Many factors come into play when deciding to become an entrepreneur. One component that hasn’t been studied much scientifically is the trust potential entrepreneurs have in institutions. Yong Suk LeeAssistant Professor of Technology, Economics and Global Affairs at the University of Notre Dame’s Keough School of Global AffairsShe studied how the former South Korean President Park Geun-hye’s impeachment trial in 2016 Corruption and abuse of power affect people’s trust in state institutions.
“We find that the impeachment process has increased people’s trust in government, and that increased trust in government is associated with an increase in entrepreneurial intent,” said Lee and his co-author Charles Esley at Stanford University in their recent article in the journal Organization Science. “A high level of corruption and rent seeking in government can discourage talented people from taking risks and investing in potentially productive entrepreneurial activities. Corruption and rent-seeking can reduce expected returns from entrepreneurship and increase uncertainty. Increased trust in government institutions could therefore increase the entrepreneurial intent of potentially productive entrepreneurs, especially those engaged in high-risk and high-capital entrepreneurship.”
Park, South Korea’s first female president, had a long-standing association with her assistant, Choi Soon-sil, the child of a notorious cult leader. Some characterized their relationship as comparable to that of Rasputin and the Russian Tsar Nicholas Romanov. Park was accused of giving special favors to Choi and her family and creating fake foundations to accommodate blackmail. Millions of South Koreans took to the streets to call for her removal as president, and the National Assembly voted in unison with the people. Ultimately, the Constitutional Court unanimously upheld the indictment. In the end, Park was sentenced to 24 years in prison and a fine of almost $18 million after being found guilty of coercion and abuse of power.
Lee and his colleague were able to use this real-life scandal as a kind of natural experiment to measure trust. The team surveyed 2,000 randomly selected people in South Korea between the ages of 20 and 60 and another 1,000 college students who wanted to enter the job market shortly after graduation. In the end, more than 2,700 of those contacted completed and submitted the survey, with a nearly even distribution between male and female respondents.
In their pre-impeachment survey, Lee and Eesley found that 31.34 percent of respondents intended to start a business within the next five years. Researchers specifically asked about trust in various bodies and individuals, including governments, politicians, civil servants, the Supreme Court, the Constitutional Court, prosecutors, police, media and more chaebols (large conglomerates). On average, people’s business intentions did not change after impeachment. However, they found that the intention of those whose confidence in the government had increased after impeachment increased.
Lee has previously researched the entrepreneurial potential among Asian Americans and non-American Asians studying in the United States. He found that among Stanford alumni, Asian Americans had higher rates of entrepreneurship than white Americans. However, non-American Asians have a significantly lower (by about 12 percentage points) birth rate than Asian Americans.
“I had this overarching question: Who becomes an entrepreneur? Entrepreneurship is a big thing at Stanford, with a relatively high proportion of entrepreneurial-minded students of Asian descent. The world is buzzing trying to figure out how entrepreneurship works in Silicon Valley,” Lee said. “One thing that’s pretty common in East Asia is that talented people take very secure jobs – like in government or as doctors or lawyers. Compared to the US, there is a greater reluctance to enter into entrepreneurship.”
This prompted him to examine which areas in South Korean academic institutions most encourage entrepreneurial intent. Lee and Eesley hypothesized that the benefits to entrepreneurship for STEM (science, technology, engineering, and math) majors would need to be substantially higher to consider entrepreneurship given the opportunity cost and better, often high-paying, options outside of entrepreneurship draw. Accordingly, trust in state institutions must be higher; otherwise, these individuals are likely to find the returns from entrepreneurship too uncertain. The researchers found this particularly in STEM courses at renowned universities.
“The relationship between trust in government and entrepreneurial intent is significantly stronger for individuals with degrees in science, technology, engineering and mathematics from top universities,” the researchers write. “While previous literature at the intersection of institutions and entrepreneurship theorizes that institutional changes lead to higher levels of entrepreneurship, relatively little work has focused on how institutions shape the characteristics of individuals who become entrepreneurs.”
With another regime change in South Korea, opinions and motivations are likely to have changed. Lee and Eesley may start another survey and conduct related research in China.