Examination of Witness (Questions 140-159)|
MONDAY 19 MAY 2003
140. € 50,000 is the base?
A. It is the ceiling.
€ 50,000 is the ceiling?
A. I have to check it.
142. These really are micro loans. They are
A. Yes, shopkeepers and crafts. It is in my
document. Would you please take into account, your Lordships,
that the average size of small and medium SMEs in Europe is four;
the average size of enterprises in Europe is six, six people.
So the vast majority of enterprises in our countries is very,
very small indeed. Of course, they are little bit-sized, innovative,
exporting companies, but the vast majority is very small. 93 per
cent of all enterprises in your country have fewer than ten employees
and their average firm size is two, which means the entrepreneur
and just one employee. So they need the micro loans; they just
want to buy a new machine. I do not say that you don't need equity
and venture capital for some SMEs also, et cetera.
Lord Chadlington: No, but it is very important.
143. Can I just move you on then to the question
of the EU itself. In your written answer to question 1, you provide
a long list of examples of actions taken by different countries.
Our list is of those examples of actions to promote enterprise.
Why on earth is the EU getting involved with individual schemes
across Europe? What has this to do with the EU level? Is not promoting
enterprise and actions to promote enterprise an issue much better
done at Member State level?
A. If I have understood you, you mean why is
the European Union
144. The European Union actually has some programmes
A. To support, yes.
145. What on earth is the possible justification
for this being done at EU level when we are soon to have 25 states?
Surely, the position in Hungary is totally different from that
in Holland, or in Britain, or in France and so on? What justification
can you honestly see in the EU doing anything at programme level?
I am not talking about encouraging programmes to be implemented.
A. Yes. I think this is a very essential and
interesting question. To be honest, I think that the European
Union should not be involved that much in individual programmes
to support entrepreneurship or SMEs. The only legitimacy I see
for it is to strive after not too much difference between policies
in the Member States. I am not in favour of equalising all policies.
I think as there are different circumstances in different countries
in terms of labour costs, or the costs of settling down, there
can also be differences in policy. I do not think there should
be too many differences in policy, but a little bit of competition
in policy is not that bad, I think. Taking into account the increasing,
let us say, internationalisation of enterprises, if you are a
medium-sized firm and you want to set up an affiliate in another
EU member country, then it is very boring if all kinds of rules
and regulations but also policies differ between the countries.
Those are additional costs for you to get acquainted to new subsidy
schemes and to new regulations. So for those countries and those
enterprisesthose are not only the huge corporations, many
medium-sized enterprises are now working in the international
fields either through agents, or through affiliates, or through
partnerswe do it ourselves, we have 19 partners in the
European Union and we know, from experience, how it is to work
with these different partners in a business-like way. I think
there should be a balance between a reasonable policy competition
and the desire from the business sector to have simple and equal
rules and regulations. Let all the Member States develop their
own polices which is their main, I would say, responsibility,
but on the other hand, not too many differences between the policies
because that is not good for the internationalisation of enterprises.
There is definitely a role to play for the European Union and
the European Commission in stimulating, co-ordinating and exchanging
of good practices. Can I just give you an example. There is this
huge budget of the European Investment Fund. They provide money
to banks in all the countries and those banks provide credits
to small enterprises. If you look at the average sum of those
loans it is
200,000; that is not for the average SMEs, it is
for the top SMEs. I really wonder if that should beI have
to be a little bit cautiousa role for the European Union.
It is the money of the Member States. It is going to Luxembourg
and then, again, it is going back and everybody likes to have
a juste retour in French. You need an awful lot of civil
servants to check it and to administer it and to see to it that
there is no fraud, et cetera. That is one example which personally
I have some doubts about.
Chairman: That is most helpful. Lady Cohen?
Baroness Cohen of Pimlico
146. Mr van der Horst, I have managed to your
read your answers to question 4, which I take it you gave already.
I am particularly interested because last week we had the American
venture capitalists and our own DTI here and we were asking them
about the role of equity and, like you, they were very clear on
high-tech companies. There is just no substitute for equity; loan
financing does not really work.
147. Against that background, I am a little
bit startled to see how differently people do it. Is it in the
Netherlands you really do not have a government system for equity,
you introduce people to each other?
A. As far as I know, we do not have.
148. In fact, the Austrians seem to do it the
same way. They do not say to themselves: "We must have equity,"
they introduce people to each other.
149. Is that an area where some kind of direction
funds of the EU would be useful?
A. I wonder. The venture capital industry is,
I would say, a very stand alone private industry. There are many
venture capital funds. They have a very active European association,
EVCA, European Venture Capital Association, which is providing
excellent information about the venture capital industry every
year. If you look at their year book by country, by size class,
it is excellent information. I am not an expert on equity and
venture capital, I have to say, but I do not have the feeling
that this is an area where the European Commission should do much
work. The only thing they could do, I think, is make known to
governments how it works in other countries. We know that the
UK is at the top of the venture capital industry in Europe and
I think Holland is in second place, so we know how it works. There
are countries where there is hardly any venture capital industry.
