19 January, 2013

How Australia became global leader in entrepreneurship

Australia has the highest share of entrepreneurs per population of all wealthy countries, over 20%. This proportion has climbed steadily for many years and continued even after 2000. Until the financial crisis, Australia had experienced an unbroken 17 year period of economic growth. The main characters in this dynamic economic performance are the country’s entrepreneurs.

The latest study of start-ups in Australia found that seven women for every ten men were involved in starting their own business, which is a growing share from previously. Most of those starting companies do so because they see a new opportunity, not because they have to. That is the norm in wealthier countries, while in poorer countries, many start a business because they have no other choice. But, one challenge is that the share of highly innovative companies is relatively low.

Moreover, one-fourth of Australia’s entrepreneurs are migrants, who have been called ‘cosmopolitan capitalists’. These are part of the country’s long history of significant immigration. During the 1960s immigration totalled nearly 200,000 new arrivals annually, though this slowed to approximately 100,000. In the early 70s restrictions towards Asia were relaxed and immigration grew again.

The share of entrepreneurs among several immigrant groups, as from Korea and Taiwan, can be twice as high as for those born in the country – which is a higher proportion than elsewhere internationally. These immigrant entrepreneurs are active in all sectors, but are especially prevalent in retail shops and restaurants.

Immigration policies in the country have historically been characterised by significant openness enabling driven individuals to settle there, which has contributed to the high proportion of entrepreneurs. However, this would not have been possible if national political leaders had not implemented a series of economic reforms starting in the 1980s – under governments lead by both leading parties, Labour under Prime Minister Paul Keating, and the Liberals under John Howard.

As in other wealthy countries, Australia opened its highly regulated economy to the world, not least to allow significant foreign investment, and they implemented monetary policies to stabilise their currency. Several markets were deregulated, and opened for more private entrepreneurs. Additionally, labour markets were substantially liberalised. All of which has led to creation of over one million jobs in the last decade – in a country with only 20 million residents.

Likely one of the most important reforms here – creating the greatest flexibility for entrepreneurs – were changes to collective bargaining agreements that affected wage formation. Only 17% of the labour force is now member of a union, so collective agreements covering all employees have limited legitimacy. This led to the implementation of individual agreements.

This contrasts with the long history of Australia having a highly centralised wage formation process. Now, decentralised wages are set through discussion on the company level. Which naturally enables these businesses to adapt to meet local and global circumstances. And this also helps smaller businesses to manage costs to meet changes in market or sales conditions.

Australia still has, as many other countries, a continued need for regulatory change processes, but in terms of opening up to allow entrepreneurs start businesses where tomorrow’s jobs and welfare will be created, other countries have much to learn from Australia.

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Johnny Munkhammar