When academics and policy makers look at why some countries are more entrepreneurial than others, they often make an assumption that the set of factors correlated with high rates of entrepreneurship are all things that are desirable. Unfortunately, the data often belie that belief.
Take the social indicators data released by the Organisation for Economic Cooperation and Development (OECD) on its member countries.
These data permit the calculation of the correlation between a country’s self employment rate and the average work values of its citizenry. (A correlation is a measure of how much two numbers move in the same direction; a correlation of -1.00 means that two numbers move in exactly the opposite direction.)
While we have to keep in mind the caveat that these correlations don’t represent causal effects – which I raised in my column Height and Entrepreneurship – the data show countries with a higher share of self-employed have a citizenry that:
• Prefers to spend more time on the job (correlation is 0.68),
• Believes that having a high income is important (correlation of 0.57),
• Thinks that having opportunities for advancement is important (correlation of 0.51),
• Believes that having the freedom to choose when to work is important (0.52).
But not all of the social factors correlated with high rates of self-employment are things we might think of as desirable. Places with a higher share of self-employed people also have a citizenry that is less satisfied with life (correlation of -0.60).
Unfortunately, we don’t know whether places have a greater share of self-employed people because their citizenry has certain attitudes, or whether the citizenry has these attitudes because they have a greater share of self-employed people, or whether places have both these attitudes and a high share of self-employed people because of something else.
Maybe places with people who like to work, care a lot about having high incomes, believe in the importance of the opportunity for advancement and control over work schedules, and are less satisfied with their lives also have cultures that promote entrepreneurship.
On the other hand, maybe places that have a lot of entrepreneurs tend to develop cultures in which people are not satisfied with life, favour work over other activities, and focus on income, advancement and control over work schedules.
Or maybe the political systems or economic structures in different countries lead them to have a lot of self-employed people and people who are relatively unsatisfied with life, favouring work over other things, and focusing on income, advancement and control over work hours.
So what good is it to know about these correlations if we can’t figure out what is causing what?
They show that characteristics of different nations are related to each other in ways that are inconsistent with the naive view that everything associated with entrepreneurship is good.
For instance, regardless of the direction of causality, the fact that countries with high self-employment rates also have a citizenry that tends to be less satisfied with life means that we can’t assume that nations with many self-employed people are necessarily better off.
Email the writer:
s.shane@alrroya.com
Consider also reading:
Height and Entrepreneurship
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