Opinion of the Economic and Social Committee on the 'Communication from the Commission to the Council Fostering entrepreneurship in Europe: Priorities for the future` (98/C 235/16)

On 5 May 1998 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community on the above-mentioned communication.

The Committee instructed the Section for Industry, Commerce, Crafts and Services to prepare its work on the subject. The Committee decided to appoint Mr Lustenhouwer as rapporteur-general for its opinion.

At its 355th plenary session (meeting of 27 May 1998) the Economic and Social Committee adopted the following opinion by 78 votes to three with four abstentions.

1. Introduction

1.1. The Committee notes with approval the Communication from the Commission to the Council entitled Fostering entrepreneurship in Europe: priorities for the future. The Committee sees many of its own ideas reflected in the Commission's vision of entrepreneurship and in the actions proposed and already carried out to promote independent entrepreneurship. This is of course to be welcomed.

1.2. The Commission has done well to comply with the Council's call, made at the end of 1997, to submit ideas to the Cardiff European Summit as to how one of the components of the employment guidelines, the promotion of entrepreneurship in the European Union, could be put into practice.

1.3. The Commission sees entrepreneurship as a dynamic process which requires certain qualities. The Committee endorses this view but would add that entrepreneurship should in a sense also be seen as a separate factor of production, alongside labour and capital for example.

1.3.1. It is the combination of these various factors of production which adds value and which determines the success or failure of a business.

1.3.2. In this sense entrepreneurship is not something which is restricted to small businesses, but which is also identifiable in large firms and in forms of commercial cooperation between different firms. Here use is often made of some of the strengths of small, independent entrepreneurs, leading to the development of concepts such as 'intrapreneurship`.

1.4. The Committee also agrees with the Commission that the fostering of entrepreneurship is to a great extent a matter of changing people's mentalities and creating an entrepreneurial, risk-taking culture.

1.5. However easy that may sound, the Committee is aware that changes of this kind often take a long time and require great adaptability. The changes to laws and regulations needed for this must go hand-in-hand with incentives in other areas, such as, for example, training and the provision of information on the advantages and disadvantages of being an entrepreneur.

1.6. Over the last few years there has been growing interest in entrepreneurship, particularly among younger people and the better educated. And yet in many cases the transition from employee to self-employed is not easy. The Committee points out that a 'grey area` has developed between employment and self-employment, which is causing problems with regard to the legal, tax and social security position of people in this grey area. A person may thus be regarded as self-employed by the tax authorities, whilst being regarded as an employee by the bodies responsible for implementing the rules of the social security scheme! The cause of this problem is that in most Member States the law is based on the nineteenth century distinction between employer and employee, which can however nowadays exist side-by-side. Thus a growing number of people, often working in the service sector, are both employee and self-employed. The Committee feels that the Member States should address this problem and adopt measures in these areas to make the situation clearer for those affected. Uncertainty will tend to deter people from taking initiatives which would be worthwhile and socially useful in terms of employment, but also in terms of developing new products and services.

1.7. As stated above, the Committee finds many of its own views reflected in the proposed actions. The Committee has recently issued opinions on related fields, e.g. on electronic commerce () and SME access to EU R& D funds (). Opinions relating to other fields are being prepared, e.g. on the draft directive on late payments (), access for SMEs to the capital markets () and the proposals for financial assistance for SMEs in the framework of the growth and employment initiative (). A brief mention will be made in this opinion of subjects on which explicit comment is indicated at this stage.

2. Priority actions for encouraging enterprise culture

2.1. The Committee endorses this part of the Commission's strategy. The promotion of high-quality education for aspiring entrepreneurs, e.g. by developing networks of educational institutions and dispelling prejudices about entrepreneurship, fits well here. The intended change to the law on bankruptcy, needed in a number of Member States, could also help put an end to the tendency to regard entrepreneurs who go bankrupt as 'losers`.

Of course a balance has to be struck here between the various interests involved, and certainly those of creditors, but at the same time a legal framework needs to be established which does not automatically exclude a second chance.

2.2. The recommendations aimed at the Member States should make it clear how necessary it is to highlight at an early stage of young people's education the opportunities for personal development offered by entrepreneurship and the social function performed by entrepreneurs.

3. Priority actions for promoting enterprise culture

3.1. In the course of their activities entrepreneurs are faced with any number of rules imposed on them by society for various reasons. Tax laws, safety regulations, environmental regulations, establishment requirements, land-use planning rules, permits etc. are unfortunately all too often a burden for small firms, and an unnecessary one at that. Studies have conclusively shown that administrative costs weigh most heavily on small firms. The Committee therefore notes with interest the proposals of the BEST group (Business Environment Simplification Taskforce) submitted on 7 May. Although the Committee has not yet had the opportunity to study the BEST report and its specific proposals in detail, clearly the idea of setting up Better Regulation Units at the Commission and Council, as well as at a high political level in the Member States, is interesting from the point of view of the 'think small first` principle and merits further development.

