May 13, 2013 | Contribution by
GLADYS LOPEZ-ACEVEDO By Gladys Lopez-Acevedo, Lead Economist, Office of the Chief Economist, World Bank One of the residual effects of the recent global financial crisis has been a jobless recovery — with 200 million people worldwide (including 75 million under the age of 25) unemployed. Yet a major problem continues to be uncertainty on the part of policymakers and practitioners as to how to create jobs, especially good jobs.
An electronic road pricing signboard in Singapore. 01-18-09 © Sivakumar Sathiamoorthy
What can be done? This was the topic of a recent high-level Conference on Employment Centered Strategies in Seoul Korea (March 21-22), organized by the Korean Development Institute and the World Bank. The sessions ranged from the global environment and labor markets to specific problems such as technology upgrading. The session I participated in explored innovation, technological progress, and employment — and I found the presentation by Professor Wong Poh Kam (National University of Singapore) particularly intriguing. Essentially, he used Singapore's experience with "innovative entrepreneurship" to suggest a possible way forward. Does innovative entrepreneurship help growth and jobs?After about a decade of research by economists, Wong asserts that there is now sufficient empirical evidence that innovative entrepreneurship boosts growth, but the results on employment are mixed. Whether the results are positive or negative, he says, depends on several factors, especially the type of entrepreneurship — those based on being innovative, as opposed to being developed out of necessity, do best. Moreover, the effect on employment is uneven over time, usually high at the beginning, then lower, but possibly up again. Policies for innovative entrepreneurship are different than traditional ones for small and medium size enterprises because the former focuses on new firms — usually fast and young innovative firms like those found in Silicon Valley (with the emphasis on advanced knowledge).Is there a role of government? Wong argues that there is, as Taiwan and Israel have shown. This approach suggests the need to transform the traditional university model into an "entrepreneurial university" as an integral part of any reform package. Other elements include a financing system for early stage high tech start-ups, plus labor market policies and education to increase the supply of entrepreneurs. How Singapore has faredSince the mid-2000s, Singapore has vigorously supported innovative entrepreneurship by implementing a series of measures that include:
This approach contrasts with the previous emphasis on leveraging foreign capital, talent, and technology, which was less successful in nurturing indigenous high tech entrepreneurship. Moreover, because the unemployment rate is very low — less than 3 percent in the past five years — the focus is on fostering innovative entrepreneurship with high value added, not just employment creation per se. Have these measures succeeded? Wong says there is preliminary evidence that this shift in direction in the country is working. First, in the past five years, there has been a significant increase in the creation of high tech firms, outpacing the creation of non-high-tech firms in the country. The growth in new high tech manufacturing firms has been especially high, reaching 9 percent of the average annual growth rate between 2004 and 2009 (Figure 1).
Second, the high tech start-ups exhibit a higher likelihood of surviving compared to firms in the non-high tech sector — with the difference in the survival rates most pronounced after four to seven years. Third, start-ups represent about 9 percent of Singapore employment (Figure 2).
Jobs versus growth strategiesSingapore's story was especially interesting in the context of the Korean seminar because, as the World Bank's World Development Report 2013 on Jobs points out, the two countries have successfully combined long-term economic growth with rapid poverty reduction and strong social cohesion — but they have relied on jobs strategies at different points in time. After independence, Singapore focused on jobs to reduce high unemployment and inter-ethnic tension, and later, raise labor costs to encourage higher-value-added activities. But when a recession occurred, it switched to focusing on jobs. Conversely, Korea abandoned development planning in 1996 and in 2010 adopted a jobs strategy for the next decade, focusing on increasing the employment rate of the working-age population (15-64 years) to a minimum of 70 percent — the average among industrial economies.
- • Intensification of public investment in research and development and innovation.
- • Promotion of venture capital, business angel investment to finance high tech startups.
- • Liberalization of regulations for small and medium-size enterprises.
- • Attracting foreign entrepreneurs, promoting Singapore as a regional entrepreneurial hub.
- • Reforming the education system to encourage creativity and innovation and inculcate an entrepreneurial mindset.