Many champions of the middle sector have stressed its importance as a cradle of entrepreneurship. Critics, in contrast, have argued that this specific group is not as entrepreneurial as its counterpart in other countries. The entrepreneurship of the Latin American middle sectors is therefore an interesting question (Box 1.1).
Box 1.1. Entrepreneurship and the middle sectors
Entrepreneurship is a powerful engine for economic growth, spurring a country’s comparative advantage, creating jobs and accelerating innovation.14 Entrepreneurs introduce innovative products and processes to the market place in situations where established corporations have fewer incentives to do so. Do the middle sectors play a role in entrepreneurship?
Even if talent is evenly distributed across the population, there are reasons to think the middle sectors should play an important role in entrepreneurship. In order to start a business, for example, a certain level of material and human resources is necessary, which militates against the disadvantaged. On the other hand, while the affluent have the resources, they may have much lower incentives to take risks because they are already at the top of the income distribution. Of course, the affluent may be well-off precisely because they are entrepreneurs. The causality may run in either direction, and survey data like those used here cannot always determine which factor is the cause of the other.
A rough empirical test of this proposition can be made using the Latinobarómetro surveys. These surveys, comparable across countries, include data on respondents’ occupations that differentiate between four types of self-employment. This allows us to exclude farmers, the self-employed and salesmen – categories that may mainly be “necessity entrepreneurs” – and also professionals, given their somewhat special status. Unfortunately the surveys do not contain information on income which would enable us to identify the middle sectors using the 50-150 definition employed in the rest of this chapter. Instead we rely on the interviewer’s perception of the economic status of the respondent, based on the quality of the respondent’s housing and other characteristics. Figure 1.4 shows the average share of business owners within each socio-economic category over 1996-2008. Consistently across all countries in the sample it is the richest group of the population that has the highest share of entrepreneurs, rather than the middle sector.
Figure 1.4. Share of business owners by socio-economic sector (average over survey years 1996-2008)
Attitudes to entrepreneurship
The Latinobarómetro surveys also provide information about attitudes towards entrepreneurship and opportunity. Interestingly, there are no systematic differences in attitudes to entrepreneurship across social groups – all share a common view of the importance of entrepreneurship for development, for instance. Also, an overwhelming majority of respondents across all income groups believes that opportunities for the affluent are larger than for others in their country.
Figure 1.5. Perception of the opportunities to become rich
However, there is one aspect where opinions differ significantly. The share of those identified as belonging to the middle sectors by the Latinobarómetro survey who believe that there are opportunities for a person born poor to become rich by working hard is substantially higher than that of the affluent (Figure 1.5). This raises several questions, not all of which can be answered in this Outlook. Are Latin American societies meritocratic, as so many low- and middle-income people seem to believe, or are these respondents simply over-optimistic about the prospects for advancement? Are market failures – such as poor access to credit, or bad infrastructure – thwarting the initiative of opportunity entrepreneurs?