Thursday, May 24, 2007

numbers, entrepreneurship and Pittsburgh

If you saw the PG today there is a short article on a Kaufman Foundation report on entrepreneurship statistics they have compiled. Pennsylvania ranks low in entrepreneurship which of course gets people concerned. People spend their careers studying what promotes entrepreneurship here and elsewhere. I did get briefly quoted in the article, but there are two points which I didn't expect would make into the article that are still worth noting:

I have mentioned this before: the classic article looking at the question of why entrepreneurship appears to be lower in Pittsburgh than elsewhere is by Ben Chinitz in this article:Contrasts in Agglomeration: New York and Pittsburgh. American Economic Review. Papers and Proceedings,Vol. 51, 1961, pp. 279-289. Granted its from the 1960's, but the answer he hypothesized was that the unique structure of the Pittsburgh economy, which was remarkably un-diversified, not just by industry but by ownership was the cause. The idea was that a few large corporations had fixed bureaucratic supply networks that were not conducive to new smaller suppliers that were trying to break into the business. Are there lessons for today from that? I bet there are.

But going back to the story in today's paper. You can read the full report online. In the realm of how some numbers are not all that they appear it's worth deconstructing a bit. I did get quoted on the age issue as it relates to these statistics... but something far more interesting. If you look at table 5 in that report you will see how entrepreneurship rates differ by educational attainment. What would you presume that pattern looks like? Higher educated groups have higher entrepreneurship rates? That turns out to be the exact opposite the findings in this report which showed entrepreneurship rates highest by far for those with less than a high school degree. Their numbers show that the percentage of population who are entrepreneurs is 0.36% for those with less than a high school degree compared to 0.30% for those with a bachelor's degree or higher.

What does that mean? I certainly don't have an answer, at least not one worth hypothesizing about here.. but when you consider that the local population is highly educated... especially when you correct for our unique age demographic... what does this report really mean for the region or state. We show up low in entrepreneurship.... because we are highly educated?? Again causality and correlation are not the same. But to the degree this report gets into it, you are left wondering. If you corrected for different patterns of education, how would we rank? At the very least it suggests the question and answer is a little more complicated than the issue of tax policy and business climate that is usually how this debate evolves.


Blogger Jim Morris said...

I believe immigrants who are risk-takers create new businesses. Is there any data?

Saturday, May 26, 2007 12:48:00 AM  
Anonymous Anonymous said...

Entrepreneurship is such a fuzzy term. It can broadly be used to indicate business ownership in general, or it can refer to a subset of businesses that are innovative and create substantive wealth. The proxy used in the Kauffman study more directly measures the former, while most regional economic development efforts are hoping to stimulate the latter. And one does not necessarily lead to the other.

Before the region’s inferiority complex kicks in, it should be pointed out that high rates of business ownership are not always a sign of economic health. Regional characteristics correlated with higher rates of business ownership including declining areas with few wage employment opportunities, as well as high-growth booming areas with increasing regional populations. Still, there are civic reasons for increasing the incidence of business ownership, including the promotion of a greater distribution of regional wealth and increasing the likelihood of innovation. More players share the profits, and more competition promotes innovation, which makes regions more resilient.

Chinitz’ study illustrates a case where the market share and business practices of a small number of large firms can limit new business formation and, ultimately, innovation and regional resiliency. Imagine if, in the early 1960’s, these large corporations changed their own internal practices to promote innovative supplier networks? It probably wouldn’t have saved the big steel production facilities, but it could have promoted a more competitive infrastructure for other industries. And the strength of the notion comes from the regional strategy being linked directly to the business strategies and actions of the corporations themselves.

Even though the members of the ACCD currently represent a much smaller percentage of regional employment than they did in 1960, they could still do something like this. But it is a very curious situation that instead of corporate leaders implementing business practices that promote regional competitiveness (such as the promotion of open supply chains and technologies), they are instead in advising and influencing public and philanthropic policies that are designed to reinvent the economy around their firms. It seems odd that they are influencing something so outside of their expertise (do members of the ACCD know more about industrial recruitment than others?), through institutions that are essentially impervious to the very people the policies are intended to benefit. If corporations can improve the performance and resilience of the economy by promoting innovative supply chains, shouldn’t they do that? And if economic development investments are intended to benefit the general public, shouldn’t the institutions of economic development policy be accountable to them?

In a perfect world we’d have corporate leaders being accountable for something that they can be responsible for, and not taking responsibility for something that they can’t be held accountable for.

Thursday, May 31, 2007 8:09:00 AM  

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