Europe’s Urgent Entrepreneurial Imperative

bridges vol. 34, July 2012 / OpEds & Commentaries

By Jonathan Ortmans

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Jonathan Ortmans The softening of German Chancellor Merkel's views on how to support Spain's banks, following the Greek elections, has been interpreted by some as improved confidence in Europe's economy. In truth, pessimism still abounds.

One promising path forward that remains remarkably marginalized in Europe is a bolder growth strategy – putting more faith in the future doers and makers who generate new wealth and create jobs. While Europe largely clings to family-controlled "big firm capitalism" and existing small businesses, even the world's most impoverished economies are rapidly surging ahead by upgrading their policies and ecosystems in ways that capitalize on a new generation of entrepreneurs ready to disrupt markets for the better.

This is perhaps most evident when you look at Global Entrepreneurship Week (GEW) – the largest entrepreneurship festival in the world, where 40,000 events and activities attract nearly 10 million attendees -- held during a one-week period each November in more than 125 countries. Global collaborations of creative minds turn ideas into real-life ventures at GEW competitions: a Startup Open identifies the most promising new start-ups from 60 countries since the last GEW; a Cleantech Open Global Ideas Competition finds the best new green firms GEW Logolin 22 countries; and 54-hour Startup Weekend boot camps churn out hundreds of competing founder teams from 60 cities around the world. Thousands of small gatherings are also held in classrooms or under village trees, as well as larger-scale events in football stadiums and convention centers. One can hear speeches by heads of state, talks by entrepreneurs, and thousands of pitches from teams of ordinary people with ideas and drive who are raring to go. The most potent vision of GEW is simple: the enormous promise of today´s nascent entrepreneurs for innovating us right through the world's toughest problems. And these entrepreneurs are not of solely commercial consequence. People dismissed in past eras as "left-wing dreamers trying to change the world" are today's creative thinkers who, with the support of their peers, are using the marketplace to make their marks.

The predictable linear world of Brussels, driven by top-down institutions, is being challenged for its cumbersome pace and gently led toward a new frontier by a welcoming chorus of informal networks operating across national boundaries. The likes of GEW and Startup Weekend are breaking down barriers. The bottom-up push for stronger start-up ecosystems and the increasing availability of research and data from established sources such as the World Bank and the Kauffman Foundation are creating a race to offer the best start-up ecosystem and to be the "easiest economy for doing business."

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While certain governments such as Denmark, the UK, and Germany are ahead of the start-up game in Europe, this has not been easy to achieve across the rest of Europe and the European Commission. Creation of new firms cannot be "governed" and the traditional linear thinking of the Commission is antithetical to organic entrepreneurial activity. While Brussels steps up its funding and attention to existing passive SMEs (small and medium-sized enterprises) through programs such as a taxpayer-funded SME week, it has largely ignored the importance of entrepreneurs and stimulating new high-growth start-ups as a prime strategy for global economic growth. In fact when 3,500 people from 125 nations gathered in March 2012 in Liverpool, UK, for the annual Global Entrepreneurship Congress, which presents the best and brightest of initiatives to stimulate new firm formation, there was no presence from Brussels.

European leaders should no longer pay lip service to entrepreneurship as a sideshow at the circus, but need to regard entrepreneurs as their central strategy against continued economic decline. Leadership in developing a new European frontier in making economic policy might appropriately come from Austria – a nation already participating in GEW, and one that takes pride in Joseph Schumpeter. Schumpeter (1883-1950) appreciated the role of innovators and risk takers in pushing the economy and would have supported the removal of current barriers to the formation of new young firms. New firms are the greatest source of new wealth for struggling economies. Even in the United States during a contentious election year, Democrat and Republican leaders publicly agree that new firms are the most effective source of new jobs. Research from the Kauffman Foundation using government data found that, between 1980 and 2005, nearly all net job creation in the United States took place in firms less than five-years old. While older businesses add jobs, these are not enough to offset the job losses that occur when other older businesses decline or shut down. On average, one-year-old businesses create nearly one million new jobs a year, while ten-year-old firms generate just 300,000. Similar data from OECD (Organisation for Economic Co-operation and Development) support the same narrative.

Not only are young firms the source of most new jobs, they also disrupt existing industries, forcing older firms to remain on their toes -- or wither away. Many of Europe's established industries will increasingly face the same challenges as Canada's RIM in the battle to retain market share for its Blackberry against the iPhone.

The importance of young dynamic firms is also increasingly apparent in fragile states and post-conflict nations. According to the Kauffman Foundation's Expeditionary Economics Research Series, development spearheaded by entrepreneurs and start-ups could create a "virtuous circle" of growth and reform that could overcome violence and weak governance where traditional development programs have failed. The emerging field of Expeditionary Economics argues that the most effective way to quickly establish a trajectory toward economic growth in conflict areas is to help locals form companies that can experience rapid growth in revenue and employment.

Schumpeter would not be surprised by this thesis, as he perceived professional economics and government economic policy as blind to the role of entrepreneurs. If he were alive today, I think he would agree that perhaps a more vital measure of the collective fate of an economy is whether new firms grow or shrink. He would be proud of the new global community being built by the likes of GEW, where more citizens are ferreting out better ways of doing things. And he might even urge his fellow Europeans to look the unpredictable European economies of the today straight in the eye and fight back – not with "SME" talk, government summits, and football, but with fresh armies of risk takers intent on birthing the new for the benefit of all.


The author, Jonathan Ortmans, is senior fellow at the Ewing Marion Kauffman Foundation leading the development of Global Entrepreneurship Week as president on the Foundation's behalf.


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