Policy makers should recognize that self-employment and innovative entrepreneurship are not synonymous; and that policies which encourage self-employment not necessarily promote entrepreneurship. This is the message in a brand new book SuperEntrepreneurs by Tino and Nima Sanandaji. “This book is also topical in light of the debate about increasing wealth inequality in industrialized countries” writes Professor Magnus Henrekson, IFN, in a foreword: “This report clearly demonstrates that SuperEntrepreneurs as a group has been exceptionally productive from the point of view of the rest of society."
Professor Henrekson argues that the authors of SuperEntrepreneurs give the answer to which extent great wealth is generated through productive activity such as creating large new firms or through rent seeking, speculation or other unproductive activity: "Leading economists such as Thomas Piketty and Robert Solow have argued that most of the superrich do not engage in productive activity, and that their wealth is to a large extent based on clever ways of transferring wealth from the rest of the economy. This report clearly demonstrates that SuperEntrepreneurs as a group has been exceptionally productive from the point of view of the rest of society."
Tino Sanandaji is a full-time researcher at the IFN and holds a PhD degree from the University of Chicago. He explains that two thirds of American billionares have not inherited their fortunes, but are self-made. A majorty of American billionares are "superentreprenurs" who have founded productive companies. “Most self-made billionares built their fortunes as entrepreneurs. Second most common are heirs to previous generations of entreprenurs. Few become billionares by working for someone else, even as a CEO.”
By using the database on SuperEntrepreneurs, which the book is based on, Tino and Nima Sanandaji show that:
- The about 1,000 self-made SuperEntrepreneurs founded half the largest new firms created since the end of the Second World War.
- The U.S. is roughly four times more entrepreneurial than Western Europe and three times more entrepreneurial than Japan.
- There is a strong correlation between high rates of SuperEntrepreneurship in a country and low tax rates.
- Active government and supranational programmes to encourage entrepreneurship – such as the EU’s Lisbon Strategy – have largely failed. Yet governments can encourage entrepreneurialism by lowering taxes (particularly capital gains taxes); by reducing regulations; and by vigorously enforcing property rights.
- SuperEntrepreneurs tend to be well-educated: only 16 percent of U.S. SuperEntrepreneurs lack a college degree, compared to 53 percent of the self-employed and 54 percent of salaried workers.
- Policy makers should recognize that self-employment and innovative entrepreneurship are not synonymous; and should not assume that policies which encourage the one necessarily promote the other.
- The crucial difference is that while many successful entrepreneurs started small companies, not all self-employed people are innovative entrepreneurs (in the sense of developing successful new products and services).
- Self-employment is high in countries such as Greece, Turkey, Spain, Portugal and Italy, countries with low rates of innovative entrepreneurship. The U.S. has significantly lower rates of self-employment. The self-employment rate in Silicon Valley is half that of the average of California.
- Policy makers should use a definition of entrepreneurship which is based on innovation. This would correspond better with what most policy makers appear to want for their countries: technological progress and economic growth to the benefit of all citizens.
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Sanandaji, Tino and Nima Sanandaji (2014), SuperEntrepreneurs – and How Your Country Can Get Them. London, UK: Centre for Policy Studies.