How do we create more entrepreneurs?
That’s the question on every politician’s mind as they better understand that new and young businesses create nearly all net new jobs in the United States.
According to a recent article at The Atlantic, entrepreneurship flourishes when government provides a strong safety net. The author of the piece, Harvard Business Review associate editor Walter Frick, highlights the importance of the social safety net in producing entrepreneurs with the following examples:
The connection between entrepreneurship and a strong welfare state goes against a common view of the entrepreneur as a “lone wolf,” valuing independence and finding success without external supports.
The Atlantic article turns this notion on its head, demonstrating that government support may be critical in encouraging entrepreneurship.
As the article notes with regards to SNAP, the mechanism probably looks like this: government welfare reduces the downside risks of entrepreneurship, which thereby encourages more people to engage in it.
In The Founder’s Dilemmas, entrepreneurs and non-entrepreneurs were asked about their motivations for the career they were in. Non-entrepreneurs consistently placed a high value on the security that their non-entrepreneurial job provided.
For these more risk-averse people, the perceived lack of security might be enough to dissuade them from becoming entrepreneurs. However, a stronger social safety net (for example, the system in France) may encourage more risk-averse people to consider entrepreneurial ventures, which would benefit the economy and job creation.
Entrepreneurship is a risky business. Research highlighted in The Atlantic shows that one way to support entrepreneurship is to provide a social safety net that can help an entrepreneur take the risk of starting a new business.