Since the beginning of the economic crisis, self-employment in Europe has become a less attractive option. The next Commission should take an activist approach to promote entrepreneurship and further integrate individual markets, argues Pawel Świeboda.
Pawel Swieboda is president of demosEUROPA – Centre for European Strategy, and a member of the World Economic Forum’s Global Agenda Council on Europe.
"Europeans might think of themselves as entrepreneurial people, but we can argue that the welfare state and over-regulation have made them risk-averse.
Since the beginning of the economic crisis, self-employment has become a less attractive option. Today, as many as 58% of Europeans prefer to work as employees as opposed to 49% three years ago. In line with this, the World Bank has observed that EU citizens are prepared to accept lower, but “better” growth, with strong social security and a high level of public services At the same time, the European youth population is often described as the “good enough” generation which prefers to adapt to the changing circumstances rather than conquer the world. Europe has seen less intensive product competition, greater levels of regulation, difficulty in access to high-risk capital and a lower number of educated workers than the United States.
Sadly, there are fewer entrepreneurs in Europe than in the United States or emerging countries. The Global Entrepreneurship Monitor points out that in 2010, “early stage” entrepreneurs constituted 2.3% of the Italian population and 4.2% of the Germans’. The respective figures for the United States, China and Brazil are 7.8%, 14% and 17%.
It’s clear, then, that there is a strong case for entrepreneurship. But this case cannot be restated often enough. OECD research shows that it is the age of companies – not their size – that determines the effect they have on employment: young companies create more jobs. In the United States, more than half of R&D expenditure is accounted for by the 'yollies', or young innovative companies. In Europe, it is less than 7%.
Mature companies, which dominate the European economy, focus on improving their products and services rather than innovating. Within Europe, there are established actors – ranging from the automotive to telecommunications industry – who hold strong positions within each of the fields. As The Economist has pointed out, of the world’s biggest 500 internationally listed companies established between 1950 and 2007, only 12 come from Europe. In the same period, the United States produced 52.
The figures do not make for promising reading. So what can Europe do to reinvent entrepreneurship on the continent? To start, we need to combine improvements in productivity in the traditional sectors, as Japan has successfully done, with a system of innovation similar to that of the United States. Entrepreneurs must be open and flexible in an economy where demand becomes increasingly more dynamic and consumer expectations change quickly. Thus, businesses need to adapt the nature of production in a much shorter time than before.
In addition, to help Europeans rediscover entrepreneurship, we need to reduce our aversion to risk. This is partly to do with cultural characteristics, but it also concerns the ability and ease not only to establish, but also to close down a business. Europe needs to streamline its bankruptcy procedures, out-of-court settlement of disputes, court proceedings, and the restart of business activities which will follow.
Thirdly, some of the problems have to do with inflexible labour markets and difficulties in access to capital. Europe has successfully achieved cross-border integration of research and development, but to truly maximise this opportunity, high-risk capital should be made available on a European scale, rather than only within national markets, as it is now. The European Commission has undertaken an initiative to improve the access to high-risk capital. This needs to continue, and its implementation will be crucial if innovative European companies are to grow and reach a globally-relevant scale.
Finally, simplicity of the tax system can be a powerful factor to encourage entrepreneurship. For example, companies in Sweden pay taxes only twice per year, spending an average of 122 hours on the necessary procedures. In Italy, there are 15 annual tax payments, eating up a huge 285 hours of work time for enterprises. One of the great enablers of entrepreneurship is the internet: start-ups can now instantly benefit from services which used to be within exclusive reach of large corporate giants, but, compared to our American counterparts, we are not maximising this opportunity.
In short, designing a shake-up of European entrepreneurial culture, requires us to encourage cooperative entrepreneurship, in which there is cross-fertilisation of knowledge and experience. Interaction through mentoring and training, mutual assistance in preparation of projects, and the creation of networks and communication can help to multiply a company’s reach. Creation of public and private platforms to develop services and test them in relation with end-users, networked forms of implementing business projects, making the end-users and consumers the creators of new services, can all change the face of European entrepreneurship.
The next European Commission should make entrepreneurship one of its flagship projects. Apart from the necessary efforts to further integrate individual markets, the Commission should take an activist approach and become a champion of entrepreneurship. One of the ways to go about it would be to set-up “Start-up Europe” centres in Commission representations around the EU which could become hubs of entrepreneurs, allowing them to exchange experience and know-how. Europe’s future must be as that of an entrepreneurial continent. With a little effort, it is entirely within reach."