Why Europe isn't Starting Businesses

Summary

The video script explores the challenges of starting a business in Europe, often perceived as difficult due to bureaucracy, high taxes, and less entrepreneurial culture compared to the U.S. or China. It delves into demographic data and economic policies, revealing that despite Europeans' intent to start businesses, factors like an aging population, high labor taxes, and stringent regulations hinder growth. The script also discusses potential solutions, such as welfare state adjustments and market integration, to foster a more business-friendly environment.

Takeaways

• 🌍 Europe is often perceived as a challenging place to start and grow businesses due to factors like bureaucracy, high taxes, and difficulty in hiring.
• 📉 European businesses are smaller, less digitalized, and less competitive compared to global peers, and Europe has seen a decline in the birth of new businesses, especially in sectors like industry, science, and tech.
• 📈 Despite a similar intent to start businesses as in other countries, Europe has a lower actual rate of entrepreneurship, with fewer businesses surviving past their initial years.
• 💼 The welfare state in Europe, with its high taxes and social safety nets, may reduce the incentive for individuals to take the risk of starting their own businesses.
• 🛒 European consumers, working fewer hours and earning less on average, present a smaller market for businesses, and regulatory fragmentation across countries further complicates scaling.
• 💼 High labor taxes in Europe create a 'tax wedge', making hiring more expensive and less attractive for businesses, especially startups.
• 💰 The tax systems in Europe favor debt finance over equity investment, which can limit the funding available to new and innovative businesses.
• 🏦 European businesses are more reliant on bank financing, which is often risk-averse, especially post-financial crisis, leading to less investment in new ventures.
• 📚 The EU and European countries are aware of the entrepreneurial challenges and are implementing measures to improve the business environment, such as tax reforms and promoting capital market union.
• 🤔 The script suggests potential solutions like tweaking the welfare state to reduce the opportunity cost of entrepreneurship, increasing funding for businesses, and encouraging a more risk-tolerant investment culture.

Q & A

Why is Europe considered a challenging place to start and grow a business?

Europe is seen as challenging due to factors like bureaucracy, high taxes, difficulty in hiring, and a perceived lack of entrepreneurial culture compared to regions like the United States or China.

What is the significance of ASML in the context of European businesses?

ASML is highlighted as an exception to the trend of Europe not giving birth to new large companies in the past 50 years, being a spin-off from another European giant.

What demographic factors contribute to the decline in business formation in Europe?

An aging population leads to fewer men aged 30 to 50, who are most likely to start businesses, resulting in a decline in the working population and potential entrepreneurs.

How does the welfare state in Europe impact the incentive to start a business?

The welfare state reduces the incentive to start a business due to high taxes that fund social benefits, providing a safety net that may discourage entrepreneurship.

What are some regulatory challenges faced by European businesses?

European businesses face challenges like more regulation, bureaucracy, and the complexity of operating across different language and regulatory markets within the EU.

How does the tax system in Europe affect the ability of businesses to scale?

High labor taxes create a tax wedge, increasing the cost of hiring and making it difficult for businesses, especially smaller ones, to scale.

Why might European entrepreneurs face difficulties in accessing funding?

High tax rates on work and savings, combined with a preference for debt financing over equity, make it harder for entrepreneurs to secure investment or loans.

What role does the European approach to regulation play in the business environment?

While regulations like GDPR protect consumers, they can also decrease business activities and increase bureaucratic burdens, making the environment less business-friendly.

How does the script suggest Europe could improve its entrepreneurial climate?

Suggestions include reducing income taxes to incentivize entrepreneurship, reforming pension funds to encourage investment, and improving the single market to facilitate cross-border operations.

What are some specific policy recommendations from 'The Entrepreneurial Society' to foster entrepreneurship in Europe?

Recommendations include guaranteeing equal access to welfare regardless of job tenure, lowering capital gains and dividend taxes to encourage equity investment, and increasing mandatory equity ratios in banking.

