Entrepreneurship and national happiness

happiness
03-11-2015

Do entrepreneurs contribute to national happiness?  It has been found that there exists an inverted U-shape relationship between national happiness and entrepreneurship: up to a certain level an increase in entrepreneurship will be associated with an increase in national level happiness, after which it would be associated with a declining level of happiness.

Why would an increase in entrepreneurship at first lead to an increase in national happiness? Entrepreneurs create jobs – and we know that unemployment is a major and significant cause of unhappiness. We also know that goods that entrepreneurs provide, such as health and experiential activities, raise happiness levels. Moreover there is now a robust body of evidence that entrepreneurs experience higher levels of job satisfaction than non-entrepreneurs and entrepreneurs’ happiness can rub off on the happiness of non-entrepreneurs.

But more entrepreneurs may also be associated with lower national happiness. This could be when most entrepreneurs are not so by choice, but by necessity. When people turn to entrepreneurship by necessity, they essentially lose their ‘agency’ or free will as far as their employment is concerned, and this is experienced as a loss of happiness. Evidence from the EU seems to support this: there is a robust negative relationship between the business ownership rate and entrepreneurs’ average job satisfaction across EU nations. The graph above illustrates how job satisfaction scores for entrepreneurs and business ownership rates vary across the EU. Clearly, job satisfaction amongst entrepreneurs is much higher when fewer of them need to be self-employed.

There is a second way in which entrepreneurship may lower national happiness after some stage or level. This is when there is too many rather than too few entrepreneurs in a country. With too many entrepreneurs, levels of aspirations in a country may rise – it is well-known that with increasing material wealth (or opportunities) people’s aspirations increase. When their performances fall short of these aspirations, their happiness will decrease. Hence from certain levels of entrepreneurship happiness may decline when entrepreneurs and their societies’ material aspirations start to outstrip their achievements. This will lead to a feeling of dissatisfaction and frustration – they become ‘frustrated achievers’. More competitive-minded entrepreneurs may experience more negative states of mind than others and report lower levels of happiness. In highly competitive and materialistic societies with high aspirations we see ”family solidarity and community integration” breaking down. Finally, in a very entrepreneurial society one may observe more income and wealth inequalities and more variability in entrepreneurial performance. People in more unequal societies tend to report lower levels of happiness than others.

Thus, entrepreneurship may spur economic development if appropriately supported by the state. And entrepreneurship may also make nations happier – but only up to a point. As nations become happier, their need for entrepreneurship seems to decline. Perhaps relational goods – family and friends – become more important, and too much of an entrepreneurial culture detracts from this. It is very much as Shakespeare put it: ‘If music be the food of love, play on; Give me excess of it, that, surfeiting, The appetite may sicken, and so die’.

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The above is from: Entrepreneurship and Economic Development, edited by Wim Naudé from the United Nations University World Institute for Development Economics Research (UNU-WIDER) in Helsinki, Finland.

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