The Labour Divide
III. Entrepreneurship and Workaholism
By: Sam Vaknin, Ph.D.
Also published by United Press International (UPI)
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The Dutch proudly point to their current rate of unemployment at less than 2%. Labour force participation is at a historically high 74% (although in potential man-hour terms it stands at 62%). France is as hubristic with its labour policies - the 35 hours week and the earlier reduction in employers' participation in social contributions. Employment is sharply up in a host of countries with liberalized labour markets - Britain, Spain, Ireland, Finland. The ECB brags that employment in the euro zone has been rising faster than in the USA since 1997.
This is a bit misleading. Euro zone unemployment is far higher and labour force participation far lower than America's. The young are especially disadvantaged. Only Britain is up to American standards. The European labour market is highly inefficient in matching demand and supply. Labour mobility among regions and countries is glacial and generous unemployment benefits are a disincentive to find a job.
Reforms are creeping into the legislative agendas of countries as diverse as Italy and Germany. Labour laws are re-written to simplify hiring and firing practices and to expand the role of private employment agencies. But militant unions - such as Germany's IG Metal - threaten to undo all the recent gains in productivity and wage restraint.
The European Commission - a bastion of "social Europe" - has
just equalized the rights and benefits of temporary workers (with more than 6
weeks of tenure) and full-time ones. Yet another reformist adviser to the
Italian Minister of Labour was assassinated. This was followed by a
million-workers strong demonstration in Rome's Circo Massimo against minor
reforms in firing practices.
But the most successful and efficient labour market in the world, in the States, is associated with a different ethos and an idiosyncratic sociology of work. The frame of mind of the American employee and his employer is fundamentally at odds with European mentality. In Europe, one is entitled to be employed, it is a basic human right and a public good. Employers - firms and businessmen - are parties to a social treaty within a community of stakeholders with equipotent rights. Decisions are reached by consensus and consultation. Peer pressure and social oversight are strong.
Contrast this with the two engines of American economic growth: entrepreneurship and workaholism.
The USA, according to the "Global Entrepreneurship Monitor", is behind South Korea and Brazil in entrepreneurial activity prevalence index. But 7 percent of its population invested an average of $4000 per person in start-ups in 2000.
A 10-country study conducted in 1997-9 by Babson College, the London School of Business, and the Kauffman Center for Entrepreneurial Leadership found gaping disparities between countries. More than 8 percent of all Americans started a new business - compared to less than 1.5 percent in Finland. Entrepreneurship accounted for one third of the difference in economic growth rates among the surveyed countries.
Entrepreneurship is a national state of mind, a vestige of the dominant culture, an ethos. While in Europe bankruptcy is a suicide-inducing disgrace bordering on the criminal - in the USA it is an integral and important part of the learning curve. In the USA, entrepreneurs are social role models, widely admired and imitated. In Europe they are regarded with suspicion as receptacles of avarice and non-conformity. It is common in the States to choose entrepreneurship as a long-term career path. In Europe it is considered professional suicide.
In the USA, entrepreneurs are supported by an evolved network of financial institutions and venues: venture capital (VC), Initial Public Offerings (IPO's) in a multitude of stock exchanges, angel investors, incubators, technological parks, favourable taxation of stock options, and so on. Venture capitalists invested $18 billion in start-ups in 1998, $48 in 1999, almost $100 billion in 2000.
The dot.com crash deflated this tsunami - but only temporarily. US venture capitalists still invest four times the average of their brethren elsewhere - c. 0.5 percent of GDP. This translates to an average investment per start up ten times larger than the average investment outside America.
American investors also power the VC industry in the UK, Israel, and Japan. A Deloitte Touche survey conducted last month (and reported in the Financial Times) shows that a whopping 89 percent of all venture capitalists predict an increase in the value of their investments and in their exit valuations in the next 6 months.
Entrepreneurs in the USA still face many obstacles - from insufficient infrastructure to severe shortages in skilled manpower. The July 2001 report of the National Commission on Entrepreneurship (NCOE) said that less than 5 percent of American firms that existed in 1991 grew their employment by 15 percent annually since, or doubled their employment in the feverish markets of 1992-7. But the report found high growth companies virtually everywhere - and most of them were not "hi-tech" either. Start-ups capitalized on the economic strengths of each of the 394 regions of the USA.
As opposed to the stodgy countries of the EU, many post-communist countries in transition (e.g., Russia, Estonia) have chosen to emulate the American model of job creation and economic growth through the formation of new businesses. International financial institutions - such as the EBRD and the World Bank - provided credit lines dedicated to small and medium enterprises in these countries. As opposed to the USA, entrepreneurship has spread among all segments of the population in Central and Eastern Europe.
