Entrepreneurial culture has strengthened in the past decade but has not resulted fully in the creation of new firms.

A number of national and global initiatives have scaled efforts to instil an entrepreneurial culture among students, recent graduates and workers. Overall, entrepreneurial culture, measured by attituded towards risk, has increased. Among advanced economies, countries in continental Europe have tried to close their gap vis-à-vis the United States (Figure 4.1). This has led to new innovation ecosystems around leading metropolitan areas. Germany and France, for example, appear to have achieved some success over the past 3-5 years—in parallel with the emergence of Berlin and Paris as hotspots for start-ups and the establishment of a few unicorns in both countries. Among emerging economies, India shows a similar success path, fuelled by the visibility of some of its tech hubs, particularly Mumbai and Bangalore.

Yet measures of business creation have stalled or regressed, signalling an incomplete conversion from business culture to successful commercial activities. In many advanced economies, firm foundations never recovered to pre-crisis levels after 2008–2009, raising concerns about the long-term consequences on competition and productivity. Early numbers from the aftermath of the COVID-19 crisis signal a mixed picture. A unique case among advanced economies, the United States experienced an unprecedented spike in new business creation during the third quarter of 2020. This has been attributed to the combined effect of the immediate support to the financial sector that avoided a credit crunch, generous unemployment subsidies that provided laid-off workers with the safety nets necessary for new entrepreneurial ventures, and the severe disruption of established routines, social structures and business models brought about by the pandemic.

It is too early to know whether this new wave of business creation will turn into long-term job creation, and whether the reallocation is happening towards economic activities that will provide better livelihoods for workers and more sustainable business models. Without diminishing the importance of ‘animal spirits’ to maintain a competitive and dynamic business sector, COVID-19 has contributed to rethinking of whether societies should more proactively orient market forces and direct innovation on the basis of shared values and future challenges.

There is a lack of sustained creation of breakthrough technologies and, where there has been innovation, it has not been widely successful at delivering solutions to increasing energy consumption, managing emissions and meeting the demand for inclusive social services.

Over the past decades, despite fast progress in digital and communication technologies, there has been a slowdown in significant technological breakthroughs, especially in domains which could potentially combine high economic growth with sustainability and inclusivity. On the one hand, digital technologies have had a limited return for economic and social outcomes when compared to the progress made through, for example, sanitization or electricity. On the other hand, publicly-funded, long-term research projects that can generate the type of risky, breakthrough innovation the world needs have slowed down, as governments have stepped back from the kind of research-intensive programmes that were the basis of the space race and other mission-driven approaches to innovation.

The pandemic and its aftermath have shown that we have not invested enough in the right type of innovation that could make our societies more inclusive, sustainable and resilient. For example, programmes to develop antivirals had been underfunded, and many of the digital services and technologies which had been developed by the IT industry—while necessary to continue economic and social activities avoiding physical interaction—were not fit-for-purpose to support the frontlines of the pandemic response.

In the last several years, the development and adoption of green technologies and more sustainable products and services have not kept up with the pace of economic growth. Global emissions have increased, particularly in low- and middle-income countries that have experienced a tumultuous process of economic development as of the early 2000s (Figure 4.2).

A similarly slow rate of progress exists in the markets for education, care and other social services where new technologies have not resulted in vastly different social outcomes. This calls for more proactive efforts to combine technology, investment and incentives to enhance social outcomes.