Entrepreneurship Policies in Denmark and Sweden Targets and Indicators

Transcription

1 1 Entrepreneurship Policies in Denmark and Sweden Targets and Indicators Anders Bornefalk * and Anita Du Rietz ** Preliminary version April 20, 2009 Abstract The revised Lisbon Agenda has declared improvements in the conditions for entrepreneurship to be necessary if the EU is to reach the goal of becoming the most competitive and dynamic knowledge-driven economy in the world by Different countries have chosen different approaches when developing entrepreneurship programs following the intentions of the Lisbon Agenda. Denmark has developed an ambitious strategy founded on research and using evaluations and new improved data to formulate its policies. There are still no clear answers as to what constitutes favourable conditions and policies for entrepreneurship, but the Danish strategy shows a way forward. The strategy of Sweden has been less ambitious. The way the Swedish government has chosen its targets and indicators demonstrates that, although politicians realize the importance of entrepreneurship for employment and productivity growth, they can be reluctant to set targets and develop indicators that make it possible to undertake meaningful evaluations of their policies. * PhD, Economist at the Confederation of Swedish Enterprise, anders.bornefalk@svensktnaringsliv.se The conclusions drawn in this paper do not necessarily coincide with those of the Confederation of Swedish Enterprise. ** PhD, Consultant at the Confederation of Swedish Enterprise

2 2 1 Introduction Entrepreneurship has come to be recognized as an important factor behind economic growth, productivity, innovation and employment. Entrepreneurship policy is therefore seen as an important instrument in reaching the goals of the Lisbon Agenda. While it is clear that good conditions for entrepreneurship pay in terms of improved economic performance, it is less clear what constitutes such conditions. It is also not fully understood what policies should be undertaken to support entrepreneurship. This lack of knowledge makes it difficult to develop policies that could support entrepreneurship. In this paper, we analyze the entrepreneurship policies of Denmark and Sweden with a focus on targets and indicators. We start by presenting the Lisbon Agenda, in particular the policy measures that are suggested for promoting small and medium sized enterprises (SME). We then go on to study the strategies chosen by Denmark and Sweden. In the final part we use a data set that has been developed as part of the Danish strategy to compare entrepreneurship performance and conditions in Denmark, Sweden and the US. 2. The Lisbon Agenda In March 2000, the Lisbon Agenda was approved in the European Union. The perception that the EU was lagging behind the United States was an important motive for the decision. The Competitive Reports from the Commission of the European Communities have reviewed the diverging growth patterns within Europe and between EU and the US. 1 After World War II, Europe registered higher productivity growth than the US, reflecting a catching up process. But after the mid 1990s the development was reversed. US productivity growth became one percentage point higher than Europe s while unemployment was at a historical low in the US and stagnating at a high level in Europe Europe s productivity growth slowdown was, however, largely offset by faster growth in employment per capita leaving little difference in growth of output per capita between the EU and US going back to From 1995 the employment level increased due to an increasing labor force participation of women. 3 The goal of the Lisbon Agenda is to make the EU the most competitive and dynamic knowledge-driven economy in the world by 2010, capable of sustainable economic growth with more and better jobs and greater social cohesion. To achieve this goal, it was agreed that an overall strategy should be applied, aimed at: preparing the transition to a knowledge-based economy and society by better policies for the information society and R&D, as well as by stepping up the process of structural reform for competitiveness and innovation and by completing the internal market; modernising the European social model, investing in people and combating social exclusion; sustaining the healthy economic outlook and favorable growth prospects by applying an appropriate macro-economic policy mix. A mid-term review of the Lisbon process was presented at the Spring Summit in March The report stated that little progress had been made over the first five years and it was recommended to refocus the agenda on growth and employment. It also underlined the need for real ownership by the member states of the reforms needed. The renewal of the Lisbon 1 Commission of the European Communities (2004). 2 Gordon (2004). 3 Gordon and Dew-Becker (2008).

