Entrepreneurship and Workaholism - Part I
The Dutch proudly point to their current rate of unemployment at
less than 2%. Labour force participation is at a historically
high 74% (although in potential man-hour terms it stands at
62%). France is as hubristic with its labour policies - the 35
hours week and the earlier reduction in employers' participation
in social contributions. Employment is sharply up in a host of
countries with liberalized labour markets - Britain, Spain,
Ireland, Finland. The ECB brags that employment in the euro zone
has been rising faster than in the USA since 1997.
This is a bit misleading. Euro zone unemployment is far higher
and labour force participation far lower than America's. The
young are especially disadvantaged. Only Britain is up to
American standards. The European labour market is highly
inefficient in matching demand and supply. Labour mobility among
regions and countries is glacial and generous unemployment
benefits are a disincentive to find a job.
Reforms are creeping into the legislative agendas of countries
as diverse as Italy and Germany. Labour laws are re-written to
simplify hiring and firing practices and to expand the role of
private employment agencies. But militant unions - such as
Germany's IG Metal - threaten to undo all the recent gains in
productivity and wage restraint.
The European Commission - a bastion of "social Europe" - has
just equalized the rights and benefits of temporary workers
(with more than 6 weeks of tenure) and full-time ones. Yet
another reformist adviser to the Italian Minister of Labour was
assassinated. This was followed by a million-workers strong
demonstration in Rome's Circo Massimo against minor reforms in
firing practices.
But the most successful and efficient labour market in the
world, in the States, is associated with a different ethos and
an idiosyncratic sociology of work. The frame of mind of the
American employee and his employer is fundamentally at odds with
European mentality. In Europe, one is entitled to be employed,
it is a basic human right and a public good. Employers - firms
and businessmen - are parties to a social treaty within a
community of stakeholders with equipotent rights. Decisions are
reached by consensus and consultation. Peer pressure and social
oversight are strong.
Contrast this with the two engines of American economic growth:
entrepreneurship and workaholism.
The USA, according to the "Global Entrepreneurship Monitor", is
behind South Korea and Brazil in entrepreneurial activity
prevalence index. But 7 percent of its population invested an
average of $4000 per person in start-ups in 2000.
A 10-country study conducted in 1997-9 by Babson College, the
London School of Business, and the Kauffman Center for
Entrepreneurial Leadership found gaping disparities between
countries. More than 8 percent of all Americans started a new
business - compared to less than 1.5 percent in Finland.
Entrepreneurship accounted for one third of the difference in
economic growth rates among the surveyed countries.
Entrepreneurship is a national state of mind, a vestige of the
dominant culture, an ethos. While in Europe bankruptcy is a
suicide-inducing disgrace bordering on the criminal - in the USA
it is an integral and important part of the learning curve. In
the USA, entrepreneurs are social role models, widely admired
and imitated. In Europe they are regarded with suspicion as
receptacles of avarice and non-conformity. It is common in the
States to choose entrepreneurship as a long-term career path. In
Europe it is considered professional suicide.
In the USA, entrepreneurs are supported by an evolved network of
financial institutions and venues: venture capital (VC), Initial
Public Offerings (IPO's) in a multitude of stock exchanges,
angel investors, incubators, technological parks, favourable
taxation of stock options, and so on. Venture capitalists
invested $18 billion in start-ups in 1998, $48 in 1999, almost
$100 billion in 2000.
The dot.com crash deflated this tsunami - but only temporarily.
US venture capitalists still invest four times the average of
their brethren elsewhere - c. 0.5 percent of GDP. This
translates to an average investment per start up ten times
larger than the average investment outside America.
American investors also power the VC industry in the UK, Israel,
and Japan. A Deloitte Touche survey conducted last month (and
reported in the Financial Times) shows that a whopping 89
percent of all venture capitalists predict an increase in the
value of their investments and in their exit valuations in the
next 6 months.
Entrepreneurs in the USA still face many obstacles - from
insufficient infrastructure to severe shortages in skilled
manpower. The July 2001 report of the National Commission on
Entrepreneurship (NCOE) said that less than 5 percent of
American firms that existed in 1991 grew their employment by 15
percent annually since, or doubled their employment in the
feverish markets of 1992-7. But the report found high growth
companies virtually everywhere - and most of them were not
"hi-tech" either. Start-ups capitalized on the economic
strengths of each of the 394 regions of the USA.
As opposed to the stodgy countries of the EU, many
post-communist countries in transition (e.g., Russia, Estonia)
have chosen to emulate the American model of job creation and
economic growth through the formation of new businesses.
International financial institutions - such as the EBRD and the
World Bank - provided credit lines dedicated to small and medium
enterprises in these countries. As opposed to the USA,
entrepreneurship has spread among all segments of the population
in Central and Eastern Europe.
In a paper, prepared for USAID by the IRIS Centre in the
University of Maryland, the authors note the surprising
participation of women - they own more than 40% of all
businesses established between 1990-7 in Hungary and 38% of all
businesses in Poland.
Virtually all governments, east and west, support their "small
business" or "small and medium enterprises" sector.
The USA's Small Business Administration had its loan guarantee
authority cut by half - yet to a still enviable $5 billion in FY
2003. But other departments have picked up the slack.
The US Department of Agriculture (USDA) beefed up its Rural
Business-Cooperative Service. The Economic Development
Administration (EDA) supports "economically-distressed areas,
regions, and communities". The International Trade
Administration (ITA) helps exporters - as do OPIC (Overseas
Private Investment Corporation), the US Commercial Service, the
Department of Commerce (mainly through its Technology
Administration), the Minority Business Development Agency, the
US Department of Treasury, and a myriad other organizations -
governmental, non-governmental, and private sector.
Another key player is academe. New proposed bipartisan
legislation will earmark $20 million to encourage universities
to set up business incubators. Research institutes all over the
world - from Israel to the UK - work closely with start-ups and
entrepreneurs to develop new products and license them. They
often spawn joint ventures with commercial enterprises or
spin-off their own firms to exploit technologies developed by
their scientists.
MIT's Technology Licensing Office processes two inventions a day
and files 3-5 patent applications a week. Since 1988, it started
100 new companies. It works closely with the Cambridge
Entrepreneurship Center (UK), the Asian Entrepreneurship
Development Center (Taiwan), the Turkish Venture Capital
Association, and other institutions in Japan, Israel, Canada,
and Latin America.
(continued)