Within Europe, tariffs and nontariff barriers to trade between countries have been effectively eliminated. However, the common external tariff of the European Union still affords European firms a greater degree of protection than their American counterparts. A third key difference between Europe and the United States has to do with levels of entrepreneurship and social and cultural attitudes towards entrepreneurs. If the business of America is business, no one has ever been quite sure what Europe's business is. The differences in the rates of entrepreneurship between the United States and Europe reflect a variety of more fundamental factors.
Regulatory obstacles are the most obvious.
Bankruptcy law needs to strike the right balance between protecting the needs of investors who supply risk capital and encouraging innovation and risk taking. Businessmen in Europe complain that existing legislation errs too much in the former direction and excessively penalizes failure. Entrepreneurship is also hindered by difficulties in raising capital and barriers to the provision of stock options. Finally, the culture in most European countries has not accorded the entrepreneur the same status enjoyed in the United States. Finance is the fuel that feeds the flame of innovation.