Outlines

00:00

🌐 Challenges of Starting a Business in Europe

The paragraph discusses the common perception that Europe is a difficult place to start a business due to factors like bureaucracy, high taxes, and hiring difficulties. It contrasts Europe's entrepreneurial landscape with that of the United States and China, noting that Europe has not seen the birth of major new companies in the past 50 years, except for ASML. The speaker, a small business owner, delves into business demographic data, tax policy, and financial systems to understand why Europe seems to lack an entrepreneurial culture and what barriers exist for starting and scaling businesses. The paragraph also highlights the decline in business founding in sectors like industry, science, and tech, with a particular decline noted in France, the Netherlands, Spain, Italy, and the Czech Republic, while Poland shows a higher level of new businesses. Demographic factors contributing to this trend include an aging population and a decrease in the working-age population, which affects the number of potential entrepreneurs.

05:03

🏛️ The Impact of the Welfare State on Entrepreneurship

This paragraph explores how Europe's welfare state, characterized by high public spending, subsidized higher education, social safety nets, universal healthcare, and pensions, can reduce the incentive to start a business due to higher taxes. It discusses how the welfare state provides a comfortable safety net for employees, which may discourage entrepreneurship. The speaker contrasts self-employed individuals' lack of social protections with the benefits European employees receive, such as pension rights, sick leave, and unemployment benefits. The paragraph also touches on the smaller consumer market in Europe compared to the United States, which affects businesses' growth potential. Additionally, it points out the difficulties European businesses face in hiring due to high labor taxes and the tax wedge, which increases the cost of hiring and can be prohibitive for small businesses.

10:06

💼 Barriers to Business Growth and Investment in Europe

The paragraph delves into the challenges European businesses face in terms of access to consumers, hiring, and investment. It highlights that Europeans, on average, work fewer hours and have less disposable income, which affects their consumption patterns and the size of the consumer market. The speaker also discusses the difficulties of cross-border business expansion within the European Union due to different languages, regulations, and the fact that certain sectors are not fully integrated into the single market. The high tax burden on labor, especially on high-skilled workers, is identified as another barrier, contributing to a salary disparity with the United States. The paragraph further explains that high tax rates and lower working hours lead to less money available for investment, with most European wealth being tied up in real estate. It also points out that European financial savings are smaller and less likely to be invested in equity, favoring debt finance due to tax systems, which can hinder the growth of new businesses.

15:09

🏅 National Policies Damaging to European Businesses

This paragraph critiques certain national policies in Europe that are particularly detrimental to businesses. It awards a 'bronze medal' to the Netherlands for its sick leave policy, which requires businesses to pay a large portion of an employee's sick leave, potentially crippling small businesses. The 'silver medal' goes to Spain for its high social security contributions required from the self-employed before any profits are made, which is a significant burden given the median income. The 'gold medal' is awarded to Italy for its tax system, where businesses must pay taxes based on future projections, which can be especially challenging for new businesses. The paragraph emphasizes the overall difficulty of starting and growing businesses in Europe due to such policies and the need for reform.

20:12

🔄 Addressing Europe's Entrepreneurial Challenges

The final paragraph discusses potential solutions to the challenges faced by European entrepreneurs. It mentions that Europe and the European Union are aware of their shortcomings in fostering entrepreneurship and have taken some steps, such as reducing income taxes and reforming private pension funds. The paragraph also discusses the potential for government institutions to invest in companies and the EU's plan for a Capital Markets Union to facilitate cross-border investment. However, it acknowledges that these measures may not be enough and suggests more radical reforms. It references a book by Swedish economist Magnus Henriksen, which proposes strategies like removing the opportunity cost of entrepreneurship, improving labor market flexibility, and increasing funding for businesses through tax reforms and encouraging bank investments. The paragraph concludes by posing questions to the audience about whether Europe should adopt a more American model, tweak the welfare state, or focus on market integration before welfare state reforms.

Keywords

💡Entrepreneurship

Entrepreneurship refers to the process of designing, launching, and running a new business, which typically starts as a small business, such as a startup company, offering a product, process, or service for sale or hire. In the video, the concept is central as it explores the challenges and barriers Europeans face in starting and scaling their own businesses, contrasting the entrepreneurial climate in Europe with that of the United States and China.

