Select Committee on European Union Minutes of Evidence

Examination of Witness (Questions 131-139)

MONDAY 19 MAY 2003



  131. Good afternoon, Mr van der Horst. Could I welcome you to our hearing today and thank you for travelling to appear before us. We are extremely grateful. I always apologise, particularly to visitors who have travelled some distance, because we never give the amount of time that your expert evidence would truly justify. We are always fitting things in against a time clock, so we are aiming at something in the order of 40 minutes between us. I believe you have very kindly provided some written answers to our questions. You can rightly assume that none of us has read those yet because we have only had them tabled today. For the record, it would be extremely helpful if briefly, at the start, you could explain the organisation that you come from and the work that it does.
  (Mr van der Horst) Your Lordship, ladies and gentlemen, I would like to thank you very much for inviting me to this important Committee. It is an honour for me to be in your midst and I will do my utmost to answer your questions. I have to disappoint you that I am not a professor. I work for an organisation called EIM, which is an economic research organisation based in the Netherlands and we have an office in Brussels as well. We have been carrying out applied economic research for about 75 years, and our research is input for policymakers at national and also more and more at international level. Our organisation was set up, as I said, some 75 years ago as a common initiative by the Ministry of Economic Affairs, which is comparable to your Department of Trade & Industry, and business associations. We are an independent organisation, we have an independent governing board and we are now a limited company, so we try to work for all kinds of organisations: the Government, trade unions, employers' associations, anybody. One of the major research projects we are carrying out is called the Observatory of European SMEs, which is a strange word for a report or for a research project; it is from the French, l'observatoire. It is a project commissioned by the Enterprise Directorate-General of the European Commission in Brussels, the same Directorate-General that has also issued the Green Paper on Entrepreneurship in Europe. In the framework of this Observatory project since 1993 an annual report has been produced providing quantitative and qualitative information about small and medium-sized enterprises and entrepreneurship. This, for example, is the sixth annual report, 400-500 pages with quantitative and qualitative information about SMEs. Last year we produced nine different reports about nine different subjects dealing with SMEs and entrepreneurship. The subjects are selected and are chosen by the European Commission and carried out by a network of research organisations in Europe[1]. EIM is co-ordinating this network and our partner in the UK is Professor David Storey from the SME Centre of Warwick University. Our partners in the network collect all kinds of information about entrepreneurship and SMEs in the Member States. Also, they collect information about policy, policy implemented in the Member States. That is very much linked to the set of very interesting and relevant questions your secretariat sent me last week. Nevertheless, I have to confess that it was not so easy to prepare the answers to the questions you sent me because many policy measures at national and European level have not been evaluated in a proper way. Apart from that, there are so many policy measures[2] at national and local and regional level, it is hardly possible for anyone to know them all and to assess them. Nevertheless, I will do my utmost to answer your questions, your Lordship.

  132. Thank you very much indeed, Mr van der Horst. You can take it that the written answers you have provided will be written in as evidence on the record. When we ask the questions now, it would be extremely helpful if you could concentrate on the key points that you feel when we go and read your written evidence we will concentrate upon, but there may very well be supplementary questions to follow. Lord Chadlington?

Lord Chadlington

  133. Thank you very much, my Lord Chairman. Good afternoon, Mr van der Horst. My question is really about which policy of the individual Member States that promotes entrepreneurship actually works best. Which are the biggest and the most successful of the policies, as a whole, and why? What lessons do you think we can draw looking at those particular initiatives and drawing conclusions about how they might apply in the United Kingdom? Despite what my Lord Chairman said, I have read your replies to this Committee.

  A. Very good.

  134.  It is very rare that should be the case but I have and it is indeed really surprising. You put forward four specifics in the way of answering this particular question. Can I ask you if you can talk a little bit about culture? Culture is quite an important aspect, and I can see the other things flowing from it if we knew more about the culture bit. Can you talk about that?

