Three Measures of European Entrepreneurship: the Bad, the Worse, and the Ugly
Five years ago, The Economist published an article called European Entrepreneurs – Les Misérables, arguing that the continent suffered from a chronic failure to encourage ambitious entrepreneurship. In it, the editors argued that Europe’s issue is not with encouraging entrepreneurship in general, but with creating new businesses destined for growth.
Even more interesting is that Europe (the European Union in particular) seems to have all the necessary preconditions to avoid a growth entrepreneurship deficit, including the prevalence of high-tech industries, and a well-educated workforce.
This difficulty in encouraging high-growth entrepreneurship may not be new, but it is still hard to prove conclusively, in part due to high rates of self-employment and small business activity on the continent. Frustrated by the evidence at hand, the scholars Magnus Henrekson and Tino Sanandaji identified three different ways to evaluate Europe in terms of fast-growing entrepreneurs. Here’s what they found.
- The number of self-made billionaires per capita is much lower in Europe than in the United States. Self-employment might be more common in Europe, but Henrekson and Sanandaji demonstrate that the U.S. has three times more self-made billionaires per capita. While billionaire entrepreneurs are rare, they are frequently the founders of entrepreneurial firms, so they are a good indication of the levels of high-growth entrepreneurship in a country.
- VC investment by share of GDP is five times lower in Europe than in the United States. VC Investment is a good alternative measure of high-growth entrepreneurship because venture capital firms are designed to focus on high-growth firms. Italy and Spain had particularly low levels of VC activity, while Switzerland, unsurprisingly, outperformed the rest of Europe.
- Western Europe has fewer unicorn startups and firms founded in recent decades that are among the world’s largest companies today. Unicorn startups, while an imperfect measure, are a good indication of how ambitious successful entrepreneurs are in a country.
In light of all this, Henrekson and Sanandaji make a strong case that the EU’s vision to generate more entrepreneurial activity is misguided. What the continent needs is not more startup activity. Instead, it needs more high-growth firms, which policymakers can encourage by supporting the spinoffs of already successful companies. Alternatively, based on previous research by Endeavor Insight, EU policymakers could work towards this result by encouraging successful entrepreneurs to become angel investors, or to start new companies.
Contributed by Lili Torok.
To read the original paper, please click here.