Entrepreneurship drives growth and innovation worldwide, but why do some regions naturally encourage startups and risk-taking while others do not? Research from Wharton examines how culturally determined social norms influence attitudes toward entrepreneurship and the formation of new firms.
The study focuses on the concept of cultural tightness-looseness, developed by Stanford University’s Michelle Gelfand, which measures how flexible societies are in tolerating rule-breaking and individual expression.
Cultural Looseness Fuels Entrepreneurship
The research finds that societies with looser social norms foster higher rates of entrepreneurship by encouraging individual risk-taking and innovation. These societies, like the United States and parts of Scandinavia, provide a fertile ground for startups and creativity.
The researchers analyzed data from 156 countries and found that cultural looseness explained over 56% of the variation in new limited-liability company registrations per 1,000 people. In the U.S., cultural looseness accounted for 71% of the differences in entrepreneurship rates across states and 58% of the variation in domestic patent applications per capita.
“Societies with looser norms not only encourage individual creativity but also provide broader social support for entrepreneurs,” the authors note.
State-Level Insights in the U.S.
The effects of cultural looseness are particularly striking within the U.S. States like California, known for its openness and home to Silicon Valley, have much higher rates of entrepreneurship and innovation. Nearly 0.40% of California’s population are entrepreneurs.
In contrast, states like West Virginia (0.19%) and Pennsylvania (0.17%), where tighter cultural norms prioritize stability and conformity, exhibit lower levels of startup activity.
While economic development and formal policies are crucial, the study underscores the often-overlooked role of informal social norms in shaping entrepreneurial ecosystems. Societies with rigid norms may face barriers to innovation and new firm formation.
To counteract this, these societies can implement support systems like incubators and accelerators. These programs create supportive microcultures that encourage experimentation and help entrepreneurs overcome societal resistance to new ventures.
Lessons for Policymakers
Policymakers aiming to foster vibrant entrepreneurial environments like Silicon Valley can draw on these insights. Creating a culture that supports entrepreneurship requires more than favorable policies; it demands an environment where people feel empowered to take risks, challenge norms, and innovate.
“Formal policies alone — such as regulatory support or access to funding — are insufficient to drive startup activity,” the researchers explain. “Culture shapes individual behavior and societal preferences for rules, which strongly influence new firm formation.”
The study highlights the importance of cultivating a culture that encourages entrepreneurship. Societies with looser norms provide a roadmap for fostering entrepreneurial ecosystems, while those with tighter norms can bridge the gap by creating spaces that celebrate innovation and experimentation.
Ultimately, culture is a powerful and often underestimated driver of startup formation, shaping the mindset that propels economies forward.
