Hannover A2 restructuring

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Hannover policy forum background papers

Workshop A2 - ENTREPRENEURSHIP AND RESTRUCTURING

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Contents

Workshop objectives

  • To analyse the challenges that restructuring poses specifically for enterprise creation in disadvantaged areas.
  • To demonstrate the importance of strategies for inclusive entrepreneurship and the social economy in creating jobs for the people and areas left behind by restructuring.

What is the challenge?

On average, 10% of enterprises and 15% of jobs are lost in Europe every year - around 5-15,000 jobs per day in each Member State. The European economy can only survive this massive loss through the creation of a similar number of jobs in other fields. In the twenty five years between 1977 and 2002 Europe expanded its job market by over 30 million jobs. This was the net result of the creation of 44 million jobs in service industries offset by the loss of 7.5 million jobs in agriculture and 7 million jobs in industry.

To fulfil the Lisbon targets, it is estimated that Europe needs to create 22 million more jobs by 2010. But the real challenge is not just to create enough jobs but to ensure a match between the people and areas that lose from restructuring and the nature and location of the jobs that are being created.

Much can be done on the supply side to retrain workers and smooth the transition into the new growing sectors. But for many urban and rural areas and for many groups of people this is just not enough. Programmes like EQUAL point to the fact that it is not just the people who directly lose their jobs through restructuring that face problems. Closures, relocation and other forms of restructuring can have a knock on effect on local economies, leaving groups like women, young people and ethnic minorities high and dry in terms of having a chance of entering the labour market.

Many areas of traditional industry did not have vibrant entrepreneurial cultures. This is particularly true where mono-company towns have developed (mining, paper, aluminium etc) or where very large factories closed (shipbuilding, steel, textiles, motor vehicles). In these places it was normal for young men to follow their fathers. Few people thought of starting their own businesses and there were few enterprises to emulate.

Restructuring can take several forms in response to “drivers” such as globalization, technological development and the growth of the knowledge economy, environmental concerns, the ageing of society and shifts in consumers’ tastes. It can appear as a major shift between economic sectors, as a movement from low to higher value added activities within a particular sector and as a reorganization of the firm (for example, through more out-sourcing). The common feature of all forms of restructuring is the disappearance of certain activities and jobs and the creation of new ones – of a different kind and often in a different place. Inward investment has been the classic response to these areas. Large sites are prepared, and enormous subsidies are paid to encourage new industry to relocate. Footloose companies looking to invest in Europe are not as plentiful as they once were and there is now intense competition from regions with very low factor costs in this market. Some large inward investments have failed as a result of relocations in short time periods. Frequently the poorest neighbourhoods do not capture jobs in some. A more balanced approach is needed that combines appropriate inward investment with new enterprise development.

What kinds of solutions are being tested?

There are three types of business creation policy in response to restructuring. The first refers to management or employee buy-outs of the existing enterprise. The second is support for the creation of completely new enterprises launched by employees directly affected by restructuring. The last concerns support in the areas and communities affected by restructuring for the creation of new start-ups by people not necessarily concerned by the restructuring directly themselves. Where as the first two types of policy often (but by no means always) concern men of above a certain age, the last concerns many of the most vulnerable groups that are particularly affected when major local sources of jobs and income disappear.

Broadly speaking, however, we can distinguish two complementary approaches:

  • The first is to try to change the general conditions caused by years of dependency on one particular sector or firm by making it both easier and more attractive for all groups to start up a new economic activity of whatever kind.
  • The second involves going one step further, and building a chain of policies designed to encourage those specific activities with less risk of relocation and most potential for the future – given the characteristics of the area and the population (e.g. the environment, care, culture...).

EQUAL and other projects in both the business creation and social economy fields have now learnt many valuable lessons in both areas which should be taken into account in the next round of the Structural Funds.

Questions for discussion

  • Does more weight need to be given to policies for the creation of new enterprises in the face of increasing restructuring?
  • What kinds of activities should be encouraged and for whom?
  • What has been learned about the conditions for success? What policies work best and where?
  • What changes and recommendations need to be carried through in the future?

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