TCS Daily

Europe's Entrepreneurial Spirit

By Jeremy Slater - January 21, 2005 12:00 AM

Americans are justly proud of a culture that allows individuals to create businesses without having to negotiate too much regulatory red tape. It's long been thought that Europeans, for whatever reasons, simply do not have the same mindset.

This notion is reinforced somewhat by a study released this week by the European Commission. Called simply "Entrepreneurship", the report surveyed attitudes on the subject in the EU's new and old member states and in three nations of the neighboring European Free Trade Association, as well as in the US. But while the report may show that Europeans are far less inclined to go it alone, there is no evidence that they are genetically predisposed to be that way. They are just acutely aware of the obstacles to entrepreneurship.

The report's findings show that Europeans are much more uncertain about quitting paid employment to start up their own business than are Americans. While 45 percent in Europe said that they would be happy to go it alone, 61 percent of US respondents said the same. Since the end of the Internet boom in 2000 more people on both sides of the Atlantic have shown a preference for full-time employment, but there is still a wide difference across the Atlantic. In the US this has risen from 28 to 34 percent in 2004 while in the EU15 the figures show a rise from 44 to 51 percent.

What do Europeans fear when it comes to being self employed? Lack of job stability (17 percent in EU, not much higher than the 14 percent in the US), bankruptcy (45 percent, against 36 percent in America) and loss of property (35 percent against 21 percent) were the main reasons cited for why Europeans are less keen on going it alone.

The Commission realizes that such a large number of citizens lacking the will to start up their own businesses does not bode well for the future of the European economy, as small companies are responsible for 70 percent of EU wealth creation. "Entrepreneurs are the economic DNA which we need to build competitiveness and innovation in Europe," said Gunter Verheugen, the EU's enterprise and initiative commissioner. "Entrepreneurship can be exciting and rewarding, but it also involves risks and hard work. It is the challenge for member states and the Commission to ensure that entrepreneurship is encouraged by providing a supportive environment for those choosing to take risks."

The survey also found people were aware of the regulatory obstacles to creating a business. For instance the taxation system in many EU countries makes it difficult for a person to operate as an independent service supplier or business and rewards those who are employed by a company. In Belgium, for instance, the level of taxation for an individual can be at least 10 percent more than for an employee. Laws governing how one can become a specialist trader in Germany make joining a Medieval guild seem easy by comparison. In countries with a reputation for red tape, such as Italy and France, respondents overwhelmingly said the regulatory regime was a reason for putting them off starting a business. These countries also score badly as nurseries for entrepreneurs when doubts about the economic climate and the difficulty of finding financial backing are taken into account.

This regulatory burden also creates a mindset in which the fear of failure is much greater in Europe than it is in the States. In the US both the culture and the law foster a climate in which people are allowed to learn through failure. Unsuccessful American entrepreneurs are more likely to be encouraged to try again than their counterparts in many EU countries, where going bankrupt is still socially stigmatizing. In most European countries, people who have declared bankruptcy find it much harder to get financial support for a new project even after they have cleared themselves of all debts. The situation has improved recently improved in Belgium and the UK, where there is now a more lenient regulatory overview in place; but for other European countries the repercussions of a business going bust are still financially and personally crippling. Perhaps that explains why in Denmark fear of failure registers a score of percent, while in Ireland it is only 29 percent and in the US, 33 percent.

The Commission is embarking on a revolutionary process that may do away with some of the past 40 years of European regulation. Even within the Brussels bubble there are likely to be challenges from guardians of the European social model who fear that this is just more Anglo-Saxonization of the current order. But the new Commission report shows that Europe has a latent entrepreneurial spirit that only needs to be set free.


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