Regulation, taxes and incentives for entrepreneurship

A new comparative study of entrepreneurial dynamics was launched at a seminar at the Swedish Permanent Representation in Brussels on 20 June. The report shows that the number of people actively involved in starting a business in Sweden is growing faster than in Germany and France, which along with Portugal, Italy, Greece and Spain have the lowest levels of entrepreneurial activity in Europe. 

Ambassador Åsa Webber welcomed the audience to the Swedish Permanent Representation to the EU and stated her curiosity about the results from the Global Entrepreneurship Monitor (GEM)-report. She stressed the importance of new actions to promote entrepreneurship to ensure innovation and growth. Webber also gave an example of what EU can do: promote more smart regulation.

Åsa WebberÅsa Webber

Webber then presented Johan Eklund, Managing Director Swedish Entrepreneurship Forum and Professor JIBS, who gave a short introduction to the GEM-report, The entrepreneurial challenge – A comparative study of entrepreneurial dynamics in China, Europe and the US. According to Eklund, the data set underpinning the report is large and fact-filled but underused. Therefore we are very glad to be here today to present some findings from the report, he said.

Johan Eklund 2Johan Eklund

Pontus Braunerhjelm, Professor Royal Institute of Technology and Research Director Swedish Entrepreneurship Forum, presented the method used in the report, highlighted some results and policy implications of the report.

The report examines the similarities and differences between China, EU, and the US in terms of entrepreneurial activity and attitudes towards entrepreneurship as well as entrepreneurs’ ambition to grow, internationalize and to innovate.

The highest levels of entrepreneurship are found in the US (12 percent) and UK (13 percent), whereas the lowest levels are found in Germany and Italy (four percent). Sweden’s level is seven percent. Also growth expectations are considerably higher among US entrepreneurs as compared to the EU. China’s entrepreneurial activity is still high but declining, which reflects that much of the previous entrepreneurship was necessity-based and a business-cycle effect.

Pontus Braunerhjelm 1Pontus Braunerhjelm

– The entrepreneurial vein is shown to be weak in the larger EU-countries, this manifests in a lower rate of entrepreneurship and in a considerably weaker intrapreneurship, said Braunerhjelm.

The authors emphasizes four policy areas that are particularly important for early-stage entrepreneurship; supply of skills, access to finance, regulations, fear of failure and taxes.

First, supply of skills is a key condition for entrepreneurs to grow and maintain their innovative capacities. It is essential that universities are rewarded for their interaction with society, i.e. interacting with businesses and diffusing knowledge.

– If we invest in knowledge we have a condition for high quality entrepreneurship but it is far from sufficient, we need all other policy areas as well. If you don’t have the incentives structure or the connection to businesses in place you don’t get very much entrepreneurship.

Second, access to capital is important and the Anglo-Saxon model, found to be by far the best at creating entrepreneurial activities, is partly based on a social and economic acceptability of successful entrepreneurs who also builds fortunes.

Third, several studies have highlighted the negative effects of regulations on entrepreneurship. A reduction in red tape is a necessary prerequisite for building an entrepreneurial culture.

Pontus Braunerhjelm 2Pontus Braunerhjelm

Forth, debts incurred by the firm may become personal and extremely hard to terminate. Stigmatizing institutions hamper entrepreneurial risk-taking and stifle growth and industrial dynamics. This tends to feed a fear of failure culture instead of an entrepreneurial culture.

Taxes should be designed to encourage new and growing firms, i.e. including investment incentives, stock options and transparency.

If the political aim is to enter a path where entrepreneurship, innovation and continuous market experimentation pave the way for sustainable future growth policymakers should focus their efforts on the mentioned policy areas, concluded Braunerhjelm.

After Pontus Braunerhjelm’s presentation Slawomir Tokarski, Director at DG Growth, was invited to give some comments in relation to the Commission’s Entrepreneurial Action Plan. Tokarski stressed the importance of entrepreneurship for growth and in particular how the Commission now is trying to promote women and also immigrants that are somewhat underrepresented in the business world. Especially immigrants could benefit a lot by being entrepreneurs.

