March 13, 2014
With 5.6 million unemployed young people (under 25) in the EU – and this figure will only rise the coming years – the necessity for drastic labour market improvement becomes enormous. One of the solutions to alleviate the dreadful situation of Europe’s young is to promote youth entrepreneurship. Growth doesn’t come from existing companies, so startups and small firms are essential to create jobs and avoid the looming lost generation. Entrepreneurship comes in many forms and different roles: it is a tool to develop talent and to stimulate innovation, but in the current context also a solution for unemployment.
You can’t expect millions of young people becoming self-employed – it is not a panacea. But the potential is there. And we need to get a clear picture of the potential of youth entrepreneurship in an expanding European single market.
Therefore the Next Generation for Europe (NGE), a new think-tank in Brussels, wants to start a research project to tackle exactly this issue. We identified a clear research gap. According to the ILO, entrepreneurship itself is a young area of research and youth entrepreneurship is even younger. The OECD thinks that more policy attention is needed to stimulate young self-employment.
This necessity is not just about ‘saving the young’.The world is in a cosmic power shift from West to East. In 2050 the ‘traditional Western economies’ will have a lesser share of global GDP than they had in 1700. Already in 2020 more than half of the world’s GDP will be generated in developing countries. Further on, Europe needs to accelerate its rate of productivity growth by 30%, to catch up with the past rate of GDP per capita growth. And this is also necessary to cope with rising debt levels and a greying workforce.
Scope for entrepreneurship
Europe certainly lacks an entrepreneurial mindset, compared to other continents. Europeans – old and young – prefer to work as an employee, often because of the job and income security. But the potential is high: nearly a quarter of EU respondents have started a business or are thinking about starting one (Eurobarometer 354).
If we focus on the young, it becomes clear that mindsets are changing. 51 percent of young Europeans (aged 15-24) say that self-employment is desirable, against only 18 percent of the age group 55+. A quarter of young Europeans thinks about starting their own company; only 3 percent of the older Europeans considers this step. (ibid)
Recent research by the OECD confirms this trend and reveals a scope for more self-employment. The next generation of entrepreneurs has a lot of growth potential; their startups grow twice as fast as new companies set up by older peers. These digital natives understand much better the scope and opportunities of the digital economy. It is easy for them to become a ‘micro-multinational’ right from the start. According to an EMN study, the young’s particular entrepreneurial potential and their contribution to social progress are underestimated.
NGE wants to discuss these positive developments and predict their impact on general economic growth and job creation in the EU. But we also want to highlight the difference between ‘necessity-driven’ and ‘opportunity-driven’ entrepreneurship. Many people are self-employed because of the lack of available jobs, like in Italy, or because of rigid labour laws like in the Netherlands and Spain. Becoming an entrepreneur is not meant for everyone. Also we need to diversify between self-employed people, and high-impact ventures that really create jobs.
A changing world and economy
Bearing in mind the quickly changing economic outlook in the world, NGE will in this part deal with several (socio-)economic trends. Company sizes will shrink, the labour market will change, and the European population is already ageing. How will these trends affect the choice of becoming a self-employed or even an entrepreneur? As professor Erik Stam (University of Utrecht) pointed out in a recent essay, we are in the midst of a transition from a managed to an entrepreneurial economy. This transition requires ‘a fundamental rethinking of institutions and public policy’ – an implication that will stretch far beyond fostering an entrepreneurial climate. Also within organizations – companies and government institutions – structures and work processes will be turned upside down.
Incentives to become an entrepreneur…
Extensive research has been done on the incentives of starting up your own company. But less attention is paid to the specific barriers that young entrepreneurs face. Their starting position is fundamentelly different; as they are younger, they lack experience, have trouble getting access to capital, miss essential knowledge of entrepreneurship and other important basic conditions for a successful entrepreneurship. 66% of the young self-employed say entrepreneurial skills need to be specifically taught, 73% say access to funding remains difficult, and 49% believe innovative funding platforms will accelerate entrepreneurship (EY). The European Youth Forum states that access to finance is the most significant obstacle to starting up a business.
Young Europeans still less entrepreneurial than their Chinese peers. A whopping 57% of the Chinese entrepreneurs are aged under 34. Why doesn’t Europe have these figures? There can also be economic structural problems. As Bruegel pointed out, Europe missing ‘Yollies’ – young leading innovators – are the main cause for the business R&D deficit relative to the United States. And these Yollies are lacking because of the structure and functioning of industry and enterprise in the EU.
…And the limiting factors
Which barriers can be taken away? The G20 Young Entrepreneurs Alliance pleads for actions like providing enabling infrastructures, offering targeted tax incentives, and leveraging a relevant talent pool. Ernst & Young identified five key imperatives for action, a.o. expanding the choice of funding alternatives, reducing red tape and changing the culture to tolerate failure. The ILO adds to the wish-list the availability of relevant business development services and support schemes. And lastly, in 2010 various ministries of youth affairs identified priorities like specific training, simplified procedures and improved access to loans and EU funding programmes.
EU and youth entrepreneurship
The European policy attention towards youth entrepreneurship has grown steadily over the last ten years. But policy makers could do a lot more to make it happen, says the OECD.
Already in 2003 the Commission published a Green Paper on entrepreneurship in Europe. The EU considers it has a duty to encourage entrepreneurship and ‘unlock the growth potential of its businesses and citizens’. DG Enterprise and Industry is very active on this field and looks at the development of entrepreneurship closely. But the Commission hasn’t focused on the position and potential of the young specifically.
There are several policy strands ongoing – but are they effective? First of all, Youth on the Move is a of policy initiatives on education and employment for young people in Europe. Launched in 2010, it is part of the Europe 2020 strategy. It also aims to increase support for young entrepreneurs, via the new European Progress Microfinance Facility, with €200 million of funding of the Commission and the EIB.
Secondly in 2004, the Commission proposed that all EU member states introduce entrepreneurship education in their national programmes. Only in a few member states has this become reality. And the quality of the programmes is often poor, methods are slowly built, teachers lack the right knowledge and career information, and there are weak links between schools and businesses. But there is also research arguing that much progress has been made in the last years.
Further on, The Treaty of Lisbon has given the EU the competency to do more on the Youth in Action Programme and the strategy ‘Youth – Investing and Empowering’. Has the Commission extended their powers in this regard?
The century of the entrepreneur
As the G20 Youth Entrepreneur Summit (YES) has stated: ‘The 21st century will be the century of the entrepreneur.’ In a world of massive change, we need entrepreneurs more than ever. They are agile, have an innovative mindset, are prepared to take risk – and the only ones to create new jobs and organizational structures. ‘They are a powerful engine for global growth, innovation, and employment’, states G20 YES. It is worth to look at ways to supercharge the efforts of the young and aspiring entrepreneurs.
Do you want a copy of our full research proposal on youth entrepeneurship? Please contact NGE
Author : Joop Hazenberg