Zoltan J. Acs – László Szerb The Global Entrepreneurship and Development Index for the Netherlands The analysis of the entrepreneurial position of the Netherlands 1 Table of Contents 1. Introduction 2. The basic characteristics of the Netherlands 3. The small and medium-sized enterprise (SME) sector in the Netherlands 4. The global entrepreneurship and development index 4.1 Definitions 4.2 The structure of the index 5. The position of the Netherlands in the GEINDEX and in the sub-index levels 6. The position of the Netherlands on the pillar level 7. The position of the Netherlands on the variable level 8. The policy applicability of the GEINDEX 9. The evolution of entrepreneurship policy in the Netherlands 10. Challenging areas in entrepreneurial activity 10.1 Firm growth 10.2 Labour force 10.3 Education system 10.4 Innovation 11. Policy recommendation 11.1 Firm growth 11.2 Labour force 11.3 Education system 11.4 Innovation 12. Conclusion References Appendix A • Table A.1: The Description of the Individual Variables Used in the GEINDEX • Table A.2: The Description of the Institutional Variables Used in the GEINDEX Appendix B • Table B.1: The Global Entrepreneurship Sub-Index Rank of the Countries • Table B.2: Entrepreneurial Attitudes Index and Pillar Values • Table B.3: Entrepreneurial Activity Index and Pillar Values • Table B.4: Entrepreneurial Aspirations Index and Pillar Values 2 3 1. Introduction The development of the global entrepreneurship index The discovery of the importance of knowledge in economic growth has unleashed an unprecedented interest in entrepreneurship. It is suggested by endogenous growth theory that knowledge in the hands of agents is exploited through the firm formation process and turned into innovations. Thus a strong entrepreneurial sector is crucial for achieving and maintaining the innovation-driven stage of economic development (Acs and Szerb, 2009). In order to better understand the role of entrepreneurship, scholars have been searching for measures to compare the entrepreneurship performances of different countries, regions or cities, and policymakers require a proper benchmarking criterion for entrepreneurship development. This is a relatively recent effort and to date there has been no acceptance of a dominant variable or index to measure entrepreneurship across countries. In fact, some researchers are sceptical about the feasibility of constructing such an index and describe it as a “search for heffa- lump” (Carland et al., 2001) or looking for a “Holy Grail” (Hindle, 2006). Both of these researchers refer to the difficulty of constructing a definition and/or index of entrepreneurship. For a long time, indicators of entrepreneurship, such as the self-employment rate, business ownership rate, or business density ratio, have focused purely on individual or firm levels aggregates. Since 1999, the Global En- trepreneurship Monitor (GEM) research consortium has worked to measure and to compare entrepreneurial ac- tivity across countries. The most well-known entrepreneurship measure used by GEM researchers is the Total Early-stage Entrepreneurial Activity (TEA) index, which measures the percentage of a country’s working-age population that are actively trying to start a new business and those who at least partially own and manage a young business aged less than 3.5 years. The application of the TEA index as a measure of entrepreneurship has been criticised for many reasons. Most troubling was the finding that developing countries lead the rank of nations. In other words the economies of Peru, Thailand or Uganda, for example were considered more entrepre- neurial than those of the US, Australia or the Nordic countries, which may be true from a quantitative perspec- tive but surely not from a qualitative one (Acs and Szerb, 2009). As a result it was feared that traditional indica- tors of entrepreneurship would give policymakers false guidance by promoting an increase in the quantity of entrepreneurship, rather than in its quality. To incorporate the element of quality into the measurement of entrepreneurship, increasing attention has been paid to investigating the contextual nature of entrepreneurship. Besides the GEM expert-based entrepreneurial framework condition measures, the World Bank publishes annually the “Ease of doing business” index, which serves to capture the influence of regulations on firm startup. Another widely applied and recognized index is Michael E. Porter’s competitiveness index reported yearly by the World Economic Forum (WEF). It aims to capture the institutional and political factors, among other related measures, that influence country productivity and competitiveness. Lastly, the Index of Economic Freedom is one of the oldest commonly recognized global