By JIM EAGLES, Business editor
If New Zealanders are among the most entrepreneurial people in the world, then why are we sliding down the league table of rich countries?
That is the obvious question raised by the Global Entrepreneurship Monitor (GEM) report, released last week, which ranks New Zealand as second only to Mexico in a 29-country entrepreneurship table.
The answer seems to be that although we have an amazing record of starting new ventures, their survival rate is fairly moderate - only 40 per cent are still going after four years.
Even if businesses do survive, few grow to significant size - only 3.1 per cent of New Zealand start-ups rate as high-growth (compared with 4.9 per cent in Australia) and just 10.7 per cent are medium-growth (14 per cent in Australia).
And even fewer look to international markets - less than 3 per cent of our businesses export, the lowest rate in the OECD.
"We may have a high entrepreneurship rate by world standards," the report notes, "but our entrepreneurs' aspirations and horizons (as expressed in the type of businesses that they are establishing) are low and inwardly focused.
"Only a small percentage of new entrepreneurial firms could be classified as dynamic, export-oriented businesses."
Why is that? And what can be done to change it?
The GEM process included face-to-face interviews with 40 experts on the New Zealand business scene - academics, politicians, state servants, regional development executives, economists, venture capitalists, business advisers and several entrepreneurs - to get a feel for the specific issues affecting entrepreneurship.
Those interviews identified several major stumbling blocks to unleashing the country's entrepreneurial talents:
* An anti-enterprise culture.
Threequarters of the experts identified attitudes to entrepreneurship as a major problem in New Zealand.
For entrepreneurs to flourish, the report says, they need a positive environment in which enterprise is valued, people are willing to give things a go, failure is accepted as a necessary step towards success, change is welcome and self-reliance encouraged.
But in New Zealand "what our entrepreneurs actually face is quite the contrary."
The environment here is one where business success is seen as being at the expense of others, budding entrepreneurs are reluctant to move outside the comfort zone, success is clobbered, failure is severely penalised and foreign models are valued more than local ones.
* Inadequate business education.
The experts criticised the New Zealand education system, from primary right through to tertiary level, as failing to provide the knowledge and skills necessary for business success.
Primary and secondary schools were rated below the global average for their teaching about market-economy principles and their focus on entrepreneurship.
Tertiary institutions were also graded below their international counterparts for failing to provide sufficient courses on entrepreneurship.
Worst of all, the quality of management education in New Zealand was rated well below the global average, and close to the bottom of the 29-country table.
The report concludes that much more needs to be done right through the education system to teach entrepreneurial skills.
"The great challenge," it says, "is helping our polytechs and universities to re-focus on the needs of entrepreneurs ... The education system needs to find the capacity to fill the gaps that aspiring Kiwi entrepreneurs might have, especially their ignorance about the global market, their lack of business understanding, and the lack of experienced management and staff."
* The burden of red tape.
New Zealand was highly rated for the level of economic freedom, the consistent application of rules and the relative ease of obtaining permits.
But the local experts commented that New Zealand could do with less bureaucracy. "Often compliance costs can weigh disproportionately on small firms."
Overall, Government policies towards new businesses were rated as good or better than the global average, though attitudes at local government level were considered to be below average.
* Sources of capital.
The experts were concerned that New Zealand entrepreneurs had great difficulty getting backing from traditional sources such as banks and venture capitalists and also faced "a lack of incentives in the capital markets".
Presumably because of that, the study finds New Zealand has close to the lowest level in the world of classic venture capital investment.
"This deficit in formal venture capital available to Kiwi companies is made up by informal venture capital, including business angel activity," the report says. "Ninety-eight per cent of capital for New Zealand start-ups comes from informal investments ... New Zealand has the highest rate of informal or business angel activity in the world."
* Research and development transfer.
The experts rated New Zealand's science and technology base highly but criticised the mechanisms for transferring research and development information to start-ups.
In particular, new and growing firms in New Zealand were considered to have much less favourable access to new research and technology than their counterparts in other countries.
"New Zealand is constrained by its small size in scaling R&D uptake," the report says, suggesting that "we could overcome some of the scale issues through more R&D initiatives with our trading partners."
But, it adds, "there are other distortions as well. For our size we should have stronger networks and linkages between research institutions and the entrepreneurial community."
In its conclusions, the GEM report notes that the modest survival rate of New Zealand start-ups suggests a need for policy changes, but it has little to offer by way of specifics.
The Government is asked to consider whether the present tax regime for capital gain provides entrepreneurs with incentives. "We need the Government to issue a clear and definitive statement on capital gains tax on building companies in New Zealand."
There is also a recommendation for a study of how the social welfare system might be changed to improve the success rate of the self-employed and entrepreneurs.
The largest number of proposals is for improvements in the teaching of entrepreneurship at all levels of the education system. Others call for further research into some of the issues raised. One urges tertiary institutions and their staff to start new business and conduct productive research.
The GEM team explains the dearth of recommendations for solving the entrepreneurial paradox - if we're so smart, why ain't we rich? - by saying that next year it will expand on its research. More precise answers will be forthcoming as that process explains the relationship between entrepreneurship and economic growth.
But Auckland Chamber of Commerce chief executive Michael Barnett has no doubt about what needs to be done.
"Our relative failure has not so much to do with the education system, or the lack of participation by women or specific socio-economic groups [the GEM report notes that New Zealand's female entrepreneurship rate is the highest in the world], but a great deal to do with the fact that thousands of talented New Zealanders believe that the environment created by Government policy is a disincentive to making the effort to start up and drive a successful international business.
"High taxes on profits, high personal income taxes, frustratingly complex regulatory regimes like the Resource Management Act are time and again cited in chamber surveys as reducing the enthusiasm and desire to expand a business from a small, individually owned and managed local success into a big enterprise marketing itself worldwide and returning large dollops of wealth to the country."
Mr Barnett said business organisations were willing to work with the Government to encourage entrepreneurs.
"When government, central and local, comes to the party with business, New Zealand will be unstoppable!"
* In Forum on Tuesday: Howard Frederick, professor of innovation and entrepreneurship at Unitec, and Mark Lowndes, principal of Lowndes Associates, both of whom were involved in the GEM project, discuss what they believe should be done to harness the country's entrepreneurial talent.