Monday, 6 August 2012

Start-ups, Democracy and Growth

While the economic climate is deteriorating rapidly in South Europe what seems to raise our expectations about the future is the fact that in Spain, with unemployment reaching 25% and youth unemployment more than 50%, young people have began creating start-up businesses as a response to the economic crisis in the country. (for more information concerning start-ups in Spain read this).

Europe, especially in the South, does not have the same mentality or maybe not even the same resources when it comes to start-ups and establishing new businesses, as countries like the US or Israel do. The only nation in the EU that comes near this mentality is the technology-oriented Estonia which in 2005 it became the first country to offer Internet voting nationally in local elections. The feature itself is very impressive and something I would love to see in all countries. This will bring a new era in democracy, allowing citizens to have a direct opinion on many aspects of national affairs through courses of action like referendums. For those who love numbers 1.9% of the Estonians (approximately 9,300 people) voted online in 2005 whilst the percentage rose to an impressive 15.4% (150,800 persons) in the 2011 parliamentary elections.

Returning on the start-up discussion, with a simple visit to the EU grants website the reader may observe how many grants are targeted in  start-ups. Exactly none. Entrepreneurship is left to be promoted by individual countries and not at the EU level. Nevertheless, whilst in the UK (and to a much lesser degree in Germany), entrepreneurship attracts a rather significant amount of young talent, the South European mentality states that a job at a large corporation or in the government sector is a much more prestigious one. This is rooted in genes of all South European people, maybe a fact which derives from the instability in governments over the last century and has resulted in a need for a stable job, salary and life. (remember that Italy, Spain, Portugal and Greece suffered through dictatorship regimes over the last century, with all of them experiencing terrorist attacks over time and Cyprus had been prone to rough civil disputes and a Turkish invasion in 1974). These experiences lead to a risk-averse society, with the specific mentality passing on to the next generations.

However, when talking to today's youth, this mentality seems to be changing. This might be the result of the economic catastrophe the aforementioned countries are facing, where the most stable of organizations of the past, the banking institutions, are proposing layoffs and shrinking of business activities to survive. It seems that the most prestigious employers have lost their reputations.

My hope for the future is that EU governments understand the importance of start-ups in the economy and provide financial assistance, in the form of subsidies or state-owned Venture Capital (VC) firms to aid individuals get the funding needed to start their business. This need only be done for a short period of time, since after the initial phase, more and more privately held VC firms and angel investors will emerge. The cost of funding a start-up is also very low as most of them require less than 100,000 euros to function. Given the amounts each country spends on foolish expenses each year sparing 10 million a year for start-up funding is infinitesimal. On the contrary, the outcome of such policies will be extremely beneficial as the now deteriorating economies will be able to bounce back, create thousands of jobs and restore confidence in the nation as a whole.

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