State of Entrepreneurship in 2017 (Note)

Abstract:

· Business creation results from identifying opportunities for profit;

· Over the past 10 years, the French economy has demonstrated remarkable entrepreneurial dynamism;

· The perception of new profit opportunities differs significantly from the perception of the business climate;

· The institutional framework is a determining factor in entrepreneurial dynamism.

The issue of entrepreneurship is at the heart of current public policy because the dynamics of business creation and innovation often provide an interesting measure of an economy’s resilience, i.e., its ability to return to a growth trajectory.

This is due in particular to the entrepreneur’s predisposition to identify and seize profit opportunities, a particular acuity that modern theory refers to as « alterness » (Kirzner, 1973; 2005). In this second part (see  » Who is the entrepreneur? « ), we illustrate the entrepreneurial dynamics of the last 15 years in France by presenting several stylized facts.

In France, an uncertain post-crisis business climate

Using the ideaof alterness (Kirzner, 1973; 2005) to define the entrepreneur leads us to question the notion of profit opportunity and how to measure it. A profit opportunity could be defined as a situation conducive to investing resources with the aim of generating a net profit. In terms of measurement, the business climate indicator (ICA)[1] developed by INSEE on the basis of statements by business leaders offers some visibility on the long-term profit outlook of market participants.

The ICA proved to be relatively volatile over the 2006-2016 period, which was marked by a financial crisis, an economic crisis, and a debt crisis. It reflects a certain degree of uncertainty about market profit opportunities over the period. However, the stability observed between September 2015 and December 2016 suggests a certain resurgence of optimism in the first quarter of 2017.

Entrepreneurial intentions are well oriented in France

What about entrepreneurial trends in this climate of uncertainty? Using data from the General Entrepreneurship Monitor (GEM)[2], we can see that France stands out for its unprecedented entrepreneurial intentions (Figure 2), while those of its European neighbors stagnated until the summer of 2009. These entrepreneurial intentions reflect a perception of opportunities[3] (base 100 in 2001) that has been particularly positive in France since 2006 (Figure 3).

This dynamism observed in France is partly due to a particularly low level of entrepreneurial intentions in 2001, which seems to have led to a « catch-up » effect on its neighbors from 2005 onwards. At the same time, there has been unparalleled growth in other countries in the number of 18-64 year olds who say they have the skills to start a business (Figure 4). At the same time, the proportion of 18-64 year olds declaring entrepreneurship as a desirable career choice experienced unprecedented growth in France over the period 2002-2016 (Figure 5).

Unparalleled business creation momentum in OECD countries

In France, this has resulted in a dynamic of business creation unmatched in other OECD countries over the period 2007-2011, despite the impact of the financial crisis. These various stylized facts call for at least three comments. Against a backdrop of successive crises (financial, economic, and public debt) over the period 2007-2016, entrepreneurial momentum is far from uniform across European and OECD countries. France, which has fared well, introduced the status of auto-entrepreneur in 2008. This form of sole proprietorship, which facilitates administrative management, stands out as a plausible factor in this success and illustrates the central role of the institutional framework as a determinant of the overall entrepreneurial dynamics of an economy.

There is also a trend that may seem counterintuitive at first glance when studying indicators of entrepreneurial intentions or entrepreneurship as a good career choice. Their particularly positive orientation in times of crisis seems to indicate that agents consider entrepreneurship as a possible alternative to salaried employment, in a context where many jobs are threatened and unemployment is high in Europe. The study of the determinants of choosing entrepreneurship is generally addressed in management sciences, and is particularly relevant at a time when many service companies are only recruiting self-employed workers.

Finally, a particularly striking fact is the difference between the dynamics of opportunity perception expressed by 18-65 year olds and that of the ICA, which is based on the opinions of business leaders. This gap highlights the distinction between identifying a new profit opportunity in the market for a new entrant (an entrepreneur) and the perception of future activity for a company that has been in business for several years and is more routine-based.

Conclusion

While economies have gone through a period of successive crises over the past ten years, the French economy has proved particularly dynamic in terms of business creation. In the theoretical framework presented in the first part (see « Who is the entrepreneur? »), the development and growing realization of entrepreneurial intentions over the past 10 years mean that more and more individuals have identified profit opportunities and seized them.

This dynamic may ultimately lead to the creation of new jobs, the introduction of innovation, or new forms of work. As highlighted in the 2016 Panorama of Entrepreneurship published by the OECD, while strong entrepreneurial activity can contribute to economic growth, it is also likely to stimulate productivity, as the latter is positively correlated with the rate of start-up creation. The challenge now is to finance and sustain these new businesses in the market.