Analysis: Entrepreneur or Workaholic-1

By SAM VAKNIN, UPI Senior Business Correspondent  |  April 1, 2002 at 2:38 PM
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SKOPJE, Macedonia, April 1 (UPI) -- The European Central Bank brags that employment in the eurozone has been rising faster than in the U.S. since 1997.

This is a bit misleading. Eurozone unemployment is far higher and labor force participation far lower than America's. The young are especially disadvantaged. Only Britain is up to American standards. The European labor market is highly inefficient in matching demand and supply. Labor 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. Labor laws are rewritten to simplify hiring and firing practices and to expand the role of private employment agencies. But militant unions, such as Germany's IG Metall, 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 and full-time employees. Yet another reformist adviser to the Italian Minister of Labor 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 labor market in the world, in the United 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 United States, 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 $4,000 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 U.S. it is an integral and important part of the learning curve. In the U.S., 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 U.S., entrepreneurs are supported by an evolved network of financial institutions and venues: venture capital, initial public offerings in a multitude of stock exchanges, angel investors, incubators, technological parks, favorable taxation of stock options, and so on. Venture capitalists invested $18 billion in early stage companies in 1998, $48 billion in 1999, almost $100 billion in 2000.

The crash deflated this tsunami, but only temporarily. U.S. venture capitalists still invest four times the average of their brethren elsewhere, about 0.5 percent of gross domestic product. This translates to an average investment per start up ten times larger than the average investment outside America.

American investors also power the venture capital industry in the UK, Israel, and Japan. A Deloitte Touche survey conducted last month 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 U.S. still face many obstacles -- from insufficient infrastructure to severe shortages in skilled manpower. The July 2001 report of the National Commission on Entrepreneurship 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 U.S.

As opposed to the stodgy countries of the EU, many post-communist countries in transition, including Russia and Estonia, have chosen to emulate the American model of job creation and economic growth through the formation of new businesses. International financial institutions have provided credit lines dedicated to small and medium enterprises in these countries. As opposed to the U.S., entrepreneurship has spread among all segments of the population in Central and Eastern Europe.

In a paper, prepared for the U.S. Agency for International Development by the IRIS Centre in the University of Maryland, the authors note the surprising participation of women -- they own more than 40 percent of all businesses established between 1990-7 in Hungary and 38 percent of all businesses in Poland.

Virtually all governments, east and west, support their "small business" or "small and medium enterprises" sector.

The U.S.'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 U.S. 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 U.S. Commercial Service, the Department of Commerce (mainly through its Technology Administration), the Minority Business Development Agency, the U.S. 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.

This is part of a much larger wave of in-house corporate innovation dubbed "intrapreneurship". The most famous example is "Post-It" which was developed, in-house, by a 3M employee and funded by the company. But all major and medium American firms encourage institutionalized intrapreneurship.

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