  A.  Yes, Thank you very much, your Lordship. Personally I think that it is very important to pay more attention to culture. I remember that when I started studying economics in Rotterdam, it was quite normal that you did not choose business economics because businesses were polluting, they were bad for the workers and they were bad for the Third World—I am exaggerating a little bit—so 90 per cent of our students chose general economics. It was about the state economics, it was about the development aid, it was about the environment, et cetera. Now, it is the other way round, and that has something to do with the change in culture and the acceptance, I think, of entrepreneurship in the culture. Many policymakers strive for the level of entrepreneurship which we see in the United States and in other countries, like Australia. As you may know, in those countries there are more starters as a percentage of the total business sector. There is more volatility, there are more business dynamics and there is less fear to fail. There is a different culture between, let us say, the two continents. If we agree that entrepeneurship is good for society and we see that there are hindrances, there are bottlenecks to start a business and let a company grow. I think policy can do something in the short run, but in the long run trying to change the culture should be one of the major objectives. I have presented a few examples of how culture could be changed. If—for example—we would launch a campaign, that should of course be a long-term perspective and the Government is not the only one who can change culture. There should be some kind of a breeding place, and other stakeholder should co-operate as well. On the other hand, personally I wonder if we should strive to reach the level of what the Americans and other countries have reached in terms of the number of new enterprises. Based on studies and research it has become clear that there is, let us say, a link between social security expenditures in a country and the level of entrepreneurship. That means if you have low level social security there are more starters and there are more people who want to start their own business. Of course, that is a political question. If you were to try and have a low level of social security in order to stimulate entrepreneurship, that is the other way round. As long as we have a higher standard of social security in Europe, I think that, if what has been found in research is correct, we will never reach the level of entrepreneurship of the United States. That does not mean that we should not try to stimulate more people to start their own business and that we should not try to make it easier to start a business. The European Commission is very eager to compare between Member States ways and means to start your business, as you may know, in the Implementation Report of the Charter on Small Business. Also, in the "Quantitative targets on enterprise policy" published by the Commission recently, you may have seen that, for instance, the UK is at the top of countries where you can start your business in one day, at least you can register a sole proprietorship enterprise in one day. In Spain and Italy, for instance, it takes 35-45 days to start a business. So here already you have examples of countries, the UK and also the Scandinavian countries and the Netherlands, where governments have been able to improve, let us say, the regulations.

  135.  There is a difference, is there not, also between the UK and, say, the US culturally, which is all to do with the fear of failure and the way in which society views failure universally? I have been an entrepreneur all my life and the reason I keep going is because of the fear of failure. In America, failure, bankruptcy, is regarded as you may mess up and start again, and nobody regards that as a particularly backward step. Is it not more in the culture to do with failure in the two countries rather than the social security element?

  A.  I think you are absolutely right that there is a huge difference between countries in the treatment of failure, yes. Sometimes people are saying: "If you are going bankrupt in the United States, that is a nice experience." I have talked to American entrepreneurs who have said: "My son and daughter are both entrepreneurs. My son has gone bankrupt four times and my daughter three times. I'm proud they are so experienced now."

  136.  They are not very good, are they?

  A.  In our countries—at least in my country and some other European countries—it is extremely hard to get a bank loan if you have ever been bankrupt; it is some kind of stigma. I think in some way or the other governments should also do something about that; talk to banks, or make some kind of schemes to make it easier to start your own business and to restart a business after failure.

  Chairman: Lord Fearn?

Lord Fearn

  137.  Thank you, my Lord Chairman. Looking at the national policy of individual EU Member States to promote entrepeneurship, which provide the best practice in terms of the evaluation of individual schemes?

