Foundations and Trends® in Entrepreneurship > Vol 5 > Issue 1

Competencies and Institutions Fostering High-growth Firms

Magnus Henrekson, Research Institute of Industrial Economics (IFN), Sweden, magnus.henrekson@ifn.se Dan Johansson, The Ratio Institute, Sweden, dan.johansson@ratio.se
 
Suggested Citation
Magnus Henrekson and Dan Johansson (2008), "Competencies and Institutions Fostering High-growth Firms", Foundations and Trends® in Entrepreneurship: Vol. 5: No. 1, pp 1-80. http://dx.doi.org/10.1561/0300000026

Published: 30 Nov 2008
© 2009 M. Henrekson and D. Johansson
 
Subjects
Government programs and public policy,  Small business and economic growth
 

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In this article:
1 Introduction
2 Competence Blocs and Growth
3 The Role of High-growth Firms
4 Institutions and High-growth Firms
5 The Tax Code
6 The Organization of Labor Markets
7 The Regulation of Product Markets
8 Conclusion
References

Abstract

High-growth firms (HGFs) are critical for net job creation and economic growth. We analyze HGFs using the theory of competence blocs, linking firm growth to property rights and the interaction of complementary expertise. Specifically, we discuss how the institutional framework affects the prevalence and performance of HGFs. Firm growth is viewed as resulting from the perpetual discovery and use of productive knowledge. A key element in this process is the competence bloc, a nexus of economic actors with complementary competencies that are vital in order to generate and commercialize novel ideas. The institutional framework determines the incentives for these individuals to acquire and utilize knowledge. We identify a number of institutions that foster the emergence of competence blocs and the creation of HGFs. In particular, our analysis points to the pivotal roles played by tax structures, labor market regulation, and the contestability of currently closed service markets. Finally, we characterize institutions beneficial for sclerotic or dynamic capitalism, respectively, depending on whether they provide a favorable environment for the emergence of competence blocs and the creation of HGFs.

DOI:10.1561/0300000026
ISBN: 978-1-60198-176-9
92 pp. $70.00
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ISBN: 978-1-60198-177-6
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Table of contents:
1. Introduction
2. Competence Blocs and Growth
3. The Role of High-Growth Firms
4. Institutions and High Growth Firms
5. The Tax Code
6. The Organization of Labor Markets
7. The Regulation of Product Markets
8. Conclusions
References

Competencies and Institutions Fostering High-growth Firms

Competencies and Institutions Fostering High-Growth Firms examines high-growth firms, also known as "Gazelles", which have become critical to net job creation and economic growth. It analyzes how the institutional framework - the "rules of the game" – affects such firms, taking the theory of competence blocs as a point of departure. The three institutional categories that are key areas for the promotion of high growth firms include the tax system, the organization of labor markets and product market regulations. The authors characterize institutions as either fostering dynamic capitalism, by providing a favorable environment for the emergence of competence blocs and the generation of high growth firms or leading to "sclerotic capitalism" by failing to produce such an environment. By analyzing high growth firms through the lens of the theory of competence blocs, Competencies and Institutions Fostering High-Growth Firms offers a more holistic view of economic growth. Rapid firm growth is a complex process requiring a number of complementary competencies. This analysis suggests that the commercialization of innovations and generation of high growth firms would be greatly facilitated if more product markets are contestable and tax structures and labor market institutions are adjusted to stimulate the emergence of more effective competence blocs.

 
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