💡Bureaucracy

Bureaucracy, in the context of the video, refers to the complex administrative system and procedures that often hinder the efficient operation of organizations, particularly in the public sector. The script mentions bureaucracy as one of the factors making Europe a challenging place to start a business due to the red tape and regulations that entrepreneurs must navigate.

💡Tax Policy

Tax policy is the government's strategy for raising revenue through taxes and the principles that guide decisions about taxation. The video discusses how high taxes in Europe, which are often a result of welfare state policies, can act as a disincentive for individuals to start businesses, as they may prefer the security of employment with its associated benefits.

💡Welfare State

A welfare state is a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is a central theme in the video, which argues that the extensive welfare systems in European countries may reduce the incentive to become an entrepreneur due to the safety nets provided to citizens.

💡Regulation

Regulation in this context refers to the rules and directives set by governments or other authorities to control or manage economic and social activities. The script highlights that European businesses face more regulation and bureaucracy compared to their counterparts in other regions, which can make starting and scaling businesses more difficult.

💡Business Demographics

Business demographics involve the statistical data related to the characteristics of businesses, such as age, size, and sector. The video uses business demographic data from the OECD to analyze trends in business founding and survival rates across different sectors and countries in Europe.

💡Digitalization

Digitalization refers to the integration of digital technologies into everyday life, business practices, and society as a whole. The script mentions that European businesses are less digitalized compared to their global peers, which can impact their competitiveness and ability to scale.

💡Investment

Investment in the video refers to the allocation of money in the expectation of financial returns, which is crucial for business growth and development. It discusses how European businesses struggle to find investors due to factors like high taxation and risk aversion, which can hinder their growth.

💡Labor Market

The labor market is the market for employment and is the mechanism through which workers and employers interact to exchange labor for wages. The video discusses the challenges European businesses face in hiring employees due to high labor taxes and regulations, which can impact their ability to scale.

💡Economic Growth

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. The script argues that Europe's struggle to start new businesses affects its ability to develop new industries and reap the rewards of economic growth and job creation.

💡Brain Drain

Brain drain refers to the emigration of educated individuals to more developed countries, leading to a loss of human capital in the country of origin. The video touches on brain drain as a consequence of Europe's challenging entrepreneurial environment, where talent may leave for more business-friendly climates.

Highlights

Europe is perceived as a challenging place to start and grow a business due to bureaucracy, high taxes, and difficulty in hiring.

Europe hasn't given birth to any major companies in the past 50 years, except for ASML.

European countries and Europeans are seen as lacking an entrepreneurial backbone or culture.

Business demographic data from the OECD reveals fewer businesses are being founded in sectors like industry, science, and tech.

The decline in business founding is particularly sharp in France, the Netherlands, Spain, Italy, and the Czech Republic.

Poland stands out with a higher level of new businesses being born, partly due to demographics.

As Europe ages, there are fewer men aged 30 to 50, who are most likely to start businesses.

Europeans report wanting to start businesses at similar levels to other countries, but actual entrepreneurship is lower.

The survival rate of European businesses has fallen, and they're less likely to make it into their fifth year.

Science and technology companies in Europe have a particularly hard time surviving.

The Netherlands and Sweden are exceptions in managing to raise or keep high survival rates for businesses.

European businesses face challenges due to fewer and poorer consumers compared to the US.

Europeans work fewer hours, earn less, and are more risk-averse, impacting the consumer market for businesses.

High labor taxes in Europe create a 'tax wedge', making hiring more expensive for businesses.

Europe has less money available for investment due to higher tax rates and lower working hours.

Europeans are more likely to keep their savings in banks rather than invest in risky assets like stocks.

European businesses are more dependent on bank financing, which is risk-averse, especially post-2008 financial crisis.

EU regulation, while protective, is also unfriendly to businesses, increasing bureaucratic burden.

Some national policies, like sick leave costs in the Netherlands, self-employed contributions in Spain, and tax payment based on future projections in Italy, are particularly damaging to businesses.

