Saving Entrepreneurial Future of Europe

Understanding and freedom are essential

Over the past three years the share of European Union (EU) citizens who want to be self-employed has fallen from 45% to 37%, reports European Commission (EC). This year EC highlighted the need for more entrepreneurs in order to return the EU to economic growth and higher levels of employment.

However, historical, cultural and economic background of diverse European countries has significant effects on attitudes towards entrepreneurs in European countries. Lack of in-depth knowledge might determine future revival of entrepreneurship in Europe, reveals the study by Lithuanian Free Market Institute (LFMI) presented today in Brussels.

“It is a positive trend in Europe to turn to entrepreneurs and acknowledge their role in creating economic growth. Yet, without knowing the mistakes of the past, there is no future. This is especially important when considering New Member States, such as Lithuania or Bulgaria, which still carry a burden of post-communist past. Therefore, only full understanding of entrepreneurial situation per country can guarantee that necessary measures will be taken and will actually give wanted results”, says Zilvinas Silenas, President of LFMI.

In line with the acknowledged need to revive entrepreneurial spirit of Europe, LFMI conducted an international in-depth study in two New EU Member States, Lithuania and Bulgaria, and for comparative reasons in two non-EU countries – Georgia and Kyrgyzstan. The aim of the study was to determine attitudes towards entrepreneurs in countries sharing the same post-communist past and underlying historical, cultural and economic reasons of such attitudes.

How to get rid of the “exploiter” image of the entrepreneurs?

According to the study results, New Member States tend not to trust entrepreneurs. Only a third of Lithuanians (31%) trust entrepreneurs, whereas in Bulgaria only one fifth (19%) of citizens do so. The research has also shown that a large part of population, while evaluating if they trust entrepreneurs or not, stays neutral. Neutral position was held by 33% of citizens in Bulgaria and 38% citizens of Lithuania. In comparison, in Georgia and Kyrgyzstan trust rate is higher – almost a half of the population said that they trust entrepreneurs.

Moreover, 67% of Lithuanians and 69% Bulgarians agree, or tend to agree, with the statement that “Entrepreneurs get rich by exploiting other people’s work”.

“The Soviet period was characterized by full nationalization and central planning of economic activities, by demonization of entrepreneurs. In all the countries, the communist period did the most significant damage by stopping the development of entrepreneurship and creating a strong association between business and exploitation. Entrepreneurship is a natural process which develops organically, from the natural needs of a society, and from the natural ability of entrepreneurs to fulfill these needs. Any top-down intervention in this process may be harmful and may hamper progress. Especially, if this intervention creates a negative image of entrepreneurship”, says Zilvinas Silenas.

According to anthropologist Prof. P. Subacius, study results show that in the mindset of post-communist people, there is not only a lack of trust, but a lack of favorable depiction and understanding of enterprising as such.

Entrepreneurship needs creativity and innovation, doesn’t it?

The majority (74%) of Lithuanians think that economic growth is created by entrepreneurs and businesses. In Bulgaria more than a half (55%) of the population sees entrepreneurial efforts as the main source of economic growth. In Bulgaria, as well as in Lithuania, around a quarter of respondents thought that the government is the source of economic growth.

In Georgia and Kyrgyzstan about a half of respondents think that entrepreneurs and businesses create wealth for the society. In these countries there were slightly more people who think that the government is the source of economic growth – 30% of respondents in Kyrgyzstan and 34% in Georgia chose this answer.

“The differences between EU and non-EU countries are logical. In Kyrgyzstan the state sector is still dominant and, therefore, people see more important role for the state. During the last decade there were significant economic and political reforms in Georgia. These reforms contributed to the economic growth and the people took this into account when answering the survey. The optimistic sign from EU perspective is that the majority of the populations in the two EU countries realize that businessmen are the creators of wealth in a society and that entrepreneurship requires a lot of hard work, risk taking and these qualities are admired”, claims Z. Silenas.

According to the study, the most common associations for Lithuanians which arise when talking about entrepreneurs are social status (39% of Lithuanians chose the answer), hard work (39%), luxury (32%), risk (31%). These were followed by creativity (23%), ingenuity and innovation (21%), corruption (20%), bankruptcy (15%), crime (9%), charity (10%).

In Bulgaria many people associate entrepreneurs with corruption (23.4%). Ingenuity and innovation represent only the seventh most frequently mentioned association out of ten – it was mentioned by only 14.3% against 23.4% for “corruption”, 34.3% for “luxury” and 40.9% for “hard work”.

According to scholars, recent data show that for post-communist country’s residents, it is easier to associate entrepreneurs with hard work as these qualities are more prominent in their culture and history. However, scholars admit that creativity, which is a fundamental quality in entrepreneurship, should receive more recognition from society.

“Results of the research warn that citizens of New EU States do not fully understand the function of the entrepreneur. When we think about the measures to encourage entrepreneurship in Europe, we must take this into account. Public understanding should come first. Only then can support, advice or any other measure give good results”, says Zilvinas Silenas.

However, lack of creativity in New EU Member States might be caused not only by the communist rule. In contrast, in Georgia people think that entrepreneurship and creativity go hand in hand (64% of Georgians chose this answer).

No freedom, no businesses

When asked, what measures residents believe would mostly help to encourage entrepreneurship in Lithuania, the majority (62%) said lower taxes and less regulation by the government would help. Also, a large share of population (45%) thinks that a larger government aid would help. A better public opinion (14%), better conditions for getting a loan (12%) and better education (12%) were less common among answers.

A large share of population in Bulgaria (39%) also thinks that lower taxes and less government regulation would help entrepreneurs. 24% of Bulgarians thought that business needs more help from the state.

Both of these countries have the highest shadow economies from among the EU-27 countries, which can be linked to high taxation and regulatory burden.

“The study shows that citizens clearly depict the problem of current economic climate, followed by huge unemployment. In times of high unemployment, people are willing to sacrifice the ability to have a higher wage and all the benefits that official employment brings in order to have any kind of job and to gain some marketable skills. Sometimes during rough periods the laws designed to give people security and a better future ruin their chances of employment and better prospects in life. Therefore, regulatory burden and taxation are the fields to be revised if we want to encourage entrepreneurship in Eastern European countries”, says Z. Silenas.

The research on the profile of an entrepreneur in the post-communist countries, which seeks to evaluate the image and with the help from historians, sociologists, experts of religious studies, anthropologists find the reasons for such an image, is a part of an international project. The project was made possible through the support of a grant from the John Templeton Foundation. The project is implemented by LFMI with partners – Institute for Market Economics (Bulgaria), Central Asian Free Market Institute (Kyrgyzstan) and New School of Economics School (Georgia).

The Lithuanian Free Market Institute (LFMI) is a private non-profit non-partisan organization established in 1990 to promote the ideas of individual freedom and responsibility, free market, and limited government. Our goal is to help advance general interests of the people of Lithuania who can best be realized in a free market as every individual pursues his or her objectives – without any privileges, protection or restrictions – by serving the society and not relying on the government apparatus.

The LFMI‘s team conducts research on key economic and economic policy issues, develops conceptual reform packages, drafts and evaluates legislative proposals and aids government institutions by advising how to better implement the principles of free market in Lithuania. LFMI also conducts sociological surveys, issues economic literature and organizes conferences, workshops, and lectures. Educational activities are an integral component of LFMI‘s work aimed at making free market ideas a part of the Lithuanian society‘s life.