Tuesday 12 March 2013

Linking cities and entrepreneurship

Posted by Dr Olmo Silva, SERC and LSE

Since the writings of Marshall and Schumpeter around a hundred years ago, entrepreneurs are considered a crucial ‘ingredient’ in promoting and sustaining economic growth. Paradoxically, the link between local entrepreneurship and economic dynamism is even more pronounced in today’s highly globalized world – dense local clusters of entrepreneurship are the real powerhouses of local modern economies, capable of leveraging knowledge spillovers and agglomeration forces to produce the ‘next big thing’ and project it into a global reach.

Despite its crucial importance to policy making and a deeper understanding of the functioning of our economic activities, relatively little economics research has focused on measuring and modeling entrepreneurship, and not enough is known about what role entrepreneurs play in fostering agglomeration and urban economies. 

Increasing our understanding of this crucial issue is the aim of a new network which looks to bring the ‘entrepreneur’ into urban and spatial economics.

A first workshop took place at the University of Stirling a few weeks ago. The local organizers were Stephan Heblich (one of our SERC affiliates) and George Panos. With the help of Stephan and George, we managed to put together a gathering of academics working on the economics of entrepreneurship, policy makers and local small-business entrepreneurs. 

During our first meeting, we heard a number of interesting pieces on the actual importance of entrepreneurs for the functioning and performance of their business; on the role of risk aversion in determining who chooses to be an entrepreneur and when; and on the role of entrepreneurial education.

The debate that followed revealed once again how little we know about these issues. Although entrepreneurs are clearly important and capable of taking on more risk, we have little evidence that education can really make random individuals more entrepreneurial and more risk-tolerant.

Fortunately, the entrepreneurs attending the meeting brought to the table some very interesting and somewhat more practical remarks: though we all agree it’s hard to make people entrepreneurial, we can set in place the conditions that ‘unleash’ the most entrepreneurial spirits. Surprisingly, credit availability was barely mentioned. What seems important instead is a tight network of other entrepreneurs with whom to share ideas, expertise, and information about market opportunities, needed inputs and motivated workers looking for job opportunities. That is, entrepreneurs really seem to benefit from being in a highly agglomerated urban environment. 

To sum up, it is definitely time to bring back entrepreneurship back from the cold and into our research on clustering and agglomeration economies. This is what this network aims to do.

We are hoping to organize another meeting in 2013 and two more in 2014. If you want to be kept in the loop, simply let me know by dropping me an email!