WEF – ENTREPRENEURSHIP: The making of an entrepreneur

According to research, entrepreneurial success depends not on the wealth of the parents, but on a collection of values and experiences that are acquired early in life.

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In theory, Latin America is full of entrepreneurs: almost one-quarter of those employed in Argentina aren’t paid a salary, but are owners of their own businesses. In Colombia and México, this group represents close to 40 percent of those who work, and in the poorer countries of the region, it exceeds 60 percent. However, the type of entrepreneurial spirit that dominates the region doesn’t lend itself to economic growth. Most of those self-proclaimed entrepreneurs aren’t there because they choose to be there, but because they have been left with no other option. True entrepreneurs are those with the capacity and motivation to assume risks and to try to continuously improve the efficiency of their companies or businesses. Only this type of entrepreneur is positive for economic growth, according to the theories of Joseph Schumpeter, and many others after him. This means that the entrepreneurial spirit is an issue of quality, rather than quantity.

WHERE DO REAL ENTREPRENEURS COME FROM?
According to conventional reasoning, being successful as an entrepreneur depends above all on having been to the best university, to be able to put together the capital to start and run your own business (or to inherit it from the family), and the connections one has to open the space and do good business. In this view, the entrepreneurial undertaking is a mechanism of reproducing privileges, rather than a channel for social mobility. This is especially true in Latin American countries, where only a few people have access to a good education, the financial system or to the corridors of power. The role of a progressive state, then, must be to get rid of these barriers and offer all of the support (and subsidies) to the novice entrepreneurs from the lower classes. But this approach has rarely yielded good results. Why?

Put simply, entrepreneurial success depends much less on these things than what has generally been believed. Family origin is possibly the factor that has the greatest influence on the chances for success, not for the conventional reasons, but rather for the influence parents can have on their children’s system of values and attitudes.

In fascinating research from México, the brother-and-sister team Roberto and Viviana Vélez-Grajales found that an individual’s decision to become an entrepreneur and his chances for success depend in large measure on the profession of his father, but not on the wealth or education of his father (they only studied boys, so the gender reference is intentional). This is really notable, since it suggests that the lack of social mobility in the entrepreneurial initiative has its roots in the family as it relates not to wealth, but to a collection of values and experiences that are acquired early in life, and for which it is difficult to compensate later.

IT’S ALL A QUESTION OF VALUES
Another recent study, by José Anchorena and Lucas Ronconi, shines light on the importance of family values in entrepreneurial development. Using data from the World Values Survey, the study established which values tend to bring out the entrepreneur in children. The general conclusion is that, at a worldwide level, entrepreneurs place more emphasis – relative to those who are not entrepreneurs – on responsibility, tolerance, respect, independence, determination, perseverance and imagination. In contrast, it doesn’t give much importance to obedience, religious faith or the propensity to save. It turns out that the system of Latin American family values is poorly aligned with the entrepreneurial spirit (although Argentina is a less critical case than the other six Latin American countries analyzed).

That the tendency to take entrepreneurial risks and the possibilities of success in business depend on experiences and values acquired during childhood is somewhat bittersweet. If it’s true, the entrepreneurial spirit encourages mobility of income, but only for the relatively few people who have the right family background, and certainly not for the broad majority of people who are from the middle-class and who lack the talent for assuming risks and making the right management decisions. This means there is a limited margin for action in public policy. The objective of the programs of entrepreneurial support should not be to increase the number of
entrepreneurs, but rather to identify and eliminate the income barriers to entrepreneurial activities. Given that entrepreneurs tend to be exceptional individuals, the challenge consists of defining the public programs while keeping this restriction in mind, with the goal of not squandering public resources simply to promote entrepreneurial capacity indiscriminately.

* Eduardo Lora is an economist from the London School of Economics and associate fellow at Oxford. He is a consultant with the IDB. He was chief economist of the IDB and director of the Colombian think tank Fedesarrollo.

Note: the studies cited are part of the book Entrepreneurship in Latin America: A Step up the Social Ladder?, edited by Eduardo Lora and Francesca Castellani, which has just been published by the World Bank and the IDB.

 

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