Europe's entrepreneurial talent often moves to more business-friendly regions or succeeds within established companies.

The EU is attempting to address these challenges through measures like tax reductions and capital markets union.

Suggested reforms to improve entrepreneurship in Europe include changes to the welfare state, labor market flexibility, and investment incentives.

Transcripts

Europe is no place to start a business,

or so we're told, by entrepreneurs and business leaders across the world.

Bureaucracy, high taxes, difficulty in hiring people all make Europe

a challenging place to start and grow a business compared to the United States

or even China.

And if you look at the age of Europe's

largest companies, Europe hasn't given birth to any in the past 50 years.

Save ASML, which was a spin off from another European giant.

on the surface.

It seems that European countries

and Europeans themselves are lacking an entrepreneurial backbone or culture.

Talking from experience as a small business owner myself running into Europe.

I wanted to understand the main barriers

to Europeans starting and scaling their own businesses and find out

if what they see about European entrepreneurship is actually true.

I looked into business demographic data, tax policy

and the set up of Europe's financial system

to understand the main barriers businesses face when starting and scaling.

To understand why starting a business in Europe is like playing life on hard mode,

and to find out what we might be able to do

to make more European businesses emerge.

So why starting a business in Europe so hard? You.

Europe needs

new and better businesses to tackle two main problems.

First, European businesses are smaller,

less digitalized and competitive than their peers across the world.

And second, because Europe is struggling to develop new industries and to reap the

rewards in the form of economic growth and well-paying jobs that come with them.

But the problem is that Europe isn't starting new businesses.

I actually found this pretty cool

data set with a bunch of business demographic data from the OECD,

which allows us to take a look

into the births and deaths of businesses across the European Union.

When we look at businesses founded, the trend is quite clear

in sectors like industry, science and tech, or logistics.

Europeans are finding fewer businesses than before,

while the European hospitality sector is still growing.

Let's focus on industry for a second.

While the decline is true for most European countries,

it has been particularly sharp

in France, the Netherlands, Spain, Italy and the Czech Republic.

While Poland stands out with a much higher level of businesses being born.

this is in part due to demographics.

As Europe ages, there are fewer

men aged between 30 and 50 who are the likeliest to start businesses.

Since about 2006, the share of working population across Europe

started to fall and with it the amount of potential entrepreneurs.

But this fall has been on a similar scale to that of the United States,

which itself still has more entrepreneurs.

In this study with the Global Entrepreneurship Monitor,

the OECD estimates that European countries

are missing far more entrepreneurs than similarly age societies.

And this is despite the fact that Europeans already

stating that they want to start businesses

on a similar level to that of other countries.

by the way, we really have to hand it to Poland here who don't seem like

they're particularly entrepreneurial based off of intention.

But this contradicts the data we just saw on starting businesses.

So to the poles, you guys don't talk.

You simply go and do so. Congrats for that.

But generally speaking, Europeans are starting for businesses.

And new European businesses aren't surviving as much.

The survival rate of European businesses has fallen over the past decade,

and they're less likely to make it into their fifth year.

This is particularly true for science and technology companies,

with the Netherlands being a rare European exception which managed to raise it,

and Sweden, which managed to keep it at a high level.

Industrial companies managed to keep it

mostly together up until at least 2022, when this data set ends.

This doesn't really allow us to look at what happened after the coronavirus

pandemic and the energy crisis, which damaged many European businesses.

yet, if you read a couple of news headlines about the economic climate

and business closures, we can reasonably fill in the dots.

The trend of European businesses in many countries

having a hard time is still ongoing.

but if you decide to go against the trend

and start a business, then today's sponsor Odoo might be something for you.

Odoo is the all in one online business platform that helps you manage

your whole business,

from accounting to project management, website creation and more.

I needed a brand new website for into Europe to share my scripts

and sources all in one place, and I discovered Odoo.

I found their website editor pretty intuitive,

having all the functionalities I needed to create into Europe's digital front end.

Aside from my face in the YouTube channel, I didn't need any technical skills.

It's easy.

You can simply drag and drop blocks

and customize them by adding content like images, text, video or documents.

