Getting the Power of the Entrepreneurial Spirit

Is entrepreneurial spirit innate or can you cultivate it? This question is central to economic development since entrepreneurs create most new jobs, invest in the newest technologies, and build successful businesses. Schumpeter, the biggest advocate of its importance, coined the (German) term Unternehmergeist, meaning entrepreneurial spirit. Not surprisingly, the term didn't stick, but the idea did.

Still, Schumpeter did not say what a government can do to encourage entrepreneurs. Neither did any of the notable economists after him. A recent study by Harvard academics and Doing Business researchers may have an answer: "Our data reveal a consistent and large adverse effect of corporate taxation on both investment and entrepreneurship. A 10 percentage point increase in the effective corporate tax rate reduces the investment to GDP ratio by about 2 percentage points (mean is 21%), and the entry rate of new businesses by 1.3 percentage points (mean is 8%)." The study also shows that simpler procedures for starting a business and more flexible labor regulations are associated with more entrepreneurship.

Another study, by Berkeley academics and Doing Business researchers, finds that entrepreneurs share one main characteristic: their family has many entrepreneurs and, with high probability, their childhood friends are also entrepreneurs. In other words, it is the social and family environment that nurtutes the entrepreneurial spirit.

What do you think? How does one get the Unternehmergeist?