13/8/2014: The Dutch Entrepreneurial Ecosystem Paradox

Staying the course of the previous two posts, here is another interesting study relating to entrepreneurship, this time looking into policy supports dimension.

The paper by Stam, Erik, titled "The Dutch Entrepreneurial Ecosystem" (July 29, 2014, http://ssrn.com/abstract=2473475) looks at the entrepreneurial ecosystem "in the Netherlands: how it has evolved, why the rate of solo self-employment has increased and how the entrepreneurial ecosystem can be adapted to increase productive entrepreneurship." This is of interest well beyond the Netherlands, as many (all) European countries are pursuing development of such ecosystems and as many European countries have witnessed significant increases in the rates of individual self-employment (self-employment with no related employees).

The authors "summarize and extend the entrepreneurial ecosystem literature with a model that includes framework conditions (formal institutions, culture, physical infrastructure, and demand) and systemic conditions (networks, leadership, finance, talent, new knowledge, and support services) that affect entrepreneurial outputs (entrepreneurial activity) and outcomes indicating value creation (productivity, income, employment and well-being)."

Per authors: "The Netherlands has seen a remarkable rise of independent entrepreneurship in the last decade. However, this rise of independent entrepreneurship reveals to be predominantly a rise in solo self-employment, not an increase in growth oriented and innovative entrepreneurship."

This is a common problem to Ireland: "The rise of self-employment in the Netherlands seems to have lowered unemployment rates, but it is unlikely that the rise of self-employment and new firm formation has positively affected innovation and in the end productivity growth over the period 1987-2013."

But the Netherlands self-employment rise is also idiosyncratic in part: "This rise of self-employment and new firm formation and stagnation of innovation is what we label the Dutch Entrepreneurship Paradox. Especially favorable fiscal treatment of self-employed, and an increasing demand for flexible labor, stimulated the growth in the number of solo self-employed since the early 2000s. There is a major policy task not to let entrepreneurship be a driver of productivity decline (or at best a flexible belt in the labor market), but to stimulate productive entrepreneurship instead." It is worth noting that in the majority of European countries, the solo self-employment is actually penalised via tax systems, rather than supported, as in the Netherlands.

On the policy front, to "increase productive entrepreneurship in the Netherlands, we propose four policy actions. Each action addresses a change in one of the four framework conditions of the entrepreneurial ecosystem:

• Changing formal institutions to enable labor mobility (development and circulation of talent); 
• Opening up public demand for entrepreneurs, to provide finance for new knowledge creation and application; 
• Stimulating a culture of entrepreneurship and entrepreneurial leadership; 
• Adapting or creating physical infrastructure to enhance knowledge circulation and networks."