America has several structural advantages when it comes to entrepreneurship:
The first is the world’s most mature venture-capital industry. America’s first venture fund, the American Research and Development Corporation, was founded in 1946; today the industry has an unrivalled mixture of resources, expertise and customers. Highland Capital Partners receives about 10,000 plausible business plans a year, conducts about 1,000 meetings followed by 400 company visits and ends up making 10-20 investments a year, all of which are guaranteed to receive an enormous amount of time and expertise. IHS Global Insight, a consultancy, calculates that in 2005 companies that were once backed by venture capitalists accounted for nearly 17% of America’s GDP and 9% of private-sector employment.The second advantage is a tradition of close relations between universities and industry. America’s universities are economic engines rather than ivory towers, with proliferating science parks, technology offices, business incubators and venture funds. Stanford University gained around $200m in stock when Google went public. It is so keen on promoting entrepreneurship that it has created a monopoly-like game to teach its professors how to become entrepreneurs. About half of the start-ups in the Valley have their roots in the university.
The third advantage is an immigration policy that, historically, has been fairly open. Vivek Wadhwa, of Duke University, notes that 52% of Silicon Valley start-ups were founded by immigrants, up from around a quarter ten years ago. In all, a quarter of America’s science and technology start-ups, generating $52 billion and employing 450,000 people, have had somebody born abroad as either their CEO or their chief technology officer. In 2006 foreign nationals were named as inventors or co-inventors in a quarter of American patent applications, up from 7.6% in 1998.
Amar Bhidé, of Columbia University, suggests a fourth reason for America’s entrepreneurial success—“venturesome consumers”. Americans are unusually willing to try new products of all sorts, even if it means teaching themselves new skills and eating into their savings; they are also unusually willing to pester manufacturers to improve their products. Apple sold half a million iPhones in its first weekend.
Europe is far less entrepreneurial:
Janez Potocnik, the EU commissioner for science and research, points out that only 5% of European companies created from scratch since 1980 have made it into the list of the 1,000 biggest EU companies by market capitalisation. The equivalent figure for America is 22%.This reflects different cultural attitudes. Europeans have less to gain from taking business risks, thanks to higher tax rates, and more to lose, thanks to more punitive attitudes to bankruptcy (German law, for example, prevents anyone who has ever been bankrupt from becoming a CEO). When Denis Payre was thinking about leaving a safe job in Oracle to start a company in the late 1980s, his French friends gave him ten reasons to stay put whereas his American friends gave him ten reasons to get on his bike. In January last year Mr Payre’s start-up, Business Objects, was sold to Germany’s SAP for €4.8 billion.
European egalitarianism, too, militates against entrepreneurialism: the EU is much more interested in promoting small businesses in general than in fostering high-growth companies. The Europeans’ appetite for time off does not help. Workers are guaranteed a minimum of four weeks’ holidays a year whereas Americans’ vacations are much less certain. Europeans are also much more suspicious of business. According to a Eurobarometer poll, 42% of them think that entrepreneurs exploit other people’s work, compared with 26% of Americans.