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.
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
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?
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
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
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 WorldI am exaggerating
a little bitso 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. Iffor examplewe
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
136. They are not very good, are they?
A. In our countriesat least in my
country and some other European countriesit 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?
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 worldministers, presidents and other officialswho
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 policiesactions to promote entrepreneurshiphave
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 enterprisesespecially for the very small enterprisesbecause
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.
139. Before you leave that subject, is there
a band of funding for these micro loans at a lower level and a
A. Yes. I am not sure, I have to check
1 The network is called the European Network for SME
Research ENSR. Back
The SMIE database (Support Measures and Initiatives for Enterprises)
set up by the European Commission contains more than 2,500 policy
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