3 3 Strategy in 2005 included National Reform Programs and the Community Lisbon Program designed to carry out a reform effort over the first three-year cycle, The aim was to increase employment rates and productivity growth at the same time. Reforms were undertaken mainly in the microeconomic policy pillar of the integrated strategy. The 2008 Competitiveness Report showed that, in terms of GDP per capita levels, the EU is still lagging behind the US. In 2006 and 2007, productivity growth in the EU-27 was higher than in the US, but the productivity level was still much lower. 3. Small Firms in the Lisbon Agenda Conditions for SMEs and start-up companies are not as favorable in the EU as they are in the US. A 2002 Eurobarometer survey found that EU citizens are less inclined to become entrepreneurs, and more risk-averse than their American counterparts. Once a new company has been created, it also tends to grow at a slower rate than in the US. In the US, surviving firms on average increase their employment by 60 percent by their seventh year, while employment gains among surviving firms in Europe are in the order of percent. SMEs in the EU also have lower productivity, and conditions for start-up companies vary widely across Europe. The EU recognized this problem in the Lisbon Agenda and made entrepreneurship one of the main objectives. The Commission launched a series of initiatives aimed at fostering support for small businesses in the EU. A discussion considering how entrepreneurship could be promoted in Europe was also initiated. It resulted in two fundamental questions: How to produce more entrepreneurs and How to get more firms to grow. The aim of the Entrepreneurship Action Plan of 2004 was to encourage more people to start businesses and to help entrepreneurs thrive. The Commission emphasized that a joint effort from Member States, professional organizations and local authorities was needed to achieve this target, promoting a co-ordinated approach. To enhance the situation of entrepreneurship in the EU, the Commission proposed actions in five strategic policy areas: 1. Entrepreneurial mindsets: to promote awareness of the entrepreneurial spirit by presenting best practice models and fostering entrepreneurial attitudes and skills among young people. 2. Better incentives for entrepreneurs: to register a business quickly and cheaply, but also the need for a fairer balance between risk and reward. 3. Growth and competitiveness: to promote access to support and management training for entrepreneurs from all backgrounds, especially women and ethnic minorities. 4. Access to finance: to create more equity and stronger balance sheets through improving the availability of venture capital, business angel finance and investments by private individuals. 5. Regulatory and administrative framework: Administrative barriers and regulatory burdens need to be reduced and simplified in areas such as taxation, employment and environment. The mid-term review of the EU s SME policy from showed that both the member states and the EU had made progress in creating an SME-friendlier business environment. 4 Nevertheless, the results of the 2007 Flash Eurobarometer on entrepreneurial mindsets were 4 Commission of the European Communities (2007).

4 4 the same as they had been for many years 45 percent of Europeans would prefer to be selfemployed, compared to 61 percent in the US. Adopted in June 2008, the Small Business Act for Europe reflects the Commission s political will to recognise the central role of SMEs in the EU economy and for the first time puts into place a comprehensive SME policy framework for the EU and its Member States. It applies to all independent companies that have fewer than 250 employees, that is, to 99 per cent of all European businesses. It aims to improve the overall approach to entrepreneurship, to irreversibly anchor the think small first principle in policy making from regulation to public service, and to promote the growth of SMEs by helping them tackle problems hampering their development. The Commission has made efforts to cut red tape for SMEs and has significantly increased the SME focus in major EU support programs for At the heart of the European Small Business Act is the conviction that achieving the best possible framework conditions for SMEs depends on the society s recognition of entrepreneurs: The EU and Member States should create an environment within which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded. They need to care for future entrepreneurs better, in particular by fostering entrepreneurial interest and talent, particularly among young people and women, and by simplifying the conditions for business transfers. 5 This is the first of ten principles that should turn policy into action. The following nine are: 2. Honest entrepreneurs who have faced bankruptcy quickly should get a second chance. 3. When designing legislation and simplifying the existing regulatory environment the design rules should be Think small first. 4. The public administrations should be responsive to SME needs, making life as simple as possible for SMEs, notably by promoting e-government and one-stop-solutions. 5. Public policy tools should be adapted to SME needs; guidance to contracting authorities, how to apply the EU public procurement, possibilities offered by Community State Aid rules to support start-ups and provide incentives for SMEs. 6. Facilitate SMEs access to finance. 7. Encourage SMEs to benefit more from the opportunities offered by the Single Market. 8. Encourage investment in research by SMEs and their participation in R&D support programs. 9. Enable SMEs to turn environmental challenges into opportunities. 10. Support and encourage SMEs to benefit from the growth of markets outside the EU, in particular through market-specific support and business training activities. The measures proposed by the Lisbon Agenda to promote entrepreneurship are not very specific. The clearest example of this is principle nine. It is also not made clear to what extent, if at all, the suggestions are well underpinned by research or other evaluations. Why would, for instance, investments in research by SMEs have to be encouraged? Is there an underlying market failure that leads to investments in research being lower than they should optimally be, or does the investment levels in research by SMEs reflect their comparative advantage visa vi larger firms? Indeed, the two fundamental questions, that is, How to produce more entrepreneurs and How to get more firms to grow, indicate that there is a lack of insight 5 Ibid., p. 5.

