Europe has its entrepreneurs, but needs to support them

#CriticalThinking

Picture of Henryka Bochniarz
Henryka Bochniarz

It’s a century and a half since Abraham Lincoln said that Americans should all begin their professional lives as hired labourers, then start their own business and develop it before eventually hiring their own workers. This is still a good model for an economy, the labour market and our general well-being, but it needs a few small corrections to suit the needs of EU countries in general and Poland in particular. Founding one’s own company rather than hiring out as a labourer, for instance. The new element is the opportunity for young people in today’s Europe to acquire knowledge about the economy and business while still at school. Half of all adults in Europe questioned by pollsters say that their schooling helped them develop their sense of entrepreneurship. Many young people also have a chance to receive public funds to help them start a business with the EU now, thanks to member states’ support, earmarking part of European funding for precisely this purpose.

While the entrepreneurial spirit seems to be doing quite well in the EU as a whole, it is doing rather better than average in Poland. Something like 23% of the adults in the EU who have already founded or are planning to found their own company, the figure for Poland is 25%. And while 13% of adults across the EU plan to start a business within the next three years, in Poland that figure is 22%. For the EU, 37% of people questioned want eventually to manage their own business, in Poland it’s 47%. In sum, according to figures compiled by the SBA in 2013, 30% of EU citizens think they have a real chance to start their own business sometime, in Poland they number as many as 49%.

We need to bring down overly high labour costs, scrap administrative burdens and streamline ineffective public procurement procedures

So much for people’s hopes. None of this means that enough has been done to encourage people in Europe to start their own companies, develop them and create quality jobs. The annual study of small and medium-sized enterprises carried out by the Polish Confederation Lewiatan over the last 12 years shows that Polish SMEs have a rather negative view of EU initiatives to support entrepreneurship. Only 0.9% saw the European Commission as definitely favouring entrepreneurship, with a further 7.4% saying that its support is moderate. They saw comparable Polish initiatives in much the same light.

There’s a long list of changes that are therefore needed in Poland and the whole EU. We need to abolish inappropriate tax systems and endless but continually changing amendments to tax laws. We need to bring down overly high labour costs, scrap administrative burdens and streamline ineffective public procurement procedures. We need to look at the speed with which environmental obligations have to be implemented, especially by micro-businesses and small companies. And we need to improve the very insufficient incentives that are failing to promote investment in innovation and R&D.

The major problem that all start-up entrepreneurs point to, other than taxes, is the cost of the administrative burdens they are required to bear. It’s an issue that has been discussed for many years at EU level as well as in Poland, but with inadequate results. The High-Level Group on Administrative Burdens created by the European Commission was designed to monitor EU regulations, identify negative effects and recommend best practices from across the EU. Yet many unresolved problems persist at both EU and national levels. An example is the EU’s REACH regulation-related burdens, affecting especially the SMEs. It isn’t generally appreciated, but companies are required to read and understand REACH documentation that totals some 12,000 pages, and guidelines that alone are 4,500 pages. An instructive Polish example of burdensome regulation is the requirement that companies should store printed records of all employees ever hired for 50 years.

Women still represent an under-used potential

The support given to SMEs is another story. In 2011, EU governments all nominated SME envoys to “…advocate the interests of small and medium-sized enterprises… check the correct application of the EU law to SMEs and ensure that policies at national, regional and local level are enterprise-friendly.” Yet no positive results from this “institution” are to be found, and certainly not in Poland, so what has been the value of appointing as SME envoy a deputy minister of economy who has never worked in business? The impact assessment of the new laws on SMEs is not a regular practice, and when performed at all, it has been reduced to a merely formal procedure.

For Europe, the Digital Era has continued to mean an alarmingly low level of modern ICT application. This is particularly true of Polish businesses. The DESI index clearly shows that across the EU only 31% of companies circulate information electronically and the figure for Poland is 22%. A mere 14% of EU companies and 8% of Polish ones use social media. Just 15% of EU businesses and 9.3% of Polish ones sell online.

The Confederation Lewiatan in Poland has nevertheless found that “digital” firms, or those applying new information technologies, are oriented towards development, make R&D and innovation investments and operating on foreign markets their priority. And because human resources are their key asset, companies in Europe need to be much more innovative so they can expand their activities and base their competitive advantage not on low cost but on their employees’ know-how. The EU needs a single digital market, but that will first of all require greater support for entrepreneurs wanting to build their digital skills as a crucial part of their everyday business activities. Lewiatan, working with its members in the ICT sector, is now organising training programmes for companies to encourage ideas for the application of digital technologies in the micro and small companies that are often the most “digitally obsolete”. That’s just one national example, but we need a Europe-wide drive to introduce digital technologies to our SMEs.

Profound changes in public procurement are also a must. This is less about changing EU or national regulations and more about altering government attitudes towards public procurement. They must move away from price as the main selection criterion in tender procedures to the more sophisticated criteria that can and should be used. And larger companies should be encouraged to co-operate with SMEs in consortia so as to realise joint public projects. This would create added value by transferring know-how from larger to smaller companies in terms of technology as well as modern business management practices.

We need to improve the very insufficient incentives that are failing to promote investment in innovation and R&D

On the financing of such initiatives in Poland as well as EU programmes there is a governmental programme that offers operating and investment loans. In two years, almost 100,000 companies – or nearly 6% of all Poland’s SMEs – have benefited from it. But we also need guarantee funds to encourage SMEs to issue shares. Bonds could also be considered, although smaller businesses need help to prepare the documentation required by stock exchanges and financial markets. Raising capital by issuing debt securities is generally too costly for small concerns with relatively minor capital needs, but SMEs are well worth supporting as they are a simple and promising way to raise capital for development.

Family businesses and women’s growing interest in entrepreneurship are also important factors. The majority of all enterprises in Europe are family business and they are distinguished from non-family run ones by their aspiration to preserve a “familial” identity. It therefore seems high time for the EU and the Commission to act on the challenges these companies face and propose laws that would facilitate maintaining family ownership. Equally fundamental is the need to create incentives to boost women’s interest in starting a business. Women still represent an under-used potential. We need to create better child care, provide women with start-up capital and facilitate their business competences. Let’s do it, and be surprised how Europe changes!

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