How can startups support distributed economic development?

Companies and entrepreneurs do not
start their activities in a void. Production may be split across countries,
head offices located in more favourable business environments. However, a basic
point not to forget is that context matters. Where founders decide to
establish their ventures has an impact not only on their own opportunities for
growth but, in return, on the way companies shape the economy and labour
markets as well.

With this respect, societal and
economic frameworks wildly differ across geographical areas. Some environments are
more prone to enhance entrepreneurial initiatives, while others present harder
obstacles to overcome in terms of firm creation. It seems there is a two-way
correspondence
between two elements: the aggregated contribution of
companies to the economy of a country, and the state and market institutions
largely contributing to a firm’s success or failure. We are all well aware of
the advantages of choosing Estonia to start a business, but how do startups
participate in shaping the economy of a country? What is their contribution?

Entrepreneurship and shifting
paradigms in the global economy

Let’s take a few steps back. A
crucial phenomenon that has taken place during the past forty years in Western
countries is the transition to a post-industrial setup of economies and
societies. Three main elements triggered this widespread transformation – technological
change, the radical growth in female employment, and an increased global
integration of previously closed national markets. One of the constituting features
of this emerging model is the tertiarization of the economy, marking a shift of
focus from industrial growth to productivity and employment in the service
sector
. Many small-medium enterprises (SMEs), and startups more recently,
became part of this dominant slice of the economy as a whole.

On par with such dramatic
transformation, the failure of some Western labour markets to adapt to these
changes brought up a number of challenges. Unemployment and the reshaping of
modern economic landscapes pre-eminently figure among these issues, in
particular after the recent crisis of 2008. Since then, European governments
showed a renewed interest in start-up programmes as one of the measures
to balance the drawbacks of dysfunctional labour markets, fostering self-employment
and advocating a rise in entrepreneurship. Founders and startups became
a resource worth trusting and, in this perspective, an innovative way to
kick-start new trends of job and growth creation.

Beyond numbers, startups in the
social space

Creating a favourable business
environment
emerges as the premise for startups to rise and flourish. Entrepreneurs
are not isolated actors in the economy, but integral parts of a micro- and
macro-context with its specificities. Looking at the factors favouring this
development is crucial to understand what can push growth at the corporate
level, and the strategies to generate coherent economic development in a
given country. Startups are born from the vision and courage of a private
initiative, but they also contribute to redefine the rules and balances of a
social space.

For example, based on OECD evidence, institutional obstacles
to startup creation pose a fundamental threat to job creation. In the
crucial phases of the transition to a service economy, countries with high
start-up costs show lower employment in the service sector and higher
unemployment. When doing business is a complicate and painful process, and
barriers to international trade and investment are in place, the potential
for entrepreneurship decreases
dramatically. In Western labour markets, in
the past years, this has represented a strong determinant of growth in
unemployment.

Founders should be free to pursue
their dreams and goals, letting ideas compete for economic support and success
in the market. But an environment that multiplies the strength of individual abilities
with enriching network contacts can give entrepreneurs more
confidence
to successfully start a company. Eurostat data shows how effectively communicating
opportunities and creating supportive business networks help entrepreneurs
recognize chances, as well as being a consistent predictor in the decision
to start a business
. Social capital is important, as a further
confirmation that context matters in entrepreneurship.

Towards a distributed economic growth

We have been working on creating a fertile environment for founders to establish their
ventures, and for startups to contribute giving shape to the economy while
aiming for global markets
. Providing an environment founded on the ease of
doing business and the removal of pointless obstacles hindering growth, Estonia
is one of the best places for startups to emerge and make an
impact. Over 550 startups are currently active in the country, employing
more than 3700 people
in their offices in Estonia (+26% on 2017) – all
while the general unemployment rate has been constantly declining since 2010. Startups paid 45,5M EUR
to the state in employment taxes in 2018, generating an annual turnover of
almost 300M EUR and raising funds for over 320M EUR.

Startups make a significant contribution to the Estonian economy
at large, a clear sign that potential can successfully be expressed in
the country. Spotting talents is, indeed, one of the proudest features of our
system. Founders can easily meet and talk to established entrepreneurs
and colleagues, ready to provide tips and advices. Investors and funds
are on the lookout for the next moonshot idea, while networking events
ensure chances to get the word out on what’s cooking in the scene.

It is based on this experience that Startup
Estonia
is now active in the North-East of the country as well. We believe that
distributed economic development does not originate from geographical head
starts, but from widespread opportunities and supportive business
environments
. As shown at the national level, entrepreneurship can
contribute to lift economic performance, quality of jobs and living standards. Estonia
has benefited from a strong startup ecosystem, and in equal way this can take place across regions. When entrepreneurs are
given the chance to grow, the returns do not only translate merely into
profits, but in social development and international recognition as
well.

This blog post is written by Federico Plantera – journalist, researcher, copywriter. With a focus on digitization, society and demography, Federico currently contributes with articles and interviews to the contents of e-Estonia, Startup Estonia, Il Fatto Quotidiano (Italy), ERR News, Ridango, and NIIS.