5 5 within the EU as to the role of politicians and policy in supporting entrepreneurship. After all, entrepreneurs are not produced, and politicians do not make firms grow. Governments that are serious about promoting entrepreneurship will therefore have to develop their own tools, targets and indicators if they want to find out what policies they should undertake to reach the goals of the Lisbon Agenda. There are two crucial questions. The first is how to assess entrepreneurial performance. This is necessary in order to determine the present situation and if there is any progress over time. The second is to determine what indicators serve as reliable measures for policy evaluations. There is a spectrum of possible performance indicators available, from surveys identifying the share of the population that has the intention to start a business to register data showing the share of firms that exhibit high growth rates. There are even more possible framework indicators available, since there are many factors that influence the conditions for entrepreneurship. The following two sections show how Denmark and Sweden have responded to this challenge. 4. Denmark 6 Denmark launched an ambitious program in the spirit of the Lisbon Agenda in 2005, with the aim of making Denmark a leading society in terms of economic growth, knowledge and entrepreneurship. The explicit target for 2015 was to make Denmark one of the societies in the world with the highest share of high-growth enterprises. The first analytical objective was to get a better understanding of the drivers behind entrepreneurship. A broad analytical work started in order to collect information, from all kinds of studies on the topic and to create a data set, for comparisons over time and with other OECD countries. The ambition was to give support to a so called fact based policy formulation, or, in other words, to an evidence based policy. The objective was to provide policy makers with enough insight to choose policy areas to the overall strategy to promote entrepreneurship. The data analysis was based on a crosscountry comparison using indicators measuring both performance and the underlying business environment for entrepreneurship. New questions were formulated, comparing Denmark with other OECD countries. This should be done both in terms of the actual status of entrepreneurship and in the framework conditions. In the comparisons, emphasis should be given to the countries with the highest entrepreneurial activity. This mapping evoked new questions: Which framework conditions were most important and what areas should Denmark focus on? The method was to work on a seven step program: 1. To define entrepreneurship and select performance indicators relating to the definition 2. To examine performance 3. To define relevant policy areas and select relevant indicators 4. To test correlation between performance and policy measures 5. To identify weak points in the national framework conditions 6. To identify the most critical framework conditions 7. To improve on weak points by using peer review to learn from policy measures in best performing countries. Four performance indicators were chosen. The first two are measures indicating the level of start-up activities: firm entry rates and the share of the population engaged in starting a 6 This section is based on Hoffman (2004) and Larsen (2005).

6 6 business, measured as total entrepreneurial activity (TEA) from GEM. 7 The remaining two performance indicators measure the share of high growth firms in terms of turnover and employment, respectively. When choosing these indicators, a definition of entrepreneurship as the entry and creation of high growth firms was used. 8 There were two reasons for using this definition rather than a more holistic definition defining it either as an attitude or as the pursuit of opportunities beyond the resources one currently controls, which is more common in the research literature. The first was that previous studies have linked these two aspects of entrepreneurship directly to productivity growth. The second was that entrepreneurship defined in a holistic way could neither be measured nor compared across countries, although such definitions might capture the many aspects of entrepreneurship in a better way. The examination of performance was built on composite indicators. Korea, Canada, Ireland and the US were found to be the top performers. In order to define relevant policy areas, 59 indicators were identified that were found likely to determine the incentive structure which promotes entrepreneurial motivation leading to entrepreneurial activity. The correlation of framework conditions on performance was not very strong. The transmission mechanism among policy areas and performance vary substantially. Each country is unique and there will always be limits to cross-country comparisons and the transferability of policy experiences. It was concluded that a system of indicators was needed for a large range of time series in order to support causality. When it came to identifying critical policy areas, there were two alternative approaches. The first was to examine partial regression coefficients between various policy areas and performance. The second was to analyze the business environment in the top performing countries. This exercise made it possible to single out five focus areas for Denmark: venture capital, bankruptcy legislation (restart possibilities), entrepreneurship education, personal income tax and labour market regulation. A Danish Entrepreneurship Index was launched in The policy goals were defined as: I. Denmark continues to be among the European countries with the highest number of start-ups each year. II. Denmark is, by 2015, one of the societies in the world with the highest rate of high-growth enterprises (gazelles). The seven step method is still relevant as a working model. The policy measures are now discussed in a new way involving government actions more directly. The main questions are: How far is Denmark from the government s goals? What are the tendencies and are the goals realistic? Which framework conditions are critical for the new companies and their growth? How can the government affect the conditions? Entrepreneurship performance improved from 2006 to On a scale from 0 to 100 Denmark scores 31 points compared to 25 points in The top four countries remain unchanged at 76 points. Denmark performs well in start-up rates but trails the top-performing countries when comparing the share of rapidly growing firms. There has also been a positive development in framework conditions. From 2004 to 2007 Denmark moved from 57 to 62 7 See Bosma et al. (2009). 8 See Hoffman and Gabr (2006). 9 This Index was revised in the autumn of See Koch (2008).

