Monday, February 25, 2008, Vincent Lingga, The Jakarta Post, Jakarta
Entrepreneurship, hardly a popular subject of scientific study at universities here, was the central theme of Djisman S. Simandjuntak's oration at a ceremony inducting him as professor of economics at the Prasetiya Mulya business school in Jakarta last week.
Djisman cited the acute lack of entrepreneurial firms from 1997 to 2005, when the number of companies decreased by 1.1 percent a year, as one of the main weaknesses of Indonesia's economy.
From 1977 to 1996, the economy grew robustly (over 7 percent annually), and the number of enterprises, small, medium and big, increased by an annual average of 6 percent. But the pace of economic growth fell sharply from 1997 to 2005, along with the financial crisis and the decrease in the number of entrepreneurs.
Studies by the World Bank and various business institutes in Europe and the United States have found a positive correlation between a broad base of entrepreneurship and economic expansion.
Entrepreneurs contribute greatly to producing and commercializing high-quality innovations, spurring productivity growth and enhancing employment creation and dynamics, because creativity and innovation are at the heart of entrepreneurial behavior.
Entrepreneurship is important for the continued dynamism of the modern economy because it is entrepreneurs that are capable of identifying business opportunities and staking out their capital in business start-ups, against all the risks.
Yet many countries like Indonesia erect regulatory barriers that make it extremely difficult to start up a new firm. Costly regulations hamper the creation of new firms, especially in industries that should naturally have high entry rates, and consequently force new entrants to be larger.
Little wonder many SMEs in Indonesia continue operating in the informal sector (underground economy), thereby denying them easy access to low-cost bank financing and other public services and facilities.
The Jakarta city government, instead of creating an enabling environment for micro and small enterprises, has been working hard since early this year to kill the entrepreneurial spirit by evicting sidewalk entrepreneurs.
The Doing Business 2008 report from the World Bank, which rated 178 countries according to their performance in 11 categories for the ease of doing business, ranked Indonesia at 123rd. Among ASEAN countries, our performance was among the worst, better only than the Philippines.
Regulatory and administrative costs obviously hinder entrepreneurial activity, dampen investment and research and development, and stunt firm growth. They can push firms out of business by absorbing too much time and resources.
Even difficult exit conditions that make it costly for firms to wind down, such as lengthy creditor claims on assets or too rigid labor regulations on severance allowances, can discourage business start-ups.
Culture is another important factor for building up an entrepreneurial society, influencing career preferences and shaping attitudes toward risk-taking and reward.
Djisman cited an important role for the government in nurturing entrepreneurship, through formal education and training (including continued education), and fostering entrepreneurial attitudes.
In major developed countries, business schools at major universities also function as incubation centers for small entrepreneurs, where innovations and creative ideas are developed and converted into commercial products.
But in Indonesia most university graduates are acutely short of entrepreneurial qualities. Hence, they look mostly for paid jobs in the private or public sectors.
A recent survey by the Central Statistics Agency found more than 700,000 university and vocational college graduates remained unemployed in 2007, more than double the number in 2006. But the actual number of jobless university graduates could be much larger because many simply do not bother to register with local manpower offices as job seekers.
Entrepreneurship thrives mostly among SMEs. Even in industrialized countries, SMEs still account for more than 85 percent of enterprises and some 65 percent of total employment, according to the secretariat of the Organization of Economic and Cooperation Development.
The role of small businesses cannot be underestimated. Nor can the challenges they face, particularly in a world where markets are globalizing and large-scale enterprises dominate so much of the government's policy making.
Yet, if the government focuses more on SMEs, so much could be achieved and a broader equity could be improved in the owners of economic assets. By encouraging more SMEs to flourish, we can realize other economic and social objectives, such as expanding worker skills and alleviating local pockets of poverty.
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