You can try animations and shapes and colors to make it pop.

And if you're really feeling stuck,

you can let ChatGPT spark your creativity with fresh ideas or text.

Thanks to my new Odoo website,

all my sources and scripts are in one place for free

because the first Odoo application

is free for life, including unlimited support and hosting.

They even offer a custom domain name for one year just to get you started.

So if you want to build or reinforce your online presence, go

make your own website with Odoo and get started on your business goals today.

Now back to the video.

So why

then, is starting a business so difficult in Europe?

While culture plays a role that can't be understated.

European institutions and regulations have worsened and already

a hostile environment for the growth of new businesses.

After following up on the main literature and doing a bunch of research,

there are five main reasons

why Europe is not as business friendly as the United States.

First, due to Europe's welfare states, there is simply less of an incentive

to start a business.

Second, when they are started, European businesses have fewer consumers,

have a hard time hiring employees, finding investors,

and finally, they're faced with more regulation and bureaucracy.

So let's first start by looking at

how the welfare state reduces incentive to be an entrepreneur.

While most countries across the world have some form of welfare

state, European countries have taken it the furthest.

They have some of the highest levels of public

spending out of any place in the world,

but also cheap, subsidized higher education, a social safety

net for the sick and unemployed, universal health care and pensions.

As a result, government spending as a share of GDP increased

dramatically after World War Two and then once again in the 1970s.

And it's now taking up once again, mainly driven by pension

and health care spending as a result of Europe's aging societies.

Something I covered in a previous video.

But all of this social spending comes at a cost in the form of higher taxes,

and actually reduces the incentives to be an entrepreneur.

It's relatively comfortable being an employee in a welfare state,

and in most European countries, you don't have much to fear from losing your job.

Swedish economist Magnus Henriksen,

who has studied the link between entrepreneurship

and the welfare state for decades, points out

that entrepreneurship, out of necessity doesn't really happen in Europe.

I mean, you don't really need to start a hustle

if the government will take care of you and provide you with the basic necessities

in case you lose your job.

You could argue this is ethical and avoids

people being on the street if they don't have a job,

but it also discourages people

that are intrinsically motivated from starting their own business.

As a self-employed person, I have to take care of my own

pension, my own medical coverage, have no unemployment benefits,

and if I start producing videos because I get sick, as has happened

several times in this past year, then I don't get paid.

if you're American, you might be like, what is this guy complaining about?

That's what we do here. And you'd be right.

But I'm comparing myself to European employees here.

Employees accumulate pension rights, have generous sick leave,

and are hard to fire.

And when they are, they tend to get extensive severance packages and receive

unemployment benefits which accumulate with years worked.

In some European countries, you can get benefits

related to unemployment for up to five years after you lose your job.

In other words, as a self-employed person running a small business,

you don't benefit nearly as much

from the social protections and comforts offered by the welfare state.

And if you're working for a company, then your relative safety might make

you think twice before quitting to start something yourself.

But if you manage to pass that first hurdle

and actually start your own business, then you have to deal with the fact

that European businesses have access to fewer and poorer consumers.

Europeans are simply not as good as consumers, as Americans.

On average, Europeans work about 30% fewer hours and earn less money.

And while that doesn't mean anything for happiness, with Europeans

being generally more content with their lives

and Americans and dominating happiness, rankings,

it does matter for a business trying to sell you goods and services.

Europeans eat less food, buy smaller cars

and homes for them with fewer things, and they keep their phones for longer.

So it shouldn't come as a surprise

that the economy needed to provide those things is also smaller,

and those consumers are siloed off into different language

and regulatory markets, which reduces the opportunity for European businesses.

A Polish marketing firm can't really reach out

to a client in France, or it would have to pay an expensive price

to reach out, while one in New York

could potentially service the whole of the United States.

It's actually more complicated delivering a service

across the borders of the European Union because of different laws.

are virtually exempt from the single market,

such as energy, telecommunication and transportation, meaning that starting

or expanding cross-border businesses is nearly impossible to leave.