7 7 points whereas the top-4 countries moved from 67 to 68 points. Denmark is still behind in some crucial areas as, notably income taxation, business taxation, bankruptcy legislation, entrepreneurship education, restart possibilities, entrepreneurship infrastructure, capital tax, stock markets, entrepreneurial culture and knowledge transfer. A policy area is now considered to be important if there is a significant correlation between policy indicators belonging to that policy area and the performance indicators, or if that policy area is highly prioritized in the top-4 countries. The analyses pointed out entrepreneurship education, entrepreneurship infrastructure and income taxation as important policy areas. These evidence based policy recommendations serve as a guideline for the political work on measures to improve the entrepreneurial climate and performance in Denmark. For instance, a major tax reform, focused at lowering marginal tax rates, has recently been proposed. In section 6, we will take a closer look at these performance and framework indicators, and use them to compare the entrepreneurship performance and framework in Sweden and Denmark with that in other countries. 5. Sweden Sweden s approach to entrepreneurship policy has been less ambitious than Denmark s. Prior to the elections in 2006, the moderate party, the largest opposition party, formulated a program that would make it more attractive to start and run a business. 10 The underlying aim was to increase job creation. Referring to the OECD, other organizations and academic research, the program stated that the overall business climate was good, especially for large and well-established firms, but that the entrepreneurship climate was inadequate. The program also acknowledged that rapidly growing firms gave rise to a relatively small share of value added in Sweden, that relatively few people live on income from their own firm and that the entry rate is lower than in other countries. After a successful election campaign, these ideas were expressed as follows in the first bill of the new government: The fact that there are few entrepreneurs in Sweden and few rapidly growing firms indicates that the entrepreneurship climate in Sweden is not as favorable as it could be. The number of persons choosing to become entrepreneurs depends on several factors, among those the society s attitudes to entrepreneurship, the rate of return and the risks involved in running an enterprise, and the possibilities to get access to resources needed for a rapidly growing firm. In several of these areas the preconditions are poorer in Sweden than in other countries. 11 The new government did not, however, change the entrepreneurship targets formulated by the former government. Although they had identified the low number of entrepreneurs and rapidly growing firms, they kept more new and growing enterprises as the only target for entrepreneurship policies. No arguments or analyses have been presented that could support the decision to keep this target although it differed from the ideas presented prior to the elections and in the first bill of the new government. The idea that Sweden would benefit from more entrepreneurs and more rapidly growing firms has also been absent from later government documents. The number of people running a business started to decline relatively soon following the change of government. There could be several explanations for this. A main candidate is the increase in employment since that led to fewer people having to engage in necessity-driven 10 Partimotion 2005/06:m Finansplan, avsnitt Företag och företagande, Regeringens proposition 2006/07:1.

