Institutional Reform for Innovation and Entrepreneurship: An Agenda for Europe

111 Pages·2017·2.53 MB·English

by  Niklas Elert

SPRINGER BRIEFS IN ECONOMICS
Niklas Elert
Magnus Henrekson
Mikael Stenkula
Institutional
Reform for
Innovation and
Entrepreneurship
An Agenda for Europe
SpringerBriefs in Economics
More information about this series at http://www.springer.com/series/8876
Niklas Elert Magnus Henrekson
(cid:129)
Mikael Stenkula
Institutional Reform
for Innovation
and Entrepreneurship
An Agenda for Europe
Niklas Elert Mikael Stenkula
Research Institute of Industrial Economics Research Institute of Industrial Economics
Stockholm Stockholm
Sweden Sweden
MagnusHenrekson
Research Institute of Industrial Economics
Stockholm
Sweden
ISSN 2191-5504 ISSN 2191-5512 (electronic)
SpringerBriefs inEconomics
ISBN978-3-319-55091-6 ISBN978-3-319-55092-3 (eBook)
DOI 10.1007/978-3-319-55092-3
LibraryofCongressControlNumber:2017933437
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Acknowledgements
WethankMarkSandersandMichaelFritschforusefulcommentsandsuggestions,
and Charlotta Olofsson for skillful research assistance.
ThisstudywaswrittenaspartoftheprojectFinancialandInstitutionalReforms
for an Entrepreneurial Society (FIRES) that has received funding from the EU’s
Horizon 2020 research and innovation programme under grant agreement
No. 649378. We also gratefully acknowledge financial support from the Jan
Wallander and Tom Hedelius Foundation, from the Marianne and Marcus
Wallenberg Foundation and from Stiftelsen Millenium.
v
Contents
1 Introduction: Europe’s Innovation Emergency. .... .... ..... .... 1
References.. .... .... .... ..... .... .... .... .... .... ..... .... 6
2 Innovation, Entrepreneurship and the Complementary
Skill Structure.. .... .... ..... .... .... .... .... .... ..... .... 9
2.1 Entrepreneurship in Europe—A First Glance .... .... ..... .... 10
2.2 The Entrepreneurial Ecosystem: The Requisite
Complementary Skill Structure... .... .... .... .... ..... .... 14
2.3 Diverse Capitalisms in the European Union. .... .... ..... .... 18
References.. .... .... .... ..... .... .... .... .... .... ..... .... 20
3 Innovation and Entrepreneurship in the European
Union—A Reform Agenda ..... .... .... .... .... .... ..... .... 25
3.1 The Rule of Law and Protection of Property Rights... ..... .... 26
3.1.1 Preamble. .... ..... .... .... .... .... .... ..... .... 26
3.1.2 Reform Agenda..... .... .... .... .... .... ..... .... 27
3.2 Taxation... .... .... ..... .... .... .... .... .... ..... .... 29
3.2.1 Preamble. .... ..... .... .... .... .... .... ..... .... 29
3.2.2 Reform Agenda..... .... .... .... .... .... ..... .... 32
3.3 Regulations Governing Savings, Capital and Finance.. ..... .... 38
3.3.1 Preamble. .... ..... .... .... .... .... .... ..... .... 38
3.3.2 Reform Agenda..... .... .... .... .... .... ..... .... 40
3.4 The Organization of Labor Markets and Social
Insurance Systems ... ..... .... .... .... .... .... ..... .... 43
3.4.1 Preamble. .... ..... .... .... .... .... .... ..... .... 43
3.4.2 Reform Agenda..... .... .... .... .... .... ..... .... 45
3.5 Regulation of Goods and Service Markets .. .... .... ..... .... 50
3.5.1 Preamble. .... ..... .... .... .... .... .... ..... .... 50
3.5.2 Reform Agenda..... .... .... .... .... .... ..... .... 52
vii
viii Contents
3.6 Bankruptcy Law and Insolvency Regulation. .... .... ..... .... 55
3.6.1 Preamble. .... ..... .... .... .... .... .... ..... .... 55
3.6.2 Reform Agenda..... .... .... .... .... .... ..... .... 56
3.7 R&D, Commercialization and Knowledge Spillovers.. ..... .... 58
3.7.1 Preamble. .... ..... .... .... .... .... .... ..... .... 58
3.7.2 Reform Agenda..... .... .... .... .... .... ..... .... 59
3.8 Incentives for Human Capital Investment... .... .... ..... .... 62
3.8.1 Preamble. .... ..... .... .... .... .... .... ..... .... 62
3.8.2 Reform Agenda..... .... .... .... .... .... ..... .... 65
3.9 Informal Institutions.. ..... .... .... .... .... .... ..... .... 71
3.9.1 Preamble. .... ..... .... .... .... .... .... ..... .... 71
3.9.2 Reform Agenda..... .... .... .... .... .... ..... .... 72
3.10 Summary and Conclusions: Institutions Nurturing
a More Entrepreneurial Europe... .... .... .... .... ..... .... 74
