Differences in entrepreneurship
Posted on 13 June 2015
At the moment, there is much debate about self-employed people (ZZP’s in Dutch) in the Netherlands and their (special) tax benefits. In my opinion, it is important to make a distinction in several kinds of entrepreneurship and its economic influence. I think the tax benefits in the Netherlands for the so-called ZZPs (self-employed people) are too generous and do work contra productively. I have elaborated on some facts/arguments below which have not been used in many Dutch media yet.
Entrepreneurs are associated with the driving force behind economic prosperity. Entrepreneurship is “at the heart of national advantage” (Porter, 1990), because of its significant importance in stimulating economic growth. Important innovations are brought through entrepreneurship, enhancing the process of rivalry (Carree & Thurik, 2015).
Entrepreneurship and economic growth
It seems obvious: entrepreneurs start new businesses, creating more employment, leading to an increase in competition among companies which eventually will lead to an increase in productivity through technological change. In the long run, the most important factor for economic growth is technological change (Solow, 1956). So, can we take for granted that a relatively high level of entrepreneurship will lead to a relatively high level of economic growth? Economic growth is a key factor in economic policy making. There is a strong correlation between economic growth (GDP growth) and unemployment. Okun’s Law describes this relationship: every 1% increase in the unemployment rate will lead to a 2% decrease in GDP (Mankiw, 2013).
Several kinds of entrepreneurship
However, the linkage between unemployment and entrepreneurship is ambiguous as well as the concept of entrepreneurship, which is not specific at all. An entrepreneur can be a self-employed worker out of necessity or an entrepreneur of a new business venture with many employees. There is a significant difference between these two types of entrepreneurs, not only in number of employees but also in economic significance. We can classify two specific groups: “necessity entrepreneurship”, the self-employed worker who has become an entrepreneur because he had no better option, and “opportunity entrepreneurship”, the entrepreneur who consciously chose to start a new business based on the perception that there is a (lucrative) business opportunity (Acs, 2006). During the last years in the Netherlands, we have seen that many craftsmen became unemployed and became self-employed afterwards. These self-employed people do not have an insurance or pension requirement and cannot raise money by selling their company. They take advantage of the favourable income tax for entrepreneurs. According to data from the Global Entrepreneurship Monitor by Acs and Varga, economic growth does vary greatly between necessity and opportunity entrepreneurship (Acs, 2006). Opportunity entrepreneurship has a significantly positive effect on economic growth, whereas necessity entrepreneurship has no effect (Acs, 2006). Hence, if we say entrepreneurship is good for economic growth, we especially mean opportunity entrepreneurship.
An example of necessity entrepreneurship in Central Europe/East Germany
“After the fall of the Berlin Wall many uneconomical factories were closed in Central Europe as economies became integrated into the global economy. Those workers who had jobs in the plants and factories of the former socials countries were productive members of society. However, as factories were closed one after another, many of these workers found them selves with no other options for work than self employment – necessity entrepreneurship. As one would expect, the influx of many former wage workers into necessity entrepreneurship resulted in several years of negative GDP growth. This story can be retold in several other countries around the world” (Acs, 2006).