Should Government be Stimulating Start-ups? An Assessment of the Scope for Public Intervention in New Venture Formation

Abstract

An overview of policy thinking on start-ups: context and drivers of public assistance for new venture creation There is broad agreement at a policy level that new business creation is an integral component of an entrepreneurial and dynamic economy (DTI, 2001; EC, 2003; OECD, 1998; Reynolds et al, 2000). Start-ups and self-employment are seen as important sources of new wealth and jobs, as well as a means of enhancing overall competitiveness as entrants seek out and create new business opportunities and activities (for example, DTI, 2001; EC, 2003). (1) Raising levels of involvement in business start-up also increases the number of people directly involved in entrepreneurship and entrepreneurial endeavours and as such is a primary manifestation of and opportunity for engagement with enterprise (SBA, 2002). A preoccupation with encouraging higher levels of start-up can be seen in recent policy thinking on new venture creation in Europe. In 2000 the European Council of Ministers' Lisbon Conclusions identified a need to stimulate entrepreneurship bỳ`c reating a friendly environment for starting up and developing innovative businesses'' (EC, 2000). The continued commitment to encouraging entrepreneurial activity can be seen in the Spring 2005 communication of the European Council, which noted:``There are just too many obstacles to becoming an entrepreneur or starting a business, and, therefore, Europe is missing opportunities'' (EC, 2005, page 16). The European Commission's Green Paper on Entrepreneurship in Europe recognised the central importance of new venture creation to the development of entrepreneurship, noting that Europè`n eeds more new and thriving firms'' (EC, 2003). In the United Kingdom the White Paper on Enterprise, Skills and Innovation, Opportunity for All in a World of Change (DTI, 2001) highlighted the importance of encouraging individuals to start businesses, and linked this with the broader development and encouragement of a culture of enterprise and entrepreneurship:

Myth-busting and entrepreneurship policy: the case of high growth firms

“…As a result, many of the assumptions and findings from the very early HGF literature, even dating back to David Birch's seminal studies in the 1970s and 80s (Birch, 1979;1981), have continued to dominate policy discourse and development, despite new (and sometimes contradictory) findings emerging. An example of this is the continued focus by policy makers on start-ups generally, despite the evidence showing most start-ups generate little in the way of economic value commensurate with the value of the support they receive (Atherton 2006;Shane 2009;Fritsch and Storey 2014;Mason and Brown, 2014).…”

Resource endowment and opportunity cost effects along the stages of entrepreneurship

“…Blanden et al 2005;Minniti and Lévesque 2008;Frankish et al, 2014). Hence, promotion of business start-ups has remained a key agenda item for the economic development policy of most of the developed and developing nations (Atherton 2006;Storey 2003). At the same time, in some regions, high rates of new firms' creation may represent clusters of low value added, low dynamism activities (Van Stel and Storey 2004).…”

The unintended consequences of easy money: How access to finance impedes entrepreneurship

“…It seems more likely that viable SMEs are a result of broader economic development and therefore are not a suitable policy vehicle to stimulate growth. There are also question marks about the feasibility of intervening in start ups (Atherton 2006), especially since some studies show that 81 % of small businesses do not even have the desire to grow (Van Gelderen et al 2005, p.19). Little et al (1987) found that SMEs are no better at job creation than large firms, and firm-level analysis finds that SMEs aren't particular effective job creators.…”