Entrepreneurship at the heart of “Abenomics”

Japan is ranked the lowest among 24 developed economies in a survey conducted by Global Entrepreneurship Monitor[1] for level of entrepreneurial activities. Based on economic development levels, intentions for entrepreneurial activities differ among countries and Japan is categorized in the innovation-driven group of countries which has the lowest entrepreneurship intentions. The following graph[2] indicates a comparison of entrepreneurship activities in japan and other innovation-driven group of countries.

Total early-stage Entrepreneurial Activity (TEA) Percentage of 18-64 population who are either a nascent entrepreneur or owner-manager of a new business

Total early-stage Entrepreneurial Activity (TEA)
Percentage of 18-64 population who are either a nascent entrepreneur or owner-manager of a new business

Japan’s weak performance in entrepreneurial activities can be partly explained by looking at government policies, financial system, and social attitudes toward entrepreneurship in the country.

Historically Japanese policy makers had focused on large corporations in specific industries such as automobiles, based on the assumption that these firms are the main drivers of economic growth. Therefore, government business regulations and tax policy were designed to support and facilitate the operations of these large corporations. This is while small-scale firms and start-ups had faced with a financial market which was not interested to finance their operations and most of government policies were barriers on the way of entrepreneurial activities in the country.

Financial system in japan had been relationship-based which is suitable to facilitate the operation of the large corporations. Large corporations had strategic relationships with banks (high rank bank managers would work on the board of these corporations after retirement).  Large corporations were over-invested and financial resources were misallocated. This is while getting bank financing for start-ups and newly established companies was difficult and expensive. Such type of relationship based financial system had not left any room for entry of small and more innovative firms into the market.

Similarly, level of entrepreneurship is highly influenced by cultural and social condition of a country. If there are generally positive perceptions towards entrepreneurship in an economy, the entrepreneurs will enjoy cultural and social support, financial and business assistance that will encourage and facilitate entrepreneurial activities.

Japanese society is conservative and risk-averse. Having a permanent job and a stable life is highly preferred and losing job is disastrous. In Japanese society there is little room to accept failure and risk taking is discouraged, and fear of failure is stronger than other developed countries. Entrepreneurship is looked down upon in Japan, and most young people want the security of large corporations. In a society with these characteristics, encouraging people to take the risk of starting a business is a difficult job and needs long-term planning.

Policy makers are now increasingly appreciating and accounting for the role played by new and small businesses in the economy. The government of Shinzo Abe has started a series of efforts to reform business ecosystem to encourage entrepreneurial activities in the country; favorable tax policy for start-ups and lowering the guarantee required for bank loans are samples of such efforts. Additionally, the government is trying to create tolerance against failure and promote the culture of risk-taking in the country.

References


[1] The Global Entrepreneurship Monitor (GEM) research program was initiated in 1997 to explore and assess the role of entrepreneurship in national economic growth of countries.

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