On November 26, Niklas Elert, an economics scholar at the Swedish Research Institute of Industrial Economics (IFN) presented ‘The Entrepreneurial Society – A Reform Strategy for the European Union‘, a new book he has co-authored with Magnus Henrekson and Mark Sanders.
During the discussion, Dr Elert emphasized the fact that successful societies need to meet people’s expectations and protect the preferred way of life. However, they cannot be stagnant. They need to evolve, to keep what is working and correct what is not. For these improvements to happen, an openness to challenge established structures and perceived wisdom needs to exist. An entrepreneurial society is the one that strikes a balance between protecting people’s expectations while keeping an openness for dissent.
European society has been lagging in innovation and entrepreneurship when compared with Asia and the US. This creates a fear that Europe is en route to becoming more a ‘museum’ than an innovative player. According to Dr Elert, many countries in Europe would benefit from improving their taxation systems and property rights laws. He emphasized the recent worrisome trends of institutional backsliding and degradation in the rule of law across the continent. Consequently, the EU must speak in one voice against these issues. Access to finance was also mentioned as another challenge but this issue does not stem from a lack of capital, but from the fact that most of Europe’s savings are tied-up to highly risk-averse entities like pension funds. Investing more of Europe’s money in innovative ideas and venture capital would provide necessary incentive to create a more entrepreneurial culture.
Dr Elert believes that these are some of the biggest bottlenecks to entrepreneurship. If one does not trust that fundamental institutions are working properly or sees that the paths to grow are clogged, then there is little motivation to try and innovate. It also does not encourage development and necessary reforms. Nevertheless, it is important to consider disparities across Europe that do not always permit to implement one-size-fits-all solutions. While Mediterranean and Eastern countries rank rather low in innovativeness, Northern and Western European countries are still rated quite high.
Dr Elert’s book offers some ideas for policies supporting entrepreneurship and inspires readers to find the best solution. Still, it also warns that industrial clusters are something impossible to predict. As a case in point, when William Shockley decides to locate his firm in Palo Alto in the mid-1950s he did so for family and nostalgic reasons, not because he intended the region to become the technology innovation hub we know as Silicon Valley today. Palo Alto’s success was further aided by a set of policies implemented at the right time, but this was hardly planned. The federal tax reforms from the 1980s, although not aimed at that particular region, helped its growth. This inherent unpredictability of entrepreneurship and innovation suggests that the EU should support competition rather than pick the winners.