Headlines 2014

EU and the Super Entrepreneurs

2012-02-05


Magnus Henrekson and Tino Sanandaji, IFN, argue in EU och de globala obalanserna – Europaperspektiv 2013 (EU and global imbalances. Perspective on Europe 2013) for a new way of measuring entrepreneurship that can pave the way for more super entrepreneurs. Lars Oxelheim, IFN and Lund University, is one of the editors of the book, which was presented on Wednesday at a seminar organized by Nätverket för Europaforskning (Network for European Studies). Henrekson and Sanandaji denote that society should invest in entrepreneurs with a growth vision and not in the self-employed in general in order to encourage innovations that might benefit the community and all of us.

In the picture from the book presentation seen from left Cecilia Garme, moderator and Magnus Henrekson. The panel also included Arne Bigsten, University of Gothenburg, Sanja Bogojavic, Lund University, and Anna Jonsson Cornell, University of Uppsala.

 

“We argue that politicians too often focus on the promotion of small businesses and start-ups rather than fostering entrepreneurship,” write Henrekson and Sanandaji.

They show that Europe is underperforming in terms of entrepreneurship, which reduces the growth of the global economy, as growth in the long term, mainly is driven by innovation. "The U.S. has half as many self-employed, but more than four times as many super entrepreneurs per capita as Europe and Asia."
How can these striking variances be explained? Is it perhaps the issue of a less significant entrepreneurial culture in Europe or, might institutional differences explain the divergences?

Henrekson and Sanandaji maintain that company taxation is one of the potentially important factors in explaining cross-country differences in business climate and entrepreneurship: "... high taxes bring about small-scale entrepreneurship and diminish the spirit of entrepreneurs with high growth ambitions." They explain that logically successful entrepreneurship reduces the employment share of small business as every successful entrepreneurial activity results in an increased number of large companies.

"In terms of cause and effect Europe's entrepreneurship deficit, compared to the U.S., can largely be explained by ... the European countries tend to have higher tax rates, a larger regulatory burden on start-ups and in general have a less favorable business climate." Frankly Europe has less favorably "ecosystem" of entrepreneurship and enterprise.

The authors comment on EU reforms that they believe would promote entrepreneurship:

  • We need tax systems that allow those who succeed to be compensated for the risk they initially took. This entails most importantly, corporation tax and capital gains tax, because super entrepreneurship is about building new capital values. "It is probably no coincidence that the U.S. has one of the lowest taxes on long-term capital gains. Low capital gains taxes also encourage venture capital investment, which is an important component of modern entrepreneurship." Henrekson and Sanandaji explain that tax cuts are useful when targeted to entrepreneurial companies.
  • "Europe's continued weakness in regards to elite universities is in our opinion a major obstacle to increased super entrepreneurship, second only to tax policy." In the U.S., a third of the super entrepreneurs graduated from elite universities such as Harvard, Stanford and the University of Chicago compared with less than one percent of the total workforce.
  • "European immigration policy should promote entrepreneurship by attracting skilled migrants with cutting-edge skills. Today half of the world's most educated immigrants end up in the U.S., while Europe only attracts one-fifth of the world's skilled immigrants."
  • It is likely that the large U.S. domestic market facilitates the emergence of super entrepreneurs. Thus, the continued expansion of the EU's single market is essential.
  • Stop taking policy decisions designed exclusively to promote small businesses. Laws that encourage companies to stay small are in fact a tax on growth.

Read the entire chapter in Swedish

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se