iMinds the Conference, 5 December, Brussels

Entrepreneurship in Europe - Enabling Innovation and Experimentation

Dirk Pilat, Deputy Director Directorate for Science, Technology and Industry dirk.pilat@oecd.org

Outline

– The role of young, entrepreneurial firms

– Growth dynamics and the policies that matter

– Conclusions and some policy recommendations

3

Start-up rates in Europe are not the problem … (Employer enterprise birth and death rates, services, 2010)

As a percentage of the population of active enterprises with at least one employee

Source: OECD (2013), Entrepreneurship at a Glance. http://dx.doi.org/10.1787/888932892879

0

4

8

12

16

20

24

% Birth Death

4

… as barriers to entrepreneurship have fallen

Scale of 0 to 6 from least to most restrictive

Source: OECD, Product Market Regulation Database, www.oecd.org/economy/pmr, June 2013

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Index Administrative burdens on start-ups Regulatory and administrative opacity Barriers to competition Barriers to entrepreneurship in 1998

5

Where are the new opportunities? In young firms …

The contribution of firms to job creation, average over 15 countries, 2001-2011

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932889383

-6

-4

-2

0

2

4

6

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

%Young firms (5 years old or less) Old firms (6 years old or more) Total

6

… independent of their size … Average over 15 countries, 2001-2011

0

5

10

15

20

25

30

35

40

45

Small young Small old Medium young Medium old Large young Large old

% Employment Job destruction Job creation

0

5

10

15

20

25

30

35

40

45

Small young Small old Medium young Medium old Large young Large old

% Employment Job destruction Job creation

0

5

10

15

20

25

30

35

40

45

Small young Small old Medium young Medium old Large young Large old

% Employment Job destruction Job creation

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932889402

… and across most countries Employment, job creation and job destruction in young firms, 2001-11

Percentage shares, non-financial business sector (firms of 5 years old or less)

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932892917

0

10

20

30

40

50

60

70

80%

Employment Job destruction Job creation

But growth of young firms is a challenge …

Average size of firms less than 3 years old and 11 years old or more, 2001-2010

0

20

40

60

80

100Employees

11 years old or more Less than 3 years old

Manufacturing Services

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932904279

… and some regions have a more dynamic business sector than others …

(distribution of firm employment growth, 2002-2005)

Source: Bravo-Biosca (2010) based on national business register data.

… and stronger investment in risk capital (Venture capital investment, 2012, as a percentage of GDP)

Source: OECD, Entrepreneurship at a Glance 2013, http://dx.doi.org/10.1787/888932892993

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

%Early stage Later stage Breakdown not available

0.000

0.005

0.010

0.015

0.020

0.025

0.030

0.035Magnified

Some countries are better at channelling resources to more innovative firms than others …

-2%

-1%

0%

1%

2%

3%

4%

5%

Percentage change in capital stock

Change in firm inputs associated with a 10% change in patent stock; selected OECD countries (2002-2010)

Source: Andrews, Criscuolo and Menon (2013)

… and have R&D support policies that are designed to support young innovative firms

Implied tax subsidy on R&D expenditure

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891150

Policies influence reallocation to innovative firms

Source: Andrews, Criscuolo and Menon (2013)

Change in firm capital associated with a 10% change in the patent stock Selected OECD countries; 2002-2010

Key findings

1. Net job creation does not come from small, but from young firms.

2. Growth of young innovative firms means “up” or “out”; entrepreneurs need flexibility to experiment with business models.

3. Growth dynamics of firms differs across countries; in some countries, firms hardly scale after entry.

4. Policy matters, and has impacts on the scope for experimentation, and for the allocation of resources to the more innovative firms.

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Five policy recommendations for Europe

1. Allow for experimentation: Reduce barriers to the entry (e.g. red tape), growth (e.g. size-specific regulations), and exit/failure of firms (e.g. penalising bankruptcy legislation).

2. Finalise the internal market – so firms can scale more easily.

3. Level the playing field for new and innovative firms: Some policies favour incumbents and MNEs (e.g. R&D tax credits), that also have a greater voice in policy development.

4. Strengthen the innovation system for young and innovative firms, e.g. through enhanced access to (risk) capital, network development, mentoring of entrepreneurs, skills development, etc.

5. Celebrate entrepreneurship. 15

Thank you

Contact:

dirk.pilat@oecd.org

For more data:

www.oecd.org/sti/scoreboard

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