8 8 entrepreneurship. According to an analysis undertaken by the Confederation of Swedish Enterprise (2007), the extent of opportunity-driven entrepreneurship did not increase either. The number of start-ups did, however, continue to increase as it had been doing during the last 20 years. As is clear from Diagram 1, the number of entries more than doubled between 1987 and 2007, with increases being particularly large in the years 1994 and Diagram 1. The number of start-ups and the number of entrepreneurs Number of start-ups (left axis) Number of entrepreneurs (right axis) Source: Bornefalk and Du Rietz (2009) The increase in 2007 was used as evidence by the government that its entrepreneurship policies had been successful: It is satisfying that the number of entries increases and that we see a favorable development in many parts of the country. This shows that the policy measures undertaken by the government to improve the business climate have been fruitful. It should be easy, fun and rewarding to run a business in Sweden. 12 A later analysis showed that the reported increase for 2007, amounting to 22 per cent, overestimated the true development. 13 The explanation for this was that the method used to produce the data had been changed in several ways and that a number of definitions had been changed. Judging by the development of other variables, the true increase was estimated to be within the range 5-10 per cent. Although this is a sizeable increase, it is not larger than the increase in the number of entries in several other years. Since the number of companies that employed at least one person only increased by one per cent during 2007 and the share of the population that ran a business of their own fell, an increase of the entry rate at that magnitude can hardly be used as evidence for a successful entrepreneurship policy. Still, that was what the Swedish government chose to do. 12 Näringsdepartementet (2008). 13 Bornefalk and Du Rietz (2009).

9 9 The Swedish government has virtually ceased to speak about the importance of entrepreneurship for employment and economic growth, although better conditions for entrepreneurship could make the current economic crisis less severe, as acknowledged in the previously mentioned program. In the program, it is stated that good conditions for entrepreneurship and rapidly growing companies lower the risk for hysteresis effects on unemployment, thereby making it less likely that high levels of unemployment will become persistent. The reason why conditions for entrepreneurship is no longer at the top of the agenda is not that the government has failed to make firms more willing to hire indeed, by making it less risky to hire employment in the private sector has increased considerable. When it comes to job creation by newly started firms, it is likely that government policies have led to an improvement, as indicated by the large increase in the number of employed by such firms between 2006 and 2007 in Diagram 2. The increase could, however, be exaggerated due to the previously mentioned changes in the definitions and methods used to produce the data, although not to the same extent as the number of entries. 14 This development has not been a target, and it has not been communicated by the government. Diagram 2. The number of newly started firms and the number employed in such firms Index, 1993= Employed Firms Source: Bornefalk and Du Rietz (2009) 6. Entrepreneurship Indicators The Danish strategy to improve conditions for entrepreneurship could serve as a blueprint for other countries. In this section, we study the indicators chosen and use them to compare entrepreneurship performance and framework conditions. The approach required comprehensive and reliable data sets. A data base with indicators related to entrepreneurship was constructed, based mainly on data from Eurostat, OECD and the World Bank. 15 The indicators were divided into performance and framework indicators. The data base was used to benchmark different countries in terms of both performance and framework conditions. Benchmarking was made from a scale where the best performance, or framework condition, 14 See Bornefalk and Du Rietz (2009). 15 The Danish National Agency for Enterprise and Construction Authority (2008).

10 10 for each indicator was given the lowest score. The highest score, which depends on the number of countries included for each indicator, was given to the country with the weakest condition or performance. Performance Indicators The number of benchmarked countries is shown in the first column. The scores of Sweden, Denmark and the US are shown and then compared in the last two columns. If Sweden has a higher score, i.e., a weaker performance, compared to Denmark, this is marked with a, if it has a lower score, this is marked with a +. In the last column, Sweden is compared to the US. Performance indicators Indicator N Sweden Denmark US S rel. Dk Entry rate, 2005, US= Total Entrepreneurial Activity, TEA, Share of High-Growth Firms (turnover) , US= Share of High-Growth Firms (employment) , US= S rel. US The entry rates can be compared using the OECD/Eurostat Business Demography Data Base. Denmark is top ranked followed by the US with Sweden at the bottom line. Sweden is lagging also when it comes to total entrepreneurial activity according to the Global Entrepreneurship Monitor (GEM). In the growing-firm ranking Sweden is placed in the middle of the countries benchmarked with the US at the top and Denmark closer to the bottom. This is the share of firms with a growth rate in turnover or employment higher than 60 per cent over a three year period and with a growth rate of at least 20 per cent. Framework Indicators The framework or business environment indicators are divided into five main categories opportunities, capital, abilities, incentives and culture. 16 In the opportunity category three aspects are presented: technology transfer regulation, entry barriers and access to foreign markets. Each aspect is reviewed with one or more indicators. For some indicators there is a reversed ranking, which means that the country receiving the lowest score has the lowest barriers or burdens or taxes. Lower values for these indicators are assumed to be more conducive for entrepreneurship performance than higher values. Sweden has, relative to Denmark, a good technology transfer regulation and low barriers to competition as well as low requirements for starting businesses. But the public involvement is stronger in Sweden. Both in Sweden and Denmark firms have full access to foreign markets. This access is more limited in the US. 16 This mapping is discussed in Hoffman and Gabr (2006).

