An enterprising approach
The new-look European Commission has reorganised itself to bring its policy-making for large, small and new businesses under one roof - that of the new Directorate General for Enterprise. On the eve of his return to the private sector, Euroabstracts talked to the man who superintended the transformation, Acting Director General, Magnus Lemmel. He sketches out the Commission's plans to encourage more business start-ups, to cope with the EU's enlargement and the growth of electronic commerce, and to aid job creation and sustainable development.What advantages will ensue from the Commission's recent reorganisation? What are the intended impacts on industrial, SME and innovation policy?
Magnus Lemmel: The mission of the new Enterprise Directorate-General is to help enterprises in Europe realise their full potential, especially small and medium-sized enterprises (SMEs), which represent the fastest-growing economic engine of the EU.
A new focus on the environment for enterprises, on education and training and on factors of competitiveness can promote an enterprise culture and develop entrepreneurial skills. Another important aspect, now fully integrated in the enterprise policy, is innovation: an innovation-inspired enterprise policy has to anticipate, facilitate and encourage change.
All of this certainly implies a new strategic approach, which our DG will be pioneering in the coming months.
The Commission is promoting a model in which people are more willing to take risks, and society is more willing to reward them. At the same time, the European social model is valued by many. Are we seeing a new 'European' style of entrepreneurialism?
The European social model is not incompatible with entrepreneurial innovation and business activities. The welfare state is more about solidarity than about creating barriers to start-ups and companies in general. But - yes - our social model has to reward risk-taking, and not simply avoid punishing risk-takers. To seize the opportunities (and the challenges) of globalisation and the information society, we have to be bold. Social inclusion is a prerequisite for economic success.
The main priorities will be the implementation of a competitiveness policy for all services, the full development of the internal market for business services, and more extensive representation of business services interests in the GATS negotiations.
The Business Environment Simplification Task Force (BEST) has identified 150 action points to improve the business environment and facilitate the creation and growth of enterprises. The 3rd Round Table of Bankers and SMEs has also identified a range of best practices to facilitate SMEs' access to finance - including how to value human capital. And the Council has agreed to reduce VAT rates for a small number of employment-intensive sectors, each member state being free to choose three. This will increase small firm competitiveness, help sustain existing employment and encourage new jobs resulting from additional demand for (cheaper) services.
Support services for SMEs provide them with information, advice and expertise. These activities are fragmented and dispersed at different levels and with different aims; the priority action of DG Enterprise will be to stimulate an integrated approach.
Well before accession, the single market will be gradually extended to applicant countries by concluding PECAs (Protocols to the Europe agreement on Conformity assessment and Acceptance of products), at least with those candidate countries that have achieved a high enough degree of preparedness. PECAs aim to allow (before accession) the progressive achievement of the single market on a sector-by-sector basis. The condition for a sector to become a de facto part of the internal market before accession is for the candidate country to have adopted EU rules for placing products on the market and be able to apply these rules.
No social system can function without trust and without rules. Do environmental and social concerns influence enterprise policy?
Environmental protection creates opportunities for business, through the development of new markets for equipment and services. Economic growth can go hand-in-hand with an improved level of employment and protection of our planet. This is what sustainability means.
Environment-related employment can be found in big industries but also in SMEs, in the non-profit sector (such as in co-operatives and associations) and in the public sector. Environment, employment and industrial policies can and must be made beneficial to each other. Already 3.5 million people in the European Union have jobs related to environmental protection. In areas such as urban renovation, rural development, tourism, environmental care in industry, energy saving, production of renewable energies, investments are being made so as to ensure sustainable production and consumption patterns.
The conditions for ensuring sustainable development can only be achieved by using the appropriate mix of policies and instruments, and engaging all stakeholders. Economic and regulatory measures, voluntary agreements, and actions for promoting responsible entrepreneurship and eco-efficiency have an important role.
The levels of new venture capital and investments have never been higher. Creating new sources is less of a priority now, and care must be taken that public money does not crowd out private investors. The approach by the Commission and the European Investment Fund of investing public money through private investors, rather than in competition with them, has allowed private capital to be mobilised more readily.
The efforts by the Commission to promote a single market in financial services and risk capital markets will ensure that this initial momentum is not lost in the long run.
However, the proportion of venture capital flowing into technology companies is still too small. The Commission is acting with the European Investment Fund and industry to stimulate this activity.
The Commission has focused on seed capital and early stage finance through its own programmes and together with the European Investment Fund. And the European Investment Bank and EIF have committed themselves to supporting venture capital funds that invest in existing businesses.
Europe's venture capital industry lags behind the US for several reasons:
US operators can also invest much more in SMEs and across national borders than Europeans. In Europe, banks still tend to be the primary source of external finance for SMEs in particular. However, they are reluctant to grant loans to fast growing, technology-based businesses, since they would receive only a small return for a high risk.
Young people here are much more open to entrepreneurship and setting up a company than before. Nevertheless, it is true that we have been less appreciative of entrepreneurship. Failure is more likely to be associated with inability rather than being counted as a valuable experience, improving chances for the future. This has to change.
Until not so long ago, there was talk of Europe lagging behind the US in the ICT sector. However, Europe has now become what we could call the net's hottest frontier - matching and even leading the US in many areas. Europe is now the single fastest growing ICT market in the world, and its internet users will triple over the next four years to 100 million.
In e-commerce, Nordic countries and the Netherlands, for example, are doing as well or even better than the US, especially in the business to business area. New investments are coming from both sides of the Atlantic, and Europe's telecom, IT and media companies are moving from experimentation to large-scale investment. In particular, Europe is leading in mobile internet access - the single most promising growth area - because of our strength in mobile telephony. There are more mobile phones in the EU than in the US (80 million sets in 1999) and soon there may be more mobile phones than fixed lines in Europe.
The EU market is the most competitive telecommunications market in the world, with more than 900 operators competing in various segments. Telephone charges and internet costs for industrial users in Europe are now close to US levels. And free Internet access in Europe is offsetting higher telephone tariffs. Similarly, Internet access through cable, allowing 'permanent connection', is growing rapidly. All these forces, together with a vigorous application of competition laws, are already radically changing the European telecoms market.