Youth Entrepreneurship and Local Development in Central and Eastern Europe

Bruno Dallago

• Publisher: Routledge
• Year: 2017
• Print ISBN:
  9780815399193
• eBook ISBN:
  9781351142625
• Topic: Business
• Subtopic: Business General
• Index: Business

This book analyses the opportunities and barriers for youth entrepreneurship amid systemic change in Central and Eastern Europe. The authors cover different aspects of youth entrepreneurship and its contribution to the debate on youth unemployment in transition economies. The book discusses the wide-spread over-optimism regarding youth entrepreneurship, self-employment, and its impact on economic innovation and job creation, resulting from a disregard of critical contextual features and the characteristics of young entrepreneurs themselves. The authors give due acknowledgment of the importance of both factors and so fully understand the impediments to youth entrepreneurship, especially in a transition context. Furthermore, they seek to assess the opportunities and constraints of promotion policies in transition economies. Most importantly, the book provides the first empirical contribution to youth entrepreneurship in Central and Eastern Europe by offering a representative number of case studies. The book will be invaluable reading for scholars and students of transition and developing countries, particularly those with an interest in entrepreneurship.

Part 1
Youth Entrepreneurship and Self-Employment in Transition Economies

Chapter 1
From Unemployment to Entrepreneurship: Creating Conditions for Change for Young People in Central and Eastern European Countries

Sergio Arzeni and Jay Mitra

We must develop strategies that give young people everywhere a real chance to find decent and productive work that will allow them to become independent and responsible global citizens.

- Kofi Annan, UN Secretary-General, International Youth Day, August 2003

1. Introduction

The shift in the political structure of countries in Central and Eastern Europe (CEE) marked the beginning of a long period of transition from a socialist to a capitalist system of a free market economy, following the collapse of the command economies between the end of the 1980s and the beginning if the 1990s. However, almost all the expert economic projections of productive change, based on the adoption of policies supported by the International Monetary Fund and the World Bank, turned out to be unrealistic as the outcomes of the transition were manifest in the sharp rise in unemployment problems, the reality of which blew away the dreams of many. The group or class of people most overwhelmed by this predicament were the 'youth', as their unemployment rates soared in some cases almost twice the national average.

Joblessness often results in certain push factors which could propel people to become 'necessity entrepreneurs' (GEM 2005). Entrepreneurship can, therefore, be considered to be an alternative to the wage economy especially when the latter fails to meet the aspiration of the young. The purpose of this chapter is to examine the role of entrepreneurship as a viable tool for the systematic reduction of youth unemployment in CEE countries. Framework conditions affecting entrepreneurship development in the CEE are investigated in order to obtain an understanding of the local factors affecting entrepreneurship in the region. More specifically, the chapter sets out to explore the literature for:

• the nature and causes of youth unemployment in the region and the prospect of entrepreneurship (new business creation and self-employment) as an alternative to employment in the wage economy; and
• policies affecting entrepreneurship and small business development and whether positive outcomes can be observed in terms of new venture creation.

Based on the findings from the exploration, the authors conclude with an overview of the strengths, weaknesses, opportunities and threats (SWOT) affecting youth entrepreneurship in the CEE countries.

A Rationale

The rationale for this chapter stems from the recognition of the difficulties policy makers face in many countries, and specifically in the transition economies, in tackling the problem of youth unemployment. A large segment of the world population falls under the classification of 'youth', thereby making unemployment issues take an important place on the agenda of policy makers. It is estimated that there are more than one billion people between the ages 15 to 24, and that 85 percent of them live in developing countries. According to recent estimations by the ILO (World Youth Report 2003), 40 percent of the 160 million people unemployed today in the world are youth. In the case of the CEE countries, youth unemployment is above that of their adult counterparts. The resulting negative impact on the productive potential and future economic prospects of young people, and the regions in which they live, raises serious concerns among policy makers and the wider society. These concerns are exacerbated when illegal means of livelihood offer tangible alternatives to legitimate opportunities of livelihood.

A report by the OECD (2001) explains that continual youth unemployment wastes human resources that could contribute to economic progress in the short-run; influences widespread unhappiness (amongst which rising suicide rates are a symptom), and social discontent among the youth, and may leave long-term scars on the working adults of the next generation. In the absence of jobs in the wage economy, supporting youth entrepreneurship can be an important policy consideration for many economies, regardless of their stage of development, and a valuable complement to policies supporting wage employment. This is especially the case as recent trends in the United States and a number of OECD countries show a high interest of youth in participating entrepreneurship (OECD 2001). For example, about 40 of young people finishing secondary school in the USA expresses a high interest in forming their own businesses; while in the United Kingdom, more than a third of the nation's young people express a desire to start their own businesses, and each year about 50,000 of them actually do so (OECD 2001). Likewise in France, a survey on pupils beginning and finishing secondary school and those in the first year study for a BTS (Brevet de Technicien Superieur) professional qualification, carried out in 1999, showed that 32 percent of the respondents were seriously foreseeing the creation of an enterprise as their first professional work (OECD 2001). Thus, promoting youth entrepreneurship carries with it potentials for reducing unemployment, as there may be a direct effect on employment if new young entrepreneurs hire fellow young persons from the 'dole' queues (Curtain 2000). Can similar models or approaches be adopted in CEE countries?

