. If so, it is incumbent on us to understand what is meant by "entrepreneur", as reported in the article on the basis of a 2010 study by the Global Entrepreneurship Monitor here. Is anyone who sets up his or her own business, as opposed to being a salaried employee, an entrepreneur? If not (and this characterization does sound a bit over-inclusive), then what is meant by the term? Is the person who opens a franchisee branch of a proven pizza concept in a heretofore underserviced neighborhood an entrepreneur? Or is such a person "merely" a small business person, the notion of entrepreneur being reserved for the new pizza outlet that develops proprietary software to generate the shortest route for the delivery staff to take in making home deliveries?

Thirdly, however that definitional challenge is resolved, what are we to make of the reported results about the percentage of "entrepreneurs" in select countries? Let's begin with the U.S. According to Wikipedia,
"[p]eople under 20 years of age made up over a quarter of the U.S. population (27.3%), and people age 65 and over made up one-eighth (12.8%) in 2009." 
One-eighth plus one quarter seems to suggest that 5/8 of the US population, being approximately 197 million people (out of 315 million in toto) are adults in the U.S. Based on The Economist article, 7.6% of 197 million, meaning nearly 15 million Americans are entrepreneurs. Stated otherwise, this suggests that approximately 1 out of every 14 adults in the U.S. is an entrepreneur. Is this reasonable or unreasonable?

But the data that are more challenging are the results reported for China and Brazil. Assume that China has a population of approximately 1.3 billion residents and, again according to Wikipedia, about 72% of its overall population is between ages 15-64. That would mean that there are approximately up to 94 million adult entrepreneurs in China. Even if we acknowledge that the adult cohort should probably be less than the entire population between ages 15-64, say 75% of that total, that still leaves us with approximately 70 million entrepreneurs in China. That means that about one out of every approximately 7 adults in China is an entrepreneur. Reasonable or unreasonable?

For Brazil, Wikipedia reports that the overall population is approximately 190 million persons, of whom approximately 67% percent are between 15–64 years. That means that there approximately 127 million people are in this age cohort. If we treat the relevant cohort to be 75% of that total, that means that approximately 95 million adults in Brazil. Among these adults, approximately 15 million people in Brazil are entrepreneurs. That means that approximately 1 out of every 6 adult Brazilians is an entrepreneur. Reasonable or unreasonable?

Let's consider these results further, taking Brazil first. It is my understanding that Brazil's dynamic economy is primarily based on trading in commodities, with a small non-commodity export market. As well, there remain significant social disparities in the Brazilian population. On that basis, it is difficult for this Kat to accept that there are 15 million entrepreneurs active in Brazil. As for China, there is a more active export market. But, given the sizable number of Chinese citizens that still live in non-urban settings, the thought that 1 out of every 7 Chinese adults is an entrepreneur is simply hard to fathom.

Even for the European countries, this Kat must express a cautionary note. Assuming that the percentages for Italy and France are correct (at least on their own terms), what does one do with the hundreds of thousands of French expats who are reported to be living in London? To the extent that some of them are engaged in entrepreneurial activity, should they be considered part of the UK or the French cohort? To a lesser degree, the same comments an question pertain to Italy as well.

The upshot is that this Kat treats the results as reported in the article with a healthy degree of skepticism. China and Brazil, two card-carrying BRICs, may be flourishing, but is difficult accept that a major reason is the large number of entrepreneurs in these countries. Similarly, even in Europe, the challenge of innovation-driven growth is a far more complicated than can be captured in a single data point about the alleged number of entrepreneurs in those countries.


Peter Smith said...

I am happy that the percentages are all quoted to two significant figures but I share the Kat's doubt over what "entrepreneur" means and whether it is the same in each country.

Perhaps more interesting is the assumption that a high number of "early-stage" entrepreneurs is a Good Thing. If the aim is for "early-stage" businesses to develop into mature and profitable ones, then a high proportion of "early-stage" entrepreneurs may just reflect a high rate of business failures before they reach that stage.

MaxDrei said...

Neil you don't have to go as far away as India or China. Just take a holiday on a Greek island like Rhodes and engage the local lads in conversation, down the taverna. Try enquiring of each of them, what is their trade or profession. You will discover, I think, that each earns a crust most days somehow, a bit of this and a bit of that, but none has a PAYE card.

The doctors are entrepreneurs too. Recall that Greek island on which a startlingly high proportion of the populace is registered blind (including all the taxi drivers). Come to think of it, what are taxi drivers if not entrepreneurs?

Anonymous said...

I love the in-depth analysis, with the population numbers and percentages of the population who are adults etc, all to take (using the China calculation as an example) a piece of data that says 14% of adults in China are entrepeneurs and to conclude that approximately 1 in every 7 adults in China is an entrepeneur. Incredibly, 1 in 7 comes out at about 14%...

The rest of it makes good points though.

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