That could be a role for the European Commission to organise a
workshop, or to stimulate people to exchange good practices. I
wonder really if a programme should be set in place.
150. You have told us in your evidence about
the German programme, which I am half familiar with. Is there
anybody else? If you looked across all the national states of
the EU, who do you think does the best by way of providing equity?
A. I am not sure if it is the best. As in many
other cases there are so few evaluations being carried out that
sometimes you know this scheme that has been evaluated, and then
the results are quite good and another scheme is quite good, but
there are dozens of other schemes that have not been evaluated
and they may be good as well. If you select good schemes, it is
always a very small selection out of the others. That is a major
point. So few evaluations are carried out. It is all taxpayers'
money, whether it is national or European. My opinion as an economist
and taxpayer is you should set very clear, quantitative targets
for your policy. You should demonstrate that there are market
failures. Why should the government do something? Is there someone
else who can do it? It has nothing to do with politics; it is
just from the economic point of view. If you implement policy,
it should be evaluated after one, two or three years and if it
does not work it has to stop.
151. We ask all these questions of these very
eminent people, like your good self, and we say has this particular
scheme or that particular scheme worked? There is very little
scientific evaluation that says, "Yes, it has produced this
number of jobs or done that number of things." David Storey
at Warwick has done some work on this. One of the suggestions
is that whenever we put money into a particular scheme a portion
of it should be allocated for the purpose of the evaluation. Could
you talk about that a little because it seems to me to be absolutely
central to what we are talking about.
A. Some people think that is a waste of money
but I do not think it is because going on with a scheme which
is not effective or efficient is much more expensive. Then you
are wasting money. I gave one or two examples of schemes which
were implemented in the Netherlands for many years stimulating
enterprise to start export. In the end, we did an evaluation and
only the financial situation for the enterprises was improved.
The scheme had not stimulated them to export. They would have
started to export anyway. It is positive that you improve the
financial situation but should it be done with money to stimulate
152. What is the hurdle? It seems to me to be
so pellucidly logical. I cannot understand why people do not just
say, "Absolutely. We should always have a proportion of the
budget for evaluation." I heard you say we have wasted a
lot of money but what is the hurdle?
A. That is a good question.
Baroness Cohen of Pimlico: I do not think the
UK does it either.
153. When I asked an official in the Department
for Education and Skills how successful the programme had been,
he told me how much money had been spent. He said, "We have
spent a lot of money." I do not criticise the individual.
That is probably a fairly typical reaction, judging the success
of programmes by whether a lot of money has been spent rather
than on the outcomes. Is that an experience that you have come
across elsewhere in Europe?
A. Yes. You see it in the reports of the European
Commission. If they have a programme or a scheme, they say, "This
was the budget and we spent more or less than the budget."
We see it also in the budget of the national governments. Sometimes
they have a goal to reach 1,000 enterprises or 20,000 enterprises,
but what the impact is on the enterprises in terms of employment,
production or whatever, in connection to the original target is
very rarely seen.
154. You have already touched on this but are
there any lessons which emerge from past EU evaluations which
would help to, one, design future EU policy; two, to judge which
types of policy have been least successful and are there any policy
failures that you can identify which we should avoid in the future?
A. First of all, there should be a legitimacy
for policy. From an economic point of view, there should be a
market failure. Only if there is a problem which cannot be solved
by the market, a policy could be implemented to solve it. The
second point is that there should be evaluations. The third point
is that we have to take into account this vast majority of very
small firms. I am not saying that we should not stimulate innovation,
high tech or whatever but in developing enterprise policies we
should also take into account the vast majority, 93 per cent,
of all enterprises who have fewer than ten employees, the entrepreneur
with just one or two co-workers. If those principles are taken
into account, we would have a much more effective and efficient
policy both at EU and national level.
155. I did not hear the very first point you
made. Was it the market need?
A. The market failure. The market should have
external effects which we do not desire.
156. Which policies have led to failures in
the past which could be avoided in the future?
A. If I remember, in the very beginning of what
is now called DG Enterprise, we were talking about EU policies,
the so-called DG23. They were looking for ways to stimulate small
business and they had two different subjects. They wanted to stimulate
international cooperation and provide information. They wanted
to provide information through setting up Euro Information Centres,
EICs. We have a couple of them here in Britain as well. They provided
money to new and already existing organisations with the aim to
provide information to any entrepreneur or enterprise that wanted
information about the European Union. My idea is, first of all,
why set up a new organisation? Maybe you should do that at the
Chamber of Commerce. In some countries, we have mandatory membership,
as in my country. Link it to an already existing organisation.
