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Entrepreneurial Activity Is A Key To Success But Women Face Special Obstacles

  • Charles Recknagel

Women are less likely to engage in entrepreneurial activities than men

Women are less likely to engage in entrepreneurial activities than men

LONDON -- There is no magic formula for knowing how countries become wealthy and their citizens happy.
But there is a growing body of evidence that a key factor is entrepreneurial activity and the opportunity for anyone to engage in it who wants to.
That is one of the reasons why a recent gathering of social scientists outside London paid special attention to the importance of looking at entrepreneurship when rating countries as more or less successful in meeting their citizens' needs.
The host of the conference was the London-based Legatum Institute, which annually publishes a Prosperity Index ranking 110 countries according to both their economic performance and of their citizens' sense of wellbeing. The sense of wellbeing measures come largely from surveys conducted by the Gallup Organization, which each year interviews 1,000 people in every country of the world on a host of subjects.

Since the Prosperity Index began four years ago, the researchers have consistently found that a country's level of entrepreneurship is the single factor that most accurately predicts how high, or low, the country ultimately will rank when all other factors related to its overall prosperity are also taken into consideration.
Fewer Women Entrepreneurs
But if such studies make a case for countries encouraging private citizens to become business entrepreneurs -- and for ending state monopolies and official corruption that stand in their way -- the researchers have also found that the doors to entrepreneurship are rarely open to all equally.

Specifically, economists and sociologists have found that women are less likely to engage in entrepreneurial activities than are men, and when they do so, they tend to move into less profitable sectors than do their male counterparts.
Leora Klapper, an economist with the World Bank, told the gathering that studies of women entrepreneurs show this is true both in industrial and in developing countries.
Speaking as a researcher and not as a representative of the World Bank, she told RFE/RL.
"We know entrepreneurship is an engine of growth in developed countries and that research has shown that women [in industrial countries] are less likely to engage in entrepreneurship, less likely to own formal companies and certainly, for firms that they do own, less likely to have employees, be smaller, and to be more in service sectors and in sectors with less potential for high growth and innovation," Klapper said.
She notes that in industrial economies the share of firms which include women as owners is highest in the service sector and especially in traditional, lower value-added sectors such as food services, education, health, and light manufacturing sectors such as garments.
Some researchers believe the choice of lower-value sectors may be tied to factors ranging from discrimination against women in capital markets to behavioral differences between men and women regarding risk taking, to many mothers' preference for working part-time.
World Bank economist Leora Klapper

Meanwhile, in developing countries, women are likely to engage in sectors with still less growth potential in their respective economies, such as simply re-selling goods at low profit. That reflects the fact that, while women in developed economies become entrepreneurs out of a sense of opportunity, women in developing economies usually do so out of necessity when no wage employment is available.
Precisely why women are less likely to engage in entrepreneurial activities than are men are complex and still poorly understood. But much of the explanation certainly lies in the economic, legal, and social obstacles which in many countries make it difficult for women to obtain credit.
"The ability to sign a loan without requiring a [male] co-signer, the ability to have property in your own name, these are all very important," Klapper said.
"There are even more subtle, and even non-discriminatory issues, such as it may be more common for the mortgage and for the cell phones to be in the husband's name and that doesn't allow the wife to develop her own personal credit history to access credit to start a business."
Bad Credit
The inability to get credit can mean that in developing economies women have to turn to informal sources of finance in order to obtain capital, for example from relatives or from loan sharks who charge exorbitant interest. And, in some places, even if a woman does succeed in business, there is no certainty she can retain control over her earnings because property and contract laws make her wealth vulnerable to claims by male relatives.
Today, studies of female entrepreneurship frequently focus on what is needed to open the doors more fully to women. And while countries differ dramatically, some clear starting points are common to many.
Klapper says that among the most common and urgent needs is to revise credit and collateral laws so that women can gain direct access to capital. Similarly important are raising incentives for women to become entrepreneurs by changing laws so that they equally protect men's and women's assets.
These are specific needs, but the most important lessons to emerge from the growing body of research about entrepreneurship remain universal.
They are simply these: that entrepreneurship is a powerful engine for promoting prosperity and that it works best when everyone who wants to participate -- male or female -- can do so to the best of their abilities.
The third and final part of our three-part series on building prosperity looks at the extent to which creating wealth and wellbeing is a function of attitude -- not just for individuals but for countries, too.

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