Entrepreneurial Ecosystems and the Role of Government Policy

January 27th, 2015

As the 2014 G20 Leaders Summit drew to a close in November, the final statement from the nations representatives called for enhancements to Australia’s economic growth achieved through the “promotion of competition and innovation and the coordination of strategies to reduce unemployment, particularly amongst youth, through entrepreneurship”.

While it may sound prospective, this theme of driving economic and job growth through entrepreneurship isn’t new. A 1979 report by Professor David Birch of MIT, titled ‘The Job Generation Process’, recommended government policy should target indirect strategies with a large focus on small and start-up firms as that was primarily where job creation was coming from. Over the past 35 years, the interest in entrepreneurship and small business development has increased dramatically.

California’s Silicon Valley has become the cornerstone for entrepreneurial development and the growth of what some describe as ‘entrepreneurial ecosystems’. This concept can be traced back to 1990 during the study of National Innovation Systems. Today, the term is used to describe the conditions that assist in developing economic prosperity and wealth creation through innovation and it is highly sought after. It has been the goal of various Governments across the globe to replicate Silicon Valley and the formation of these ecosystems. Professor Daniel Isenberg published an article in the Harvard Business Review highlighting several prerequisites required for the generation of these ecosystems, thus boosting awareness of the concept and its understanding.

The paper focused on the role of government policy and explained the advantages of developing innovation through existing industries. He highlighted that the success of the ecosystem rests largely on its foundation and local conditions. The sole focus should be on encouraging sustainable, growth oriented and innovative firms rather than fostering various start-ups. Building a business is easy, sustaining growth is the challenge.

More recently, a 2014 study of entrepreneurial ecosystems undertaken by Colin Mason and Ross Brown developed a set of general principles for government policy in relation to entrepreneurial ecosystems. The paper, titled Entrepreneurial Ecosystems and Growth Orientated Entrepreneurship, outlines the importance of prioritizing the formation of entrepreneurial activity. The formation of effective policies for entrepreneurial ecosystems requires the consistent support from Government Ministers to shape and empower policies and programs. All policies developed should be holistic and encompass all components of the ecosystem rather than only picking certain areas of special interest. Coinciding with Isenberg, they highlight the importance of building from existing industries with strong root systems across all industry sectors.

It is well known that innovation and entrepreneurship are essential to the growth of Australia’s ecosystem. The proactive approach of policy-makers is the facilitating factor.

Source: Startupsmart.com