3.2. One of the most important factors affecting the business environment is the tax system in the Member States. The Commission is therefore right to link the tax system with the question of the financing of small firms. Tax incentives need to be created for start-ups without however resulting in unbalanced competition vis à vis existing firms. The investment of risk capital in small firms by private individuals needs tax incentives, and it must also be ensured that the transfer of ownership of firms as going concerns can be effected without tax complications. This question of the transfer of ownership of companies set up by post-war generation of entrepreneurs will come into sharp focus over the next few years.

3.3. Laws and regulations on intellectual property (including patent law and the proposals for simplified patents or user law) are an important framework for the promotion of innovative developments in SMEs. When combined with improved access for small firms to knowledge of new technologies and the development of business clusters, there is potential here for improving the innovative capacity of small businesses. The combination of many, often complex factors makes it necessary, as the Commission points out, to set up in Member States where these do not already exist decentralized networks of easily accessible, low-cost information and advice centres by and for small firms.

3.4. In this connection, small firms should be given simpler access to Community R& D programmes, which will probably necessitate changes to the conditions of access to the programmes. Here too it should no doubt also be borne in mind that a small business is not a pocket-sized multinational! The Commission must ensure that SME organizations are actually involved in the partnerships set up at local or regional level in the framework of application of the Structural Funds, enabling them to contribute their own initiatives on an equal footing.

4. Promotion of entrepreneurship in the social economy

4.1. The Commission rightly highlights the great potential offered by the social economy for the creation of jobs. Business and/or organizations in this sector are not primarily concerned with making a profit. The extent to which 'businesses` of this kind are developed in the various Member States varies greatly, so that the development of a true Community policy for this sector is a laborious process. And it will probably not amount to much more than an exchange of information between Member States. This should not however mean the Member States and the Commission failing to appreciate the important contribution of the social economy to society. However the initiatives now announced must, in consultation with the organizations concerned, be further developed, which does not yet appear to be happening so that a final judgement on this part of the programme is not yet possible. The idea of special European diploma programmes would however seem at first sight to be at odds with the European Union's lack of powers over educational curricula. The exchange of experience gained in the Member States of specific education for persons working in social economy, by setting up a network of bodies, would seem a more fruitful and potentially valuable approach.

5. Conclusion

5.1. Many factors play an important part in the efforts to secure lasting economic growth in Europe. The promotion of entrepreneurship is only one of these, but certainly not the least important. But we must avoid unrealistic expectations at this stage which are likely only to result in disappointment. There are of course many fast growing small firms which contribute to the growth of employment. But at the same time there are also many microenterprises which offer people working for them a decent standard of living. These firms are not growing however and do not want to grow. And yet these, often locally operating firms make up the bulk of the small business sector and play an irreplaceable role in European economies. These are mostly small firms in the more traditional sectors, such as retailing, crafts, hotels and tourism and small-scale industry.

5.2. The Committee points out that the Commission tends to lose sight of this important group. The Commission tends to emphasize innovative, fast-growing start-ups. There is a danger that this emphasis on corporate 'gazelles` will mean neglect of measures needed for existing firms. The Committee feels that the policy approach should be balanced, so that existing firms can operate on the market in accordance with the same conditions of competition as newcomers.

5.3. It is because entrepreneurship is a dynamic process of setting up, developing and finally transferring or winding up businesses that all these stages of the life cycle of a firm deserve policy consideration. With this proviso, the Committee wholeheartedly supports the vision and strategy for its implementation set out in the Commission's communication.

5.4. The Committee feels however that the annual evaluation of Community and national policy proposed by the Commission should also be referred for the Committee's opinion. Merely consulting the Council and the European Parliament would be to miss the opportunity to create broad public support for the continuation of this policy!

5.5. The Committee feels that this evaluation should be more than a traditional report on activities. On the model of the internal market scoreboard, it should be a sort of barometer or health check to establish whether progress has been made by the Union and the individual Member States in areas of importance to entrepreneurs, and if so in which. The BEST group referred to above states in its report that: 'It is, therefore, time that we moved from merely talking about the importance of having the right environment for small business to putting the needs of enterprise at the centre of policy making`.

5.6. The Committee considers that an annual check list could be a useful instrument for achieving this objective.

Brussels, 27 May 1998.

The President

of the Economic and Social Committee

Tom JENKINS

() OJ C 19, 21.1.1998, p. 72.

() OJ C 355, 21.11.1997.

() COM(98) 126 final.

() COM(97) 187 final.

() OJ C 157, 25.5.1998.