In a paper, prepared for USAID by the IRIS Centre in the University of Maryland, the authors note the surprising participation of women - they own more than 40% of all businesses established between 1990-7 in Hungary and 38% of all businesses in Poland.
Virtually all governments, east and west, support their "small business" or "small and medium enterprises" sector.
The USA's Small Business Administration had its loan guarantee authority cut by half - yet to a still enviable $5 billion in FY 2003. But other departments have picked up the slack.
The US Department of Agriculture (USDA) beefed up its Rural Business-Cooperative Service. The Economic Development Administration (EDA) supports "economically-distressed areas, regions, and communities". The International Trade Administration (ITA) helps exporters - as do OPIC (Overseas Private Investment Corporation), the US Commercial Service, the Department of Commerce (mainly through its Technology Administration), the Minority Business Development Agency, the US Department of Treasury, and a myriad other organizations - governmental, non-governmental, and private sector.
Another key player is academe. New proposed bipartisan legislation will earmark $20 million to encourage universities to set up business incubators. Research institutes all over the world - from Israel to the UK - work closely with start-ups and entrepreneurs to develop new products and license them. They often spawn joint ventures with commercial enterprises or spin-off their own firms to exploit technologies developed by their scientists.
MIT's Technology Licensing Office processes two inventions a day and files 3-5 patent applications a week. Since 1988, it started 100 new companies. It works closely with the Cambridge Entrepreneurship Center (UK), the Asian Entrepreneurship Development Center (Taiwan), the Turkish Venture Capital Association, and other institutions in Japan, Israel, Canada, and Latin America.
This is part of a much larger wave of in-house corporate innovation dubbed "intrapreneurship". The most famous example is "Post-It" which was developed, in-house, by a 3M employee and funded by the company. But all major and medium American firms encourage institutionalized intrapreneurship.
Entrepreneurship and intrapreneurship are often associated with another American phenomenon - the workaholic. Bryan Robinson in his 1998 tome, "Chained to the Desk", identifies four types of workaholism (or "work addiction"):
Workaholism is confused by most Americans with "hard work", a pillar of the Protestant work ethic, by now an American ethos. Employers demand long work hours from their employees. Dedication to one's work results in higher financial rewards and faster promotion. Technology fosters a "work everywhere, work anytime" environment.
Even before the introduction of the 35 hours week in France, Americans worked 5 weekly hours more than the French, according to a 1998 study by the Families and Work Institute. Americans also out-worked the industrious Germans by 4 hours and the British by 1 hour. The average American work week has increased by 10% (to 44 weekly hours) between 1977-98.
One third of all American bring work home, yet another increase of 10% over the same period. According to the Economic Policy Institute, Germans (and Italians) took 42 days of vacation a year in 1998 - compared to 19 days taken by Americans. This figure may have since deteriorated to 13 annual vacation days. Even the Japanese take 25 days a year.
In a survey conducted by Oxford Health Plans, 34 percent of all respondents described their jobs as "pressing and with no downtime". Thirty two percent never left the building during the working day and had lunch at their desk. Management promotes only people who work late, believed a full one seventh.
Most Europeans - with the notable exception of the British - regard their leisure and vacation times as well as time dedicated to family and friends as important components in a balanced life - no less important than the time they spend at work. They keep these realms strictly demarcated.
Work addiction is gradually encroaching on the European work scene as well. But many Europeans still find American - and, increasingly British - obsession with work to be a distasteful part of the much derided "Anglo-Saxon" model of capitalism. They point at the severe health problems suffered by workaholics - three times as many heart failures as their non-addicted peers.
More than 10,000 workers died in 1997 in Japan from work-stress related problems ("Karoshi") . The Japanese are even more workaholic than the Americans - a relatively new phenomenon there, according to Testsuro Kato, a professor of political science in Hitotsubashi University.
But what is the impact of all this on employment and the shape of labour?
The NCOE identifies five common myths pertaining to entrepreneurial growth companies:
Entrepreneurship overlaps with two other workplace revolutions: self-employment and flexitime. The number of new businesses started each year in the USA tripled from the 1960's to almost 800,000 in the 1990's. Taking into account home-based and part-time ventures - the number soars to an incredible 5 million new businesses a year. Most entrepreneurs are self-employed and work flexible hours from home on ever-changing assignments. This kaleidoscopic pattern has already "infected" Europe and is spreading to Asia.
Small businesses absorbed many of the workers made redundant in the corporate downsizing fad of the 1980's. They are the backbone of the services and knowledge economy. Traditional corporations often outsource many of their hitherto in-house functions to such nascent, mom-and-pop, companies (the "virtual corporation"). Small and medium businesses network extensively, thus reducing their overhead and increasing their flexibility and mobility. The future belongs to these proliferating small businesses and to those ever-fewer giant multinationals which will master the art of harnessing them.
IV. The Unions after Communism
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