In Europe, an awful lot of money was spent in setting up these
EICs. There were more than 400 across Europe, including the candidate
countries, and they have been evaluated. The outcome was rather
poor so in terms of money spent they just measured the number
of clients but they did not measure what was the impact of the
information on the performance of the enterprises in relation
to the costs. This was a way for DG23 to pronounce itself, to
put itself on the agenda. I think it was a costly way. Many of
those have closed now. Baroness Cohen of Pimlico: Perhaps it is
not the schemes which gave people money, as opposed to giving
them civil servants, that turned out to be better.
Lord Howie of Troon
157. The Lord Chairman earlier on raised an
interesting question about the relationship between the European
Union and national countries, especially with regard to programmes.
I would like to talk about policies rather than programmes. Do
you think that the EU policies are sufficiently well co-ordinated
with those of the national Member States?
(The Committee suspended from 5.31pm to
5.39pm for a division in the House)
A. Co-ordination of these policies between the
EU and Member States is not an easy task, first of all because
Member States do not want the EU to interfere too much in their
policy-making process. On the other hand, as soon as EU policies
have been implemented, Member States want to get a reasonable
share of the budget available for their businesses. A lot has
improved over the last years with respect to transparency of policies
since the European Council endorsed the European Charter for Small
Enterprises in June 2000. Implementation reports have been prepared
by the European Commission about the implementation of the Charter.
Apart from that, quantitative targets about enterprise policy
have been published by the European Commission. Nowadays, there
is much more transparency at least of policies implemented at
national level. Everyone can follow the progress made in relation
to the targets set by their own governments, or the lack of progress.
That is not yet really co-ordination. Of course there are meetings
in Brussels. For instance, there is a programme management committee
in DG Enterprise, where representatives of governments discuss
the programme of DG Enterprise and the policies to be implemented.
In those committees, policies and policy instruments are discussed.
I do not participate in those committees so I do not know exactly
how they work but there is at least a level playing field where
co-ordination should be possible. If we look at the policies implemented
at EU level, there may at least still be some overlap between
policies. There are all kinds of schemes at EU level and similar
schemes at Member State level. It is very important that, before
setting up and implementing such a scheme, the European Commission
demonstrates that there is really a need for it, a proven market
failure, and that Member States agree on setting up such a scheme
on behalf of the European Commission. You also have to check whether
it is effective setting the scheme at EU level or is it more effective
to have it at national or even at regional level. It very much
depends on the content of the scheme, on the way you like to approach
the enterprises, but there can be a reason to set up European
schemes in order to harmonise policy more or less across Europe.
Lord Howie of Troon: Does subsidiarity come
into this at all or is that a myth?
158. Put another way, you said policies could
be justified across the whole of Europe on a European Union basis.
That is not subsidiarity. Can you give me a specific example in
this area of an actual policy supported by programmes? Can you
tell the Committee, in your view, what would be justified to establish
and be run through Brussels, given your market failure criteria,
perhaps at Europe level, not at Member State level? Can you think
of a serious policy that would override subsidiarity?
A. If you also consider policies that aim at
exchanging information and making things transparent, providing
information about the markets, about facts and figures, about
businesses inside and outside Europe, providing to all players
the same level of playing field for information, this could be
an important issue. Stimulating trade, trying to harmonise rules
and regulationsfor instance, stimulating governments to
improve the regulations and to facilitate starting a business
or taking over a business from someone else. Those kinds of rules
and regulations do not need to be the same in all countries but
there should not be too many differences; demonstrating to governments
how they can cope with measuring administrative burden, which
is a terrible hindrance to many enterprises. If one country has
done that in a fairly efficient way, why could there not be a
role for the European Commission to demonstrate to other countries
that here we have a methodology which has proven to be effective
and efficient? Why not apply that in other countries, so exchanging
of information and experiments could be very important. I do not
think the European Commission or the European Union should implement
policies for instance to finance enterprises or to support enterprises.
That is a role that should be at national, regional or even local
level. I think that is more effective and more efficient.
Lord Howie of Troon
159. Can you think of any examples where a lack
of co-ordination between the Union and a Member State has raised
A. If policies differ so much between countries
that there is more or less an artificial hindrance for enterprises
to trade with other countries or to set up a subsidiary or to
start their own business in another country, then I think there
is a role for the European Union to coordinate and to make more
transparent the different policies in the Member States. I do
not think there should be huge differences. I gave one example
of setting up a business in the UK in one day and in Italy in
45 days. There the European Union has a role to say to the Italians,
"You really have to improve this. Look to the other countries."
Maybe we should finance them to travel to the UK to see how they
do it. I think the supranational organisations can have a role
to play in that.