A French tech darling providing digital services for health care providers

has taken more than eight years to start gaining traction in the German market

because of how bureaucratic and fragmented it is.

As a fun anecdote, it's actually easier for me to have a sponsor

from the United States than it is one from the European Union,

Because member states

want to know where to assign VAT so that they can get their tax money,

which is something I have to do in my quarterly tax declarations.

and even if you manage to find enough consumers to satisfy

your business, you're going to struggle scaling it by hiring workers.

One of the main way the welfare state is financed is through taxes on work.

two thirds of your income in a European country like Belgium is taxed away,

either in the form of income taxation or employer contribution.

The only European countries that come close to being in line with

the United States when it comes to taxing labor are the UK, Denmark and Poland,

with about 40% tax on labor and Switzerland at 28%.

if I wanted to hire someone in-house to produce videos,

I would only have to take on the risk of having someone on my payroll.

I would also have to pay an extra in the form of taxes.

This creates what economists call a tax wedge, where the cost of hiring

a worker is split from the actual income he or she receives because of taxes.

The higher the taxes, the bigger the wedge.

This is not only a problem

for employees whose income is reduced and might look for opportunity elsewhere.

It also raises the cost of hiring people for companies.

larger and more stylish companies can afford this,

it can be prohibitive for smaller businesses

to attempt to scale because of the sheer cost of hiring that first employee

and European tax wedges are far higher than in the rest of the world.

And due to the progressive income tax,

this puts an even bigger cost on high skilled labor,

making it harder to hire and contributing

to the huge salary disparity between Europe and the United States.

For skilled workers like software engineers,

in Sweden by its peak in 1979, this tax on labor had reached 91%

before falling back to 75% in the late 90s and 67% in 2017.

This high tax burden poses another problem

Europe simply doesn't have enough money for investment.

Higher tax rates on work, together with lower working hours

in most European countries, means people can't save money as much,

either to start their own business or to invest in other businesses.

and most Europeans have their wealth locked up in real estate.

In most European countries, more than 60% of household wealth was in housing.

In the US it was less than 40%.

To top this off, intergenerational solidarity

in the form of pay as you go pension systems where current workers pay

for retirees, increases taxes and decreases savings.

In most European countries, instead of depositing money and pension

and venture capitalist funds that can invest in the economy,

most Europeans pay taxes in exchange for the promise of pensions,

while some European countries like Ireland,

the Scandinavians, the Netherlands and the UK have diversified pension assets

in four of the five major European economies, Germany, France, Spain

and Italy were below 10%, and the US they were at 132%.

Not only does this decrease the amount of money in the economy

right now, it also means that for most European countries,

there is no magical pot of money from which to invest in businesses.

And when we look at the way that European money is invested,

we can see that it's far from optimal.

Europeans have smaller financial savings than Americans.

And what smaller savings they do

have were far less likely to be invested in equity stocks or shares.

In other words, in businesses.

Swedish economist Magnus Hankinson, alongside Nicholas Elert and Mark Sanders,

point out this is because national tax systems in Europe favor debt finance.

Because capital gains and dividends are tax,

while interest payments are tax deductible, it makes it cheaper

for companies to raise funds through debt rather than through equity

as such that finance channel societies available savings into the reproduction

and growth of the existing capital stock, This is a question of generalized

risk aversion.

As Henriksen continues, European governments have been

more interested in preserving their tax bases by keeping the money

flowing to established companies rather than new, riskier businesses.

When it comes to ordinary people, this study by the European

Central Bank found that as their wealth

increased, people were more willing to take risks,

but that Europeans overall were much less likely to own

risky assets regardless of income level compared to Americans.

Instead, Europeans kept most of their savings in banks,

which play the role of top investors in the continent.

found that as their wealth increased, people were more willing to take risks,

but that Europeans overall were much less likely to own risky assets

regardless of income level compared to Americans.

Instead, Europeans kept most of their savings in banks,

which play the role of top investors in the continent.

as a result, that means that European businesses are more dependent

on financing through the banking system, which is itself also risk averse,

especially after the 2008 financial crisis, which saw lending to companies

collapse in the European Union, in part due to stricter rules around lending.

