The sky's the limit

2010-07-07 00:00

ECONOMICALLY, the United States is almost three times larger than its nearest rival. Despite its size, it is one of the most productive economies in the world. This begs the question: what makes the U.S. the world’s most successful economy?

The obvious reasons don’t provide us with a ready explanation. What about education? Education is the ultimate driver of development, so surely the U.S. must have the best education system in the world. The reality is that, especially at the primary and secondary levels, many other countries have far better education systems than the U.S.

What about manufacturing? At the heart of commerce is production, so maybe its strong manufacturing ability has led to its economic success. But this ignores the reality that much of the U.S.’s manufacturing has long since been moved offshore.

Finance? The U.S. is the financial capital of the world and this must have catalysed its economic success. Yet financial flows are now fully globalised and there is no sustained benefit that can be attributed to the geographic location of the actual financial institutions.

Technology? The U.S. has the best technology and this has ensured its economic prosperity. Except that now technology life cycles move so quickly that everyone soon has access to the same technology and it doesn’t lead to an ongoing advantage.

The real reason for the U.S.’s economic dominance is that Americans are the world’s best entrepreneurs. The rate of company formation in the U.S. is at least double that of the next closest country. According to Carl Schramm of the Kauffman Foundation, 70% of Americans currently at university will at some point in their career be involved in starting a new venture — meaning that they are as likely to start a business as they are to get married or have children.

It is only recently that economists and policy makers are fully recognising the central contribution of high- growth entrepreneurship in the pursuit of economic growth. But the evidence is now compelling. In order to demonstrate this, let’s move out of the realm of theory into that of practice, even if only with an isolated example. In recent years, Israel has become known as the start-up nation with astounding innovation, particularly in technology. The end result, according to Dan Senor, is that the country now boasts the highest density of start-ups in the world (a total of 3 850 start-ups, one for every 1 844 Israelis).

Impressive statistics, but what has been the result on Israel’s economy? Although not without limitations, a key measure of a country’s overall progress is that of GDP per capita. In a historical coincidence, Israel’s pursuit of entrepreneurial success coincided with the beginnings of South Africa’s political freedom in 1990. Since 1990, South Africa’s GDP per capita has increased by $2 500. In the same period, Israel’s GDP per capita has increased by $16 000 — a rate over six times faster than that of South Africa.

In addition to the economic benefits of high-growth entrepreneurship, a recent study by the Monitor Company titled “Paths to Prosperity: Promoting Entrepreneurship in the 21st Century” compellingly points out the very important social and political benefits that are easily overlooked — benefits that have urgent application in the South African context. Socially, entrepreneurship entrenches an understanding that advancement is based on merit, not on class or race (again, a message that certainly needs reinforcing in our current times), while politically, entrepreneurship is a source of security and stability. Part of this is a consequence of the social and economic benefits, but in addition entrepreneurship ensures that the economy does not rest on too narrow a base. By rewarding talent and initiative, entrepreneurship ensures the integration of those previously at the margin of society and facilitates a broader section of the population in having a stake in the economy.

While we may now be convinced of the merits of high-growth entrepreneurship, what does this mean for South Africa, where only 5,9% of our adult population is involved in entrepreneurial activity, basically half the global average, before considering that even that percentage is largely made up of necessity-type entrepreneurship and ventures with limited prospects for success?

Before we look forward to any possible answers, we need to look back. It was Ronald Reagan who once said: “Entrepreneurs are the explorers of the modern era”. And South Africa‘s legacy is filled with exploration. We have always been a natural home for explorers. From the first wave of migration from further north in Africa, to those who then arrived by sea, there is a pioneering spirit built into our psyche.

This was followed by the physical exploration of our mineral resources, leading to global domination of the gold and diamond industries. While in another field of inspiring endeavour, we had the extraordinary pioneering spirit that led to the country’s political liberation. Not to mention that in amongst this there were world-class technological innovations in the fields of medicine, biology and, more recently, solar power and nuclear technology. As a nation we are uniquely positioned by virtue of both history and culture to embrace an entrepreneurial future.

This legacy is so important, because we need belief, not only in the importance of entrepreneurship, but more importantly in our ability to succeed in entrepreneuring. The strength of our belief, spurred on by the successes of the past, determines the extent of our courage to make the necessary decisions and sacrifices that are required to bring this new future into reality.

There are already a number of promising signs in the area of high- growth entrepreneurship. South Africa is one of only nine developing countries benefiting from the high-impact entrepreneurship model of Endeavor (www.endeavor.co.za) which so far may ultimately have generated close to 700 000 jobs across all these countries through its multiplier effect.

In Cape Town, there has been the launch of Silicon Cape (www.siliconcape.com) which seeks to position and activate Cape Town as the Silicon Valley of South Africa. In addition, there is a growing profiling of local South African entrepreneurial heroes in mainstream media. The entrepreneurial adventure can become the career of choice for our brightest and most talented people as its potential impact and reward deserves, no longer relegated to a fall-back if other options don’t work out.

And the truth is it doesn’t take huge numbers to shift the balance towards the significant benefits of high- growth entrepreneurship. According to research by the Kauffman Foundation, despite there being over 600 000 new business instances every year in the U.S., it will only take the formation of 1 000 successful high-growth businesses per annum to shift the long- term growth rate of that country from three percent to four percent per annum. If we apply this powerful assertion to South Africa, on a relative size basis, we only need 20 truly high- growth businesses created every year to change the trajectory of our own country’s growth rate. Now that’s a real empowerment target for our current generation of pioneers.

— Moneyweb.co.za

 

• Anthony Farr is the CEO of Allan Gray Orbis Foundation which is the social responsibility initiative of the Allan Gray and Orbis Groups in South Africa. The foundation aims to bolster job creation and alleviate poverty by harnessing the power of pioneering, young bright sparks with enough entrepreneurial and leadership potential to have a positive impact on our collective future.

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