If I lived in America I'd be unique (?) Entrepreneurship facts and myths

I've just finished reading Scott Shane's "Illusions of entrepreneurship", having seen a positive review from Luke Johnson. It's an entertaining read and presents a lot of interesting empirical information. The main downside is that Shane starts with the premise that the conventional wisdom about entrepreneurship is that it tends to take place by well capitalised teams in high tech industries that generate jobs and economic growth. He goes on to present the actual data, showing that in actual fact the "typical" entrepreneur is a middle aged suburban male who sets up a small business (usually a sole proprietor) in the same industry that he used to work in, with little external finance, no business plan, and no real ambitions to grow. Indeed being your own boss is enough to tempt people into a life of longer hours and lower pay.

The problem with this is twofold. Firstly, I'm not sure that this is a correcting a myth. The data he presents is well known to anyone that has looked into it, and although his audience is the educated layman rather than professional economists, I'm skeptical that what I've said above would strike you, my non-specialist reader, as being novel (does it?) For example he says "we just assume that everyone who tries to start a new company succeeds and move on from there" (p.74) - do we? Does anyone reading a book on entrepreneurship think that?

Secondly, he defines entrepreneurship to mean someone that starts their own company. Herein lies the problem - this ignores the likes of Schumpeter, Mises and Kirzner (who define entrepreneurship in functional terms), and runs the risk of creating strawman. He "corrects" myths but it's quite possible that those who talk about entrepreneurs has having business plans, and access to venture capital are not referring to start ups. The fact that Shane derives his definition from Wikipedia undermines what is otherwise an important contribution.

Indeed there were some surprises in there. He shows a table of various US occupations and the proportion of whom are "self-employed". "Horticultural speciality farmers" come top with 100%, with jobs such as "farmers", "dentists", "authors" all being very high on the list.

"Economics teachers" appear in a separate table, listing "occupations for which no one reported being self-employed between 1983 and 2002". Really? At first i assumed that "self-employed" meant that you derive the majority of your income through self-employment, but later on he confirms that this is just "self-employed" period.

I am self-employed, with perhaps a "moderate" proportion of my income deriving from my self-employment activities. I'd assume that my American friends and colleagues would have similar arrangements. Either they're being less than honest with the IRS, or there's a fundamental difference in the tax code - are American's able to earn additional income without registering as being self-employed? In which case what do these tables actually tell us?

Finally, is the text in red a typo?

“we need to reduce the incentives for marginal entrepreneurs to start businesses by reducing the transfer payments, loans, subsidies, regulatory exemptions, and tax benefits that encourage more and more people to start businesses. Because the average existing new firm is more productive than the average new firm, we would be better off economically if we eliminated policies that encourage people to start businesses instead of taking jobs working for others” (Shane 2008, p.163)

Comments

[Nick]

Anthony,

I agree with what you say about many of these not being myths at all.

However, isn't Shane's point really about policy makers (I haven't read the book and have read several of his papers), in that they tend to see entrepreneurship as a cure-all, and something that is always and everywhere beneficial?

Nick