indexes in operation since 1995. While institutions are vital for a flourishing entrepreneurial sector, they only provide part of the picture (Acs and Szerb, 2009). The shortcomings of previous entrepreneurship indicators that focused either on quantity or quality created the urgent need for a more comprehensive measurement tool. This stimulated the development of the “Global Entre- preneurship and Development Index” (GEINDEX). It successfully overcomes the deficiencies of previous meas- ures by combining the basic requirements. First, the index is sufficiently complex to capture the multidimen- sional nature of entrepreneurship. Second, it distinguished between the qualitative and quantitative aspects of entrepreneurial activity by thirdly incorporating both individual-level and institutional variables (Acs and Szerb, 2009). In contrast to previous entrepreneurship indices, the relationship between the GEINDEX and economic devel- opment is mildly S-shaped, which implies a positive relationship between entrepreneurship and economic devel- opment (Acs and Szerb, 2009). Therefore, the GEINDEX is here considered an appropriate tool to provide pol- icy guidance of national governments. 4 Outline of the paper The purpose of this paper is to contribute to our understanding of economic development by applying the GE- INDEX to the economy of the Netherlands. In doing so, the report evaluates the entrepreneurial performance of the Netherlands in the context of previous entrepreneurship policy. It identifies areas where further public inter- vention is needed and derives actionable recommendations for policymakers. Overall, we find that the Netherlands hosts one of the most developed and sophisticated entrepreneurial envi- ronments among the 71 participating countries all around the world. It performs exceptionally strong in terms of entrepreneurial attitudes, implying a general attitude of the Dutch population towards recognizing opportunities, knowing entrepreneurs personally, attaching high status to entrepreneurs, accepting the risk associated with business startup, and possessing the skills required to successfully launching businesses (Acs and Szerb, 2009). At the same time, the GEINDEX highlights four unsatisfactory, relatively weak points in the Dutch entrepreneu- rial performance, which broadly relate to firm growth, labour force, education system and innovation. We find evidence that the Dutch government has long recognised the need for public intervention in these fields. In fact, tremendous progress has been through the launch of a wide spectrum of initiatives over the past decade. How- ever, despite all efforts, our analysis reveals considerable potential for improvement, which we attempt to con- ceptualise in form of actionable recommendations. The remainder of this report is structured as follows. At the outset, we present a condensed overview of the main characteristics of the Netherlands. In section three, we briefly describe the small and medium-sized enterprise (SME) sector in the Netherlands. Then we provide a basic description of the GEINDEX in section 4. Sections 5 to 7 investigate the Dutch entrepreneurial position, based on the GEINDEX and the sub-indexes. The analysis includes an in-depth investigation of the GEINDEX’s building pillars, sub-indexes, and variables. We also com- pare the Netherlands to its competitor countries, most importantly the Western European countries. In section 8 we explain the policy applicability of the GEINDEX. Then, a discussion of the evolution of entrepreneurship policy in the Netherlands is provided in section 9. Based on the areas of weaknesses pointed out by the GE- INDEX, section 10 tracks the political progress made in four broad categories: (10.1) firm growth, (10.2) labour force, (10.3) education system and (10.4) innovation according to trends, challenges, policy initiatives and re- maining challenges. In the section 11, we bring together our findings from the policy review and GEINDEX analysis. We present policy suggestions for improving the entrepreneurial performance of the Netherlands in the areas (11.1) firm growth, (11.2) labour force, (11.3) education system and (11.4) innovation. In section 12 we conclude. 5 2. The basic characteristics of the Netherlands Size of population (million): 16.6 Per capita GDP US$ 2008 (PPP, World Bank): 40 850 Level of development: innovation driven Rank in Doing Business Index 2009-2010: 30/183 Rank in Global Competitiveness Index 2008-09: 10/133 Rank in Economic Freedom Index 2009 12/179 Global Entrepreneurship and Development Index rank (point): 10 (0.62) Entrepreneurial Attitudes sub-index rank (point): 7 (0.70) Entrepreneurial Activity sub-index rank (point): 12 (0.67) Entrepreneurial Aspirations sub-index rank (point):