Europe seems to have a lack of Entrepreneurship

Europe seems to have a lack of Entrepreneurship

According to a WSJ Wall Street Journal opinion contribution by James Sproule, chief economist of the Institute of Directors in London (GB) and a new report by GEM, the Global Entrepreneurship Monitor, certain European countries show a lack of entrepreneurship

Launched in 1999, as a partnership of the London Business School and Boston’s Babson College, the GEM has created a measure of TEA, a Total Early-stage Entrepreneurial Activity. A country’s or region’s TEA includes individuals in the process of starting a business, and those running new businesses less than three-and-a-half years old. The most recent numbers, released this month, tell a sad and instructive story for Europeans.

Would you believe, but Sub-Saharan Africa leads the way with an average TEA score of 26.6, net is Latin America and the Caribbean with 18.5 points, then Asia with 12.4 points. The EU lags well behind with an average score of 8.0. Some of Europe’s most troubled economies are also among its least entrepreneurial, namely France, Italy and Spain barley mange to get above 5 on this scale. Great Britain fairs a little better with a score of 7.1.

To a certain extent, these figures are predictable. Emerging markets tend to do well on measures of entrepreneurship. People living in places like Sub-Saharan Africa face stark choices, either find a job, or create one! The idea of working for a large corporation is not a realistic option for most of them, while government employment is the preserve of the politically well-connected. So ambitious locals start businesses, and along the way, they embrace technology and flexibility to meet consumer demand.

Europe’s lack of entrepreneurial activity is not common to all developed countries. Both the U.S. and Canada have TEA scores above 12. Europe remains one of the wealthiest parts of the world, defenders of the status quo might retort, so does it really need new businesses?

According to James Sproule, the answer is emphatically YES. For starters, while Europeans have been reluctant to start new businesses, Switzerland is an exception with a growing potential of start-ups, they have been more than happy to embrace the offerings and products of entrepreneurial companies. From Amazon to Google to PayPal, relying on other countries’ entrepreneurs is not a recipe for long term economic prosperity. New firms, moreover, are agents of economic and social vitality, far better at promoting new ideas and empowering people than any known government programme.

To promote enterprise across the continent, policy makers must understand what entrepreneurs really need: fewer rules, to start with. The more government rules and regulations there are, the more difficult life becomes for start-up businesses. Switzerland has done everything possible to allow start-ups to become successful and the universities and the Federal Institute of Technology are promoting start-ups. On the other hand, in Europe (EU) there are strict environmental restrictions to working-hour limitations, rule making, however well intended, can hold back good ideas. Starting a business and pleasing customers is hard enough without adding in a host of government hoops to jump through.

Sproule explains: High taxes also damage entrepreneurship; also there Switzerland is an exemption offering tax incentives to start-ups and new businesses over some defined period. Entrepreneurship includes disincentive to taking risks, and they prevent entrepreneurs from taking cash generated in one venture and using it to start another. Governments long ago learned that they are poor at picking winners. They need to learn that they are not better at picking industries, and that tax exemptions and subsidies to one industry leave a heavier burden to be carried by others.

Leaving money in the hands of people, who have proven ability to generate capital, is a vital step in promoting entrepreneurship across Europe. Where the next big economic development is going to emerge, is impossible to forecast, but allowing wealth to remain in the hands of entrepreneurs does at least mean that new industries and ideas have a chance of finding funding.

Europe, finally, needs a worldview revolution. All too often it seems that policy makers are bent on improving society one rule and regulation at a time. If this approach ever worked, its day has surely passed. European policy makers need to stand back and ask themselves: Is the cost of not doing anything completely unacceptable?

Sproule concludes: The world is moving on. Successful economies and societies are those, where significant portions of people are involved in wealth creation. If Europe wishes to be a success in future, or even to preserve its existing standard of living, many more Europeans are going to have to embrace entrepreneurship.

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