Policy Note 64: Measures to strengthen European competitiveness with a focus on start-ups and scale-ups
Europe's competitiveness is under pressure. The productivity gap compared to the US has steadily widened in recent decades, particularly in the technology sector, where the productivity of US companies has increased massively, while it has largely stagnated in Europe. EcoAustria sees a key reason for this in the fact that significantly fewer innovative start-ups are being created in Europe and these are growing more slowly than in the USA. Specifically, the entry rate of promising start-ups in the USA is around 25 percent higher than in Europe. In addition, the fastest-growing young US companies achieve a six-fold higher employment rate than comparable European start-ups. As a result, significantly fewer of them become market leaders in Europe.
Our current policy note illustrates this development and shows that innovative start-ups in Europe are often held back by structural hurdles.
Against this background, we recommend the following package of measures:
- Completing the internal market
The removal of remaining trade barriers and the harmonization of business-related regulations should enable the completion of the EU single market, making it easier for start-ups to expand across the EU, exploit economies of scale and exploit growth potential - a step that could increase EU GDP by around 480 billion euros.
- Uniform rules for more equity capital
The standardization of company, insolvency and tax law as well as the deepening of the European capital market should facilitate cross-border equity financing. This can create a genuine single European capital market that mobilizes more investment and makes more efficient use of the high level of savings in Europe. Young innovative companies in particular will benefit from this, as it will make it easier for them to access growth capital.
- Mobilization of venture capital
In order to provide more growth capital for innovative start-ups, regulatory hurdles should be removed and access to private and institutional capital improved - in particular through reforms that rely more heavily on funded pension systems and thus mobilize more funds for venture capital investments. This will reduce the existing financing gap compared to the USA, where many times more venture capital is invested. This should provide young European companies with sufficient funds so that they do not have to migrate, but can grow into market leaders from here.
- Strengthening the innovation ecosystem
Better coordination and networking of the European research and innovation landscape and the reduction of national fragmentation should create cross-border innovation clusters that bundle investments in key strategic technologies. This will ensure that start-ups can tap into expertise, talent and markets across the EU and that Europe remains globally connected in technologies such as AI or quantum computing.
- Promoting entrepreneurial culture and the willingness to take risks
Last but not least, a cultural change towards more risk-taking, innovation-friendliness and appreciation for entrepreneurship can promote start-up dynamics and increase Europe's innovative strength. Targeted educational initiatives, visible role models and the elimination of stigma should encourage more people to take the plunge into self-employment. Such a culture of opportunity-oriented entrepreneurship is also a prerequisite for formal reforms to take full effect, as cultural norms determine the extent to which political measures actually result in more start-ups and growth.
