Hannover A3 entrepreneurship & activation
Hannover policy forum background paper
Workshop A3 - ENTREPRENEURSHIP AND ACTIVATION
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- To better understand the barriers that people from particular groups with low activation rates face in becoming entrepreneurs
- To explore the contribution that entrepreneurship can play in activation strategies
What is the challenge?
The Lisbon Agenda set a goal of reaching, by 2010, a 70% total employment rate and a 60% female employment rate. Across Europe on average the self-employed make up 18% of the total employed population and 16% if agriculture is excluded. The highest concentrations of self-employed are in agriculture, retail, catering and real estate. Low concentrations occur in manufacturing, utilities, transport, financial services and public services. Micro businesses account for about 96% of all businesses in the EU 15.
According to the Global Enterprise Monitor, approximately half as many women as men set up a business in Europe. For ethnic minorities, the situation is more complex; some groups have very high levels of entrepreneurship – often as a defensive economic strategy in response to discrimination in the formal labour market. Others, particularly Muslim women, have very low enterprise levels and very low employment rates. The proportion of self-employed young people is lower than for the population as a whole. Start-up rates in disadvantaged neighbourhoods also vary. Some EU Member States (for example the UK) report that start-up rates are ten times lower in their worst performing areas than in their best .
There are a number of reasons for lower rates in particular groups:
The benefits trap
Many disadvantaged groups risk losing welfare benefits by going into employment self-employment. For the self employed a number of Member States have ‘Welfare bridges’ to enable periods of test trading while retaining the right to move back to full benefit in case of failure. Ireland has the most generous model with a scheme running up to three years for the long-term unemployed setting up in business. The benefits paid are reduced each year.
Some disadvantaged people may already be trading informally but facing regulatory barriers to starting a business (e.g. health and safety and qualifications requirements).
Harsh tax regimes
for start-up entrepreneurs can lead to early failure. Some Member States make special dispensations on certain tax payments in the early years of trading (e.g. reduced social security payments) or waive taxes for turnovers below certain thresholds. VAT thresholds vary enormously - in Spain, VAT applies to nearly all entrepreneurs by contrast in the UK, the threshold is roughly €100,000 turnover and many micro enterprises are exempt.
work permits, precarious legal status due to having been a refugee or illegal migrant.
Some groups face barriers from within their own community. It is sometimes said jokingly by women’s organisations that a woman needs a divorce before she can start a business. Certain ethnic minority groups in Europe, e.g. Bangladeshi, Pakistani and Turkish women, face particular barriers. These have been challenged in some developing countries by the micro credit movement, which often targets women (e.g. Grameen in Bangladesh, which lends to 7 million women).
Caring and disability
Childcare and caring for others can act as a barrier to employment. Similarly, disability can prevent access to many forms of work including for the self-employed.
Although enterprise is clearly an option for many groups, including those least likely to participate in the labour market, there is a commonly held view among policy makers that paid work or employment is the only way out of exclusion. Despite much evidence to the contrary many politicians and policy makers do not put emphasis on self-employment and micro-enterprise as activation strategies.
What kind of solutions are being tested?
Within EQUAL, a wide range of policy initiatives has been tested to help to overcome barriers to entrepreneurship for particular groups. Perhaps the most comprehensive approach has been in Welsh DP Cyfenter. Cyfenter’s role in all this has been to carry out what is probably the largest programme of action research in Europe to identify the real needs, obstacles and aspirations of under-represented groups when setting up a business. “Our aim was to discover what small businesses and individuals actually thought about entering the world of business and what it would take to make it easier for them,” said Paula Manley, the Cyfenter EQUAL project coordinator.
Cyfenter has provided the knowledge base and training for ensuring that the Welsh Entrepreneurship Action Plan really meets the needs of hard to reach groups. The Action Plan must be considered as one of the best examples of an integrated, inclusive regional entrepreneurship strategy in Europe. One of the key challenges it faces is ‘to create a greater number of sustainable start-up businesses in Wales with potential for further growth, particularly by groups that are under-represented in enterprise’. The Welsh Development Agency, which had overall responsibility, took the lead in the Cyfenter EQUAL project with the specific aim of helping it to achieve this objective. It drew in all the agencies which were most involved in delivering those parts of of the Action Plan that most affected disadvantaged groups.
This is a recipe that seems to work. Welsh start-ups nearly doubled from 12,000 in 2000, to 22,000 in 2004 using the independent longitudinal study – The Global Entrepreneurship Monitor (GEM). During the last year, entrepreneurship activity increased by 74% in Wales, and over the period 2000 – 2004 no other GEM nation has shown an improvement as great as Wales.
Questions for discussion
- What can we convince policy makers that entrepreneurship is an important part of activation strategies?
- How can national delivery systems be adapted so that the self employed do not fall between the departmental gap
- What kinds of partnerships and alliances are required to create the conditions for inclusive entrepreneurship?
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