New firms play a critical role in the economy. They disrupt markets with new technologies, offer social mobility opportunities, and support labor market dynamism. As much as any society should nurture and help its new generations to prosper and grow, its economy will be significantly disadvantaged without the contribution of new firms. Not surprisingly, therefore, the consequences that the Covid-19 pandemic might have on new firms’ creation and growth are a critical area of attention.
Treating new firms as pure institutions or legal entities without looking at their founders, however, would leave a significant part of the story untold. Since the seminal work of Schumpeter, entrepreneurs and their distinctive characteristics have attracted theoretical and empirical attention in economics, psychology, sociology, management, and finance. If we want to understand the drivers and the dynamics of new firms’ creation and growth, we need to understand the traits, the characteristics, and the motivations of the men and women who have the distinctive capability of combining, in an original way, new or existing resources to create new business opportunities. The Covid-19 pandemic might influence individuals’ aspirations and preferences in ways that are still hard to predict. It has already altered the world economy in the short run and some changes will not fade away for a while.
New companies entering the market and introducing disruptive innovation are the equivalent to unpredictable shocks that redefine the rules of the game. So, who are the individuals who lead these companies, and what is so special about them? Significant differences along with several personal traits characterize the entrepreneurs launching new initiatives compared to business leaders or others who choose presumably safer salaried positions. Several studies focused on individuals’ motivations, preferences and intentions provided further insights into this debate. As opposed to inherited personality traits, several psychological characteristics are nurtured and shaped by social interactions with peers and family, by local norms and practices, as well as by structural conditions. Through these influences, environmental cues and stimuli are internalized by individuals, bearing a significant weight on how entrepreneurial intentions and aspirations are transformed into action. If we want to understand entrepreneurship and its economic impact, we therefore need to consider both individual and contextual elements.
A first consequence of this more extensive classification of entrepreneurship determinants is a more nuanced analysis of individual preferences between self-employment and salaried positions, vis-a-vis employment alternatives driven by context-specific economic conditions. This distinction is particularly important and relevant in the case of Italy. The former is a sign of a vibrant economy, contributes to creating new jobs, challenges existing companies which in turn promotes competition and innovation, and drives new investments. In 2017, ISTAT released a special report on independent workers, which accounted for 23% of the active labor population, compared to a lower 15% EU average. The two main groups were those with employees (1.4M) and those without employees (3.9M). Approximately 20% of those without employees worked for a single provider, while 80% worked for multiple providers. Overall, there were 50% more necessity-based entrepreneurs in Italy than in the rest of Europe (15.8% vs. 10.5%). Among those with employees, only 20% (about 280 thousand individuals) could be considered opportunity-based entrepreneurs, while the others provide professional services characterized by specific regulations.
Entrepreneurs, therefore, accounted for about 1% of the total working population in Italy and their numbers remained stable between 2008 and 2018. According to the 2019 report, Italy records one of the lowest levels of new entrepreneurial ventures, with only 4% of the adult population aged 18-64 starting a new business in the last three years. Roughly 90% of them declare to be doing it to earn a living because jobs are scarce.
Crises are hard on everyone, but this is especially true for more fragile forms of entrepreneurship, such as necessity-based ones. Given the overall national situation pre-Covid-19, we can expect additional hurdles for many individuals who had tried to compensate for the lack of opportunities in the labor markets, which will only get worse in the months to come.
This is the first of three articles from “Why Italy needs an entrepreneurial renaissance after COVID-19” published in the recently released book The italian economy after COVID-19: Short-term Costs and Long-term Adjustments edited by Giorgio Bellettini and Andrea Goldstein. Credits Bononia University Press / Fondazione Policlinico Sant’Orsola.
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