Slawomir TokarskiSlawomir Tokarski

– Immigrants have generally come a long way and invested a lot of money to come here and have had to be inventive in some ways. They are already entrepreneurs.

According to Tokarski the commission is now looking into best practices to promote entrepreneurship policy.

After the coffee brake Antonio Vicente, Head of Cabinet for Commissioner Moedas, presented his views on the policy suggestions and the results from the report and also went deeper into what the European Commission could do.

Vicente commented on the idea that cultural differences could explain the levels of entrepreneurship. He did not agree and instead claimed that the barriers in European countries are higher than in Anglo-Saxon countries. The barriers might be perceived and not real but are obstacles all the same. This, however, gives more opportunities for policy development.

Antonio VicenteAntonio Vicente

One of the barriers European entrepreneurs face is the lack of capital, in the US venture capital is about six times higher than in the EU. 80 percent of European innovation funding stem from banks, in the US the proportions are reversed.

Vicente reflected on how the EU-programs have been successful at promoting research, but not so good at promoting entrepreneurship. The programs have been too many and the application processes too complicated.

– In interaction with entrepreneurs the Commission has to rethink both the interface and the evaluation process. We cannot change the Horizon 2020 program but we can change our attitude and implementation towards entrepreneurs and startups.

Matthew King, Head of Department for Open Innovation at DG Research and Innovation, picked up the discussion on what the European innovative entrepreneurship looks like and what the Commission actually can do in this area.

King stated that the EU countries continue to be major producers of scientific publications and are catching up on scientific excellence and holding a lead on South Korea, Japan and China. The EU is entrepreneurial but not all entrepreneurs are innovators.

Matthew KingMatthew King

-We are losing the race on scaling up market-creating innovation.

European countries produce fewer unicorns than the US but when they manage to break the barrier and make a market entry they are fairly well grounded and actually make a profit. This doesn’t happen as often in the US.

The academia/industry-collaboration is rarer and less fruitful than we had hoped. Innovation is getting increasingly ‘democratised’ thanks to widening participation thanks to digitalization, internet and cheap ICT equipment.

Many of the initiatives to improve conditions stems from the national level.

– I don’t think that an institute in Brussels can make innovation happen, an institution like the European Innovation Council needs to add value to the innovators.

Areas where the EIC can add value is by offering mentorship, make the interface to the users more appealing, be a pipeline for startups and SMEs to public funding and offer expert advice on policy and funding, concluded King.

The presentations were followed by a panel discussion between Muriel Attané, general secretary EARTO, Pontus Braunerhjelm, Swedish Entrepreneurship Forum and Richard Hudson, CEO Science Business.

PanelPontus Braunerhjelm, Muriel Attané, Richard Hudson

Pontus Braunerhjelm opened by stating that you have to start with smart regulation and a transparent tax system. When you have an entrepreneurial climate you can continue with more interventional policies.

– Most European countries seem to lack a good system for stock options, this is a method to attract skilled expertise. The US is much better in that area.

Muriel Attané, Secretary General of EARTO, an association of technology research organizations, pointed out the importance of the 500 different research institutes of Europe and how they interact with business. She said that Europe is putting too much pressure on universities to be entrepreneurial, I don’t think that’s their job.

Muriel AttanéPontus Braunerhjelm, Muriel Attané, Richard Hudson

Attané argued that universities should focus on educating future entrepreneurs, and leave entrepreneurship to research centers. “The big research centers are picking up what has been done at the university level, and should be trying to scale up more applications than a university can think of,” she said.

Richard Hudson, CEO Science Business agreed but saw the ability for entrepreneurs to scale up as crucial for European entrepreneurs.

In short, policy makers have some important changes to continue work with on regulation, taxes and incentives whereas entrepreneurs and academics needs to engage in matchmaking to ensure disruptive innovative entrepreneurship.

Richard L. HudsonMuriel Attané, Richard Hudson

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