In other words, most European funding in the EU goes to existing companies

who can get advantageous

loans as opposed to new ones which are considered too risky.

And that very same source

of funding through debt has stagnated over the past decade.

finally, the EU prides itself on its regulation, and the EU has been

called the world's regulatory superpower by its admirers and critics.

most of you advocates claim that this protects consumers from corporate abuse.

And while that may be true with the EU having some of the best quality food

in the world and some of the strictest pollution or data protection

rules, the flip side is that the EU is unfriendly to businesses.

This specific study found that the GDPR, the EU’s data protection regulation

decrease the number of deals involving EU ventures with data

related businesses, activities by almost 31%.

In fact, the EU itself is aware of the consequences

of some of its policies on European businesses,

which is why it tries to exclude SMEs small and medium sized enterprises

from cumbersome legislation like reporting on corporate sustainability.

businesses, activities by almost 31%.

In fact, the EU itself is aware of the consequences

of some of its policies on European businesses,

which is why it tries to exclude SMEs small and medium sized enterprises

from cumbersome legislation like reporting on corporate sustainability.

the EU look to exclude those small businesses, but that hasn't helped SMEs.

According to your chambers,

the European Chamber of Commerce

requirements of the EU on banks, in order for corporations

to prove that they're working on green projects end up being requirements

on the businesses that they're lending or subcontracting to, in other words, to

what I'm going to call trickle down regulation rules that are meant to target

large companies end up targeting almost everyone else

and increasing bureaucratic burden for European companies.

And things.

All these challenges disproportionately affect new businesses managing paperwork

from regulation, affording employees whose costs are inflated by labor taxes,

getting equity funding, or a loan from a bank is simply more difficult in Europe,

and even more so if you are a smaller business.

There are some other national policies that I came across

when looking into this topic that deserves some special mention

for how damaging they are to national businesses.

Being in the Olympic mood, I decided to give out some medals

based off of how infuriating they actually are.

First.

Our bronze medal goes to an unexpected challenger the Netherlands.

The country sick leave policy has businesses pay out

at least 70% of an employee's sick leave for up to two years.

While this is affordable for a larger business.

If your business is small, this burden is a potential death sentence.

The silver medal goes to Spain, which has some of the most expensive

contribution for self-employed people

at nearly €300 a month, that has to be paid before any profits.

This is a country where the median income is €1,800 a month for a single person.

And finally, our gold medal goes to Italy, where I kid you not.

Businesses have to pay their taxes ahead of time based off of future projections.

Okay, so we get it.

Starting a business in Europe is tough.

But if Europe is so terrible for starting new businesses,

then what is happening to all of Europe's entrepreneurial talent?

Well, I actually covered part of that in a previous video on your boss, a brain

drain to the United States, which can be complemented by the internal

brain drain of the European Union, where southern and central and Eastern Europeans

actually end up moving to the relatively more business friendly Northern Europe.

But according to this report by the Global Entrepreneurship Monitor,

part of Europe's entrepreneurs go on to succeed inside established companies.

Scandinavian, British, Irish and Dutch firms, for example, are quite successful

at internal innovation and have high levels of entrepreneurial employees.

Well, that's great news

for the competitiveness of established companies,

and it can potentially lead to corporate spinoffs

like all of the Philips related companies in the Netherlands,

and might explain why European planes are not falling out of the sky.

It generally means that it's harder to create new, groundbreaking industries.

after all, if all of your entrepreneurial talent ends up at existing firms,

you're less likely to develop new, groundbreaking fields.

So what might European countries and the European Union be able

to do about the challenges facing its businesses?

Well, Europe

and the European Union are aware of their entrepreneurial shortcomings,

which is why we routinely have ex Italian prime ministers writing reports

about European competitiveness and entrepreneurship.

well, they make some fair points.

It's quite ironic, considering that Italy, by many of the metrics

considered in this video, is the least entrepreneurial country in Europe.

But if we pass on the irony for a second, we can take a look

at what European countries and the European Union

are doing to make life easier for businesses.

taxes on income have somewhat fallen since the 2000, making it easier

to hire workers, but they remain still far higher than the rest of the world.

