by Dimitris Tsingos
The most painful aspect of the economic crisis that we have been witnessing for the last five years, is the explosive increase of unemployment, especially youth unemployment. It’s, fundamentally, a pan-European problem, which unemployment levels rising rapidly everywhere. My own country, Greece, is probably the worst example, and the toll that this situation has had on social coherence are clearly visible to all. Greece has more than 1.500.000 unemployed people, nearly a third of the economically active population, while youth unemployment has reached the stratospheric height of 60%. Other European countries are fairing much better, but only comparatively. In fact, any level beyond 7-8% is already cause enough for concern.
There’s no doubt that any successful strategy for handling the economic crisis will have to be centred on large scale job creation. Unless the million of unemployed (and their dependent family members) don’t regain their buying power, so that they can be able to consume again first, and later invest, there is no possibility of recovering the economy.
Regarding this, it’s especially relevant to have a conversation on the kind of jobs that should be created ― reminding that this should be done en masse. There’s a Greek proverb that says that “no job is shameful”, and while that’s debatable, what’s not debatable is that certain jobs are more appropriate than others given the economic climate and the needs of the economy in a globalised market. Europe can not and should not compete for cheap production jobs; instead we should invest in the creation of a knowledge-intensive job market.
Eric Schmidt (Google’s executive chairman and ex-CEO), said, while in Athens, that for “every knowledge-intensive job position created, five more are created in the traditional economy”. One can argue about the actual statistics, but one thing is clear: Europe must invest in the creation of quality jobs as a strategic advantage, by promoting knowledge-intensive entrepreneurship.
Of course the creation of such jobs in a mass scale needs heavy investments. Which leads to the question: who will make such investments? Schematically speaking, there are three answers to this: (a) the State, with its various programmes and organisations, (b) the Banks, (c) private investors, either individuals or enterprises.
Unfortunately, in most parts of Europe, like the so-called PIIGS countries and especially in my country, the state and major financial institutions are essentially bankrupt or severely challenged. While only leaves private investors as the major factor behind jump-starting an entrepreneurial economy.
The good news if for individuals and private legal entities, investing in entrepreneurship is, today, much more attractive an option than what it used to be. Primarily because of the high uncertainty currently associated with the traditional investment products. But there are also plenty of bad news: the economies and the internal markets of a lot of European countries remain in a uncertain state, with no easy recovery in sight.
In such an environment, knowing that (a) without job creation there is no exit from the crisis, and (b) only private investors can fund such a project, it’s obvious that there’s a very real need of a plan (at the European and at the national level) for assisting and encouraging private investment.
What should such a plan contain? In my experience, the following make sense:
1) Making investments in startup enterprises tax-deductible. For example, having 70% of invested money be considered a tax-deductible loss.
2) Creating co-investment funds for private investors. For example, if a group of private investors (individuals, private legal entities, enterprise etc) decide to invest in a startup enterprise, the state or the E.U could match their investment (a 50% matching fund).
3) Promote the creation of cooperative seed capital funds for investing in startups, with the state of EU co-investment. For example a startup could gather one million euro through some crowd-funding mechanism, and get a matching amount of funds invested in them by national/EU organisations.
4) Tax immunity for the repatriation of funds, with the condition that they would be invested in startup enterprises. Under this, an individual or an enterprise could repatriate capital from tax havens and such, possibly paying small repatriation fee, and get tax immunity for those money under a strict condition that a large percentage of them (say 50%) will be invested in knowledge-intensive job creation.
Suggesting the creation of matching funds, I’m not proposing an extra burden on national or EU budgets. The funds can be easily found by the discontinuation less effective subsidies and the use of that capital to assist the aforementioned investment actions.
EBAN, the European Trade Association for Business Angels, Seed Funds and other Early Stage Market Players, has already analysed what were the best practices of European states, Portugal among them, in these times of crisis, and has expressed its will to help with the necessary knowledge transfer and to work with any national government in order to devise and specialise to their needs such a plan for assisting and encouraging private investment.
The crisis, alas, is not some bad dream that will eventually end by itself. It’s the symptom of a wrong economic model that collapsed. Unless we work on changing the fundamental aspects of this model, there will be no exiting the crisis. Adopting a plan for assisting and encouraging private investment can be a great way to re-awaken the creativity and self-confidence of Europeans.
—
originally posted on YES blog ( https://blog.yes.be/ ). Reposted here because I think it’s especially important and applicable to our country’s economic situation.