To achieve the objectives stated above, this chapter relies on secondary data sources and key policy documents, including data relating to entrepreneurship framework conditions, such as the existing state of education and availability of venture capital. The work of different researchers on CEE country economies, such as Saveska (n.d.), Blanchflower and Oswald (1998a) and others, also inform this chapter.

In the absence of comprehensive data across all CEE countries it can be tempting to extrapolate the state of the youth entrepreneurship from general sources of information. But rather than following that hazardous route, this chapter sets out to examine the overall framework conditions for entrepreneurship in a transition environment. Certain assumptions underpin this examination and they include the following:

1. the basic framework conditions of attitudes to and capabilities for entrepreneurship, levels of education, appropriateness of support and supply systems, have a direct impact on entrepreneurship among all groups of people;
2. the peculiar conditions of the state of specific economies together with their framework conditions allow for either the prevalence of positive externalities emanating from good business practice or 'rent-seeking' entrepreneurship which cashes in on corrupt form of opportunism (Baumol 2002; Dallago 2005);
3. the specific conditions of youth in particular countries, as in a mix of higher levels of unemployment combined with higher educational attainment levels in CEE countries, can result in a dangerous and volatile mix of social unrest and economic decline;
4. successful youth entrepreneurship in any economy is path dependent in that it is more likely to flourish in places where there is a tradition of entrepreneurial activity, supportive infrastructure, and cultural acceptance; and,
5. transition itself provides for the kind of tensions generated by economic and social disequilibria, which offer opportunities for entrepreneurs to seek and realize, either for genuine wealth creation or socially dysfunctional individual gain.

This chapter does not aim to address specific problems of youth entrepreneurship in the CEE countries. The lack of reliable, empirical data (Aidis 2003) prevents us from undertaking such an enterprise. Instead, by interpreting existing material and, partly through extrapolation of material from related policy areas (education, employment, etc.), an attempt is made to provide an overview of 'what is' and 'what is possible' in the area of youth entrepreneurship in the transition economies of the CEE. This is not sufficient to also cover the specificities of both the different transition economies or indeed the peculiarity of youth entrepreneurship. Also, while in policy terms, the primary equation between policy-making and job creation has been taken for granted, other aspects of entrepreneurship, namely creativity, networking, and innovation have inevitably been ignored. This deficit is unfortunate and will need to be addressed by all concerned with the subject.

2. State of the Economy in Central and Eastern Europe

During the early years of the transition to the market economy there was a decline in economic performance of the countries marked by a recession. The recession intensified in 1991 with recorded falls in GDP ranging from 9 to over 15 percent. The transition did not occur in all the countries at the same time in terms of implementing market reforms. The recession suffered by the region particularly affected industry. Almost all the countries, with the exception of Poland, had a fall in output of a fifth or more in 1991.

The privatization of shops led to the creation of a small, private business sector. The first countries to launch plans for privatization were Czechoslovakia, Hungary and Poland, with Hungary having started to test market-oriented reforms since the 1980s. But the creation of new businesses did not form part of the agenda of regional policy makers. Perhaps the dramatic growth in newly created private enterprises in the early 1990s, driven by high levels of consumer demand for products and services previously unavailable in the command economy (Aidis 2005), generated an environment of myopic complacency.

By the mid to late 1990s, most of the transition economies witnessed a fall in new-business development (Glas et al. 2000; Kontrovich 1999; UNDP 1998), with the problems being attributed to an increase in regulations, new competition both at the local and international levels, poor financing, and a reduction in consumer demand.

In recent years however, there has been some improvement in terms of economic growth, averaging steadily over 5 percent in the region (see Figure 1.1 below). In 2005, economic growth was favourable at 5.4 percent, although in comparison to the previous year it had slowed down slightly. Nevertheless, growth remained strong, in excess of 5 percent, more than three times higher than in the EU 15. Projections made over the next few years show the rate of growth will continue at the rapid pace of more than 5 percent, and is expected to remain higher than the EU 15. Thus, in general, the region is gradually recovering from the recession it suffered during the earlier days of transition.

The opening up to the world markets by the CEE economies, through the introduction of economic measures that allowed rapid price liberalization, combined with a strict macroeconomic stabilization policy, had an effect on emplo...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Notes on Contributors
• Preface
• Acknowledgements
• Introduction: Economic Transformation and the Challenge of Youth Entrepreneurship in Central and Eastern Europe
• PART 1: YOUTH ENTREPRENEURSHIP AND SELF-EMPLOYMENT IN TRANSITION ECONOMIES
• PART 2: YOUTH ENTREPRENEURSHIP AT WORK: A COMPARISON OF NEW MEMBER COUNTRIES AND ACCESSION COUNTRIES
• Index