Reforms to private pension funds in some European countries

have led to small parts of gold for investments, appearing.

other European countries are trying to make up

for the shortfall in investment with government institutions.

French and British investment banks are looking to invest money

into companies and finance riskier investments.

The EU's plan for capital Markets union plans to unite the continent

and make it easier

for cross-border investment, and to make sure that European companies

don't need to rely on American investment for funding above €50 million.

while these measures are great,

there is no replacement for an entire society of investors

with deeper pockets and more willingness to take on risk like that of the US.

and one of the Italian reports, Nicoletta talks about completing the single market

and calls for an EU commissioner to slash administrative burdens.

In fact, the French, German and Italian economy ministers in April announced

that they wanted to pass

an omnibus law to cut regulation and bureaucracy at the EU level.

But I think we can be quite pessimistic about this, because previous calls

to cut the red tape,

which was already

one of the sticking points back into the lead up of the Brexit vote,

hadn't really materialized into anything real.

And to be fair, the EU doesn't really have a great track record on

cutting back bureaucracy, and neither do most European national governments.

But what are some other steps

that we can take to fix some of Europe's other problems, like that of incentives?

Well, the most radical way might be to scrap the welfare state entirely

and go for the American model, which is something

we probably don't want to do or aren't willing to do.

So might there be a way we could tweak the welfare state in such a way

to address some of the main problems we talked about in this video?

Well, luckily for us, this is a question that Swedish economist

Magnus Henriksen and his colleagues attempted to answer in the book.

The Entrepreneurial Society A Reform Strategy for the European Union,

With many of the proposals looking into how to tackle problems

faced by entrepreneurs.

I selected a few that I found interesting and that relate to the points

I previously mentioned in this video.

But if you want the full picture,

I recommend you read the full book or at least look at the list of proposals.

The first is by removing the opportunity cost

of entrepreneurship and improving flexibility in the labor market.

This goes by guaranteeing equal access to the welfare state,

regardless of tenure in a specific job or labor market status.

would accompany a move that would allow firms to hire and fire people more easily,

while at the same time guaranteeing a lower impact on people losing their jobs.

Measures like this

would avoid someone like me missing out on building up a pension, though

it could open the door for abuse and might lead to people

pursuing less productive activities like producing videos

on the internet or simply not working at all.

Then we could increase funding for businesses.

The first way to do this is by allowing more wealth accumulation and lowering

the threshold to invest, by lowering capital gains and dividend taxes.

This would push more investments to equity,

which could benefit smaller businesses as opposed to debt.

A further push could come from encouraging banks

to increase their investments into European companies.

By increasing the mandatory equity ratio in banking from 10 to 15%.

And it could also benefit employees by exempting the stock options

they sometimes receive from income tax.

While some of these things sound rather straightforward, others

might sound a bit lopsided

and either very economically liberal or very economically progressive.

And I would agree, unconditional money and welfare is ripe for abuse.

And it's the reason why it's so often tied to employment

and tax cuts all around to make you a competitive place to do

business is likely to be expensive and met with protests around wealth inequality,

As Hendrickson puts it in one of his earlier papers,

the institutions of the welfare state have little in common with those

that promote entrepreneurship, and it only makes sense that any attempt

to reconcile the two would be a convoluted and expensive mess.

but the cost of not having any new businesses is one that a society

can't bear in the long run.

Lower growth, lower productivity, and no new industries.

But what do you think?

Should Europe adopt a more American model?

Should it tweak the welfare state as much as possible

in order to fix its problems with having new businesses?

Or should it try to push market integration

further before looking into reforms for the welfare state?

Let me know what you think in the comments down below.

you like this video on the challenges facing European entrepreneurship

and starting businesses,

then I invite you to watch this video on Europe's brain drain to the United States.

or if you want to know more about how difficult it is for young people,

then I invite you to watch this video on Europe's challenges for young people.

And finally, don't forget to check out this video

sponsor Odoo and try their convenient and affordable all in one solution

to build a website and a business.