  A.  First of all, I would like to use the word "good" instead of "best" practice, because if I were to talk about best practice I should have a complete overview of all the policy measures and I am afraid no-one has. In the second place, national policies have been developed for the situation in a specific country. Bottlenecks, hindrances and circumstances in countries differ, so one cannot simply copy a policy from one country to another. I have reflected long on this question and I do not feel in a position to point out the very best national policy in Europe, in fact, I wonder if someone would be able to do so. Nevertheless, let me try to answer your question in this way. I am a little biased because it is a Dutch example. I think, taking into account what has happened with this policy measure, I have some right to bring it forward here. Let me say it this way. The Ministry of Economic Affairs in the Netherlands has put in place a research programme dealing with SME and entrepreneurship. It is a big programme. It was established many decades ago and it is a well co-ordinated, well established and well organised programme. It is about facts and figures of small business for all sectors, all size classes, about bottlenecks, about opportunities, about strengths and weaknesses, the impact of the Internal Markets, export, innovation, anything. It is based on the building of huge databases by size class of enterprises. It is making use of econometric models by size class of enterprises and this SME enterpreneurship research programme is carried out by my organisation. Now, you understand why I am a little bit biased by this example. Nevertheless, I think that this is a good example of a national policy measure or at least programme. Many people have taken notice of this research programme. In our organisation we have had people from all over the world—ministers, presidents and other officials—who wanted to know something about this research programme. It is carried out in a completely independent way. It is managed by, let us say, an arm's length committee of the government, so the government is not able to influence it in any way. It is completely financed by the Ministry of Economic Affairs, that is to say, comparable to your DTI and it is becoming more and more an international programme. We are comparing the performance and the structure of Dutch enterprises more and more with enterprises abroad, e.g. in Germany and the UK.


  138. Mr van der Horst, let me interrupt you. If we go along these lines, we are going to go through all of the document, and we are wasting time the valuable time we have with you here. On that theme, frankly, I am a bit baffled by that. What actual policies—actions to promote entrepreneurship—have come out of that research programme? I can see you have collected lots of information over many years, but I have to say I am not entirely convinced or persuaded that is the result of any programme of actions to impact on them commercially. Maybe it does, but I would be very interested in what you give as an example.

  A. Yes. Let me give you two examples that came out of this research. The first one is about the need for micro loans. Many banks are not able, or not willing, to provide small loans to enterprises—especially for the very small enterprises—because of a lack of collateral and other reasons. So, based on the very detailed research which was carried out over many years, it came out that a loan guarantee scheme should be set up; that was the outcome of one of those researches. That scheme was set up many years ago and it was, let us say, very properly evaluated several times. The scheme was improved over the years and I can say that this scheme is now one of the best schemes in Europe for loan guarantee financing. Very shortly, the principle is that the bank takes about 50 per cent of the risk and the government takes another ca. 50 per cent of the risk. There is an agreement between the government (the Ministry of Economic Affairs) and all the large banks. So a small entrepreneur goes to the bank and the bank applies the criteria which are agreed between the banks and the government. The government is not involved in providing the loan at all, only if the guarantee is needed and after several years the customer is not able to pay it back, then the government checks if the criteria have been applied in a proper way. This is a very cheap policy. Two to four per cent of the loan is paid by the bank to the government for the administration costs. The annual amount which is guaranteed is about € 500 million and the total amount guaranteed much more than € 1 billion. There are 4 to 5,000 enterprises each year and in total at this moment more than 20,000 enterprises which profit from this loan guarantee scheme. The net costs for the government in 2001 were positive, so there was even a small profit for the government. So the government had to pay less money back to the banks as guarantee than it got from the commission fee it received from the bank. The net costs will now probably be a little bit higher due to the economic circumstances.

Lord Chadlington

  139. Before you leave that subject, is there a band of funding for these micro loans at a lower level and a higher level?

  A. Yes. I am not sure, I have to check[3] that.

1   The network is called the European Network for SME Research ENSR. Back

2   The SMIE database (Support Measures and Initiatives for Enterprises) set up by the European Commission contains more than 2,500 policy measures. Back

3   The maximum credit is 900,000 euro (100,000 euro for starters), the average credit is around 75,000 euro. There is no minimum credit set, but some banks don't give credits below 20,000 euro. Back

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