References.. .... .... .... ..... .... .... .... .... .... ..... .... 77
4 Summary and Conclusions..... .... .... .... .... .... ..... .... 87
References.. .... .... .... ..... .... .... .... .... .... ..... .... 91
Appendix. .... .... .... .... ..... .... .... .... .... .... ..... .... 93
References.... .... .... .... ..... .... .... .... .... .... ..... .... 101
Executive Summary
TheEuropeanUnionsuffersfromaninnovationdeficit,whichmustberemediedif
theEUistoimprovethequalityoflifeofitscitizensandremaincompetitiveinthe
globalmarketplace.Inordertodoso,moreproductiveentrepreneurshipisrequired.
We analyze how Europe’s institutional framework conditions could become more
supportive of entrepreneurship and innovation, and outline a reform strategy to
achievethisobjective.Tobeviable,thestrategyemphasizesthelargecross-country
differences across the union. Each EU member state has evolved its particular
bundle of institutions, many of which are complementary to one another. If these
complexities are not acknowledged, well-intended reforms may become unpre-
dictable or even detrimental to entrepreneurship and economic development.
Chapter 2 provides a theoretical foundation to help identify the areas where the
need for reform is the greatest. The theories of the experimentally organized
economy and of entrepreneurial ecosystems are used to identify six competencies,
inadditionto that oftheentrepreneur, that arenecessary for ideas to begenerated,
identified, selected, and commercialized. The competencies are those of inventors,
professional managers, competent employees, venture capitalists, actors in sec-
ondary markets, anddemandingcustomers.Importantly,nooneisincharge ofthe
ecosystem’s skill structure, which limits what can be achieved through top-down
reform. We also draw on the varieties of capitalism literature, which identifies
institutional complementarities as an important driver of the persistent institutional
differences acrosspolities. Theexistenceofinstitutionalcomplementaritiesimplies
that viable policy changes must be compatible with existing institutional patterns
and that a specific change will have effects that extend throughout the institutional
system. As such, they help explain both gridlocks and cascading changes.
InChap.3,wediscusstheinstitutionsthatthepreviousliteratureidentifiesasthe
most relevant for nurturing the activities of entrepreneurs and other actors in the
ecosystem’s skill structure. Overall, we discuss nine areas: (i) the rule of law and
the protection of property rights; (ii) the tax system; (iii) regulations governing
savings, capital and finance; (iv) the organization of labor markets and social
insurance systems; (v) regulations governing goods and service markets; (vi) reg-
ulations governing bankruptcy and insolvency; (vii) R&D, commercialization and
ix
x ExecutiveSummary
knowledge spillovers; (viii) human capital investments; and (ix) informal institu-
tions.Althoughourstartingpointisthatsomeinstitutionsorinstitutionalformsare
simply the most propitious for entrepreneurship and economic growth, we com-
plement this first-best perspective with insights offered by the perspectives dis-
cussed in Chap. 2, and clarify the extent to which policies and institutions interact
with and reinforce one another.
In the fourth and final chapter we summarize the study and present our main
conclusions. To make the European Union more entrepreneurial to promote inno-
vation and economic growth we propose a reform strategy with respect to the
aforementioned nine areas, which we consider to be the most pertinent institutions
and policies in order to foster a productive entrepreneurial economy. Overall, the
proposedinstitutionalchangesmoveinaliberalizingdirection,butweacknowledge
that one-size-fits-all policy reforms aimed at freer markets will not necessarily be
successful. Instead, a successful reform strategy must consider country differences
that affect the viability of reform. Nevertheless, policymakers must not lose sight
of the long-term goal of institutional liberalization to promote entrepreneurship,
innovation,andgrowth.Hopefully,thisworkinspiresbothconfidenceandhumility
regarding Europe’s innovation future.