11 11 Framework indicators 1. Opportunities N Sweden Denmark US S rel. Dk S rel. US Technology Transfer Regulation University/Industry Research Collaboration Entry Barriers Barriers to Competition, 2003.* Public Ownership, 2003.* Intellectual Property Rights, Public Involvement in Business Operations, * Minimum Capital Required for Starting a Business, 2007.* Access to Foreign Markets Import Burdens, 2007.* Export Burdens, 2007.* *Reversed ranking. All data are from the OECD except for the three last indicators coming from the World Bank. The framework indicators covering capital are divided into loans, exit markets and capital taxes. Countries with the lowest taxes receive the highest ranks in this benchmarking. Sweden has a relatively low rank on domestic credit to private sector, measuring the ratio of credits towards the private sector from deposit-taking financial institutions relative to GDP. Comparing the loan situation for firms shows that Sweden and Denmark have a relatively similar situation. The Legal rights index measures to what extent collateral and bankruptcy laws facilitate lending. In this area, Sweden is lagging the other two countries. On the other hand, the Swedish venture capital market seems to be quite well-developed. When it comes to exit (leaving the market) Sweden and Denmark have similar positions with the exception of buyouts, where Sweden is at the top. Both Denmark and Sweden are, however, lagging the US, except when it comes to capitalization of the primary stock market. Regarding benchmarking of capital tax indicators there have been some reductions in the taxation of dividends from closely held companies in Sweden recently, which are not included in the table above. According to the benchmarking above the capital taxation seems to be somewhat more favorable compared to Denmark but in most cases not as favorable as in the US.

12 12 2. Capital N Sweden Denmark US S rel. Dk S rel. US Loans Domestic Credit to Private Sector, Cost to Create Collateral, 2004.* Ease of Access to Loans, Country Credit Rating, Legal Rights Index, Venture Capital Early Stage, Venture Capital Expansion Stage, ** + ** Venture Capital Availability, Exit markets Investor Protection Capitalization of Secondary Stock Market, Market Capitalization of Newly Listed Companies, Capitalization of Primary Stock Market, Turnover in Primary Stock Market, Buyouts, * + * Capital Taxes Taxation of Dividends Top Marginal Tax Rate, 2007.* Taxation of Dividends Top Marginal Tax Rate, 2000.* Taxation of Stock Options, 2005.* Taxation of Capital Gains on Shares Short Term, 2000.* Taxation of Capital Gains on Shares Long Term, 2000.* *reversed ranking **data not available Source: Most data come from the IMF, the World Bank, the OECD and Eurostat. The framework indicators reflecting entrepreneurial abilities include restart possibilities, entrepreneurship education and traditional business education. Restart possibilities are better in Denmark than in Sweden. Entrepreneurship education is not as good in Sweden as it is in Denmark at primary and secondary levels, but somewhat better at higher levels. The US is ranked as number 1 in both categories. 3. Abilities N Sweden Denmark US S rel. Dk S rel. US Restart Possibilities Possibility of a Fresh Start, ** ** Entrepreneurship Education Entrepreneurship Education at Primary and Secondary Levels, (2003) Entrepreneurship Education at Higher Levels, Traditional Business Education Quality of Management Schools, **data not available Source: GEM/GERA, OECD and the Competitiveness Report from the EU.

13 13 The framework indicators covering incentives include personal income taxes, business taxes, bankruptcy legislation, administrative burdens and labor market regulations. As most of these indicators are considered as having a hampering effect on entrepreneurial activities, a reversed ranking is, in most cases, applied. It is not surprising to find Sweden and Denmark at the bottom line when it comes to personal income taxation and the US a bit above the average score. The time and cost to close a business is unfavorable in Sweden but relatively advantageous in Denmark. But when it comes to the bankruptcy recovering rate Sweden has almost the same score as the US, both outscoring Denmark. The number of procedures required to start a business is low in both Sweden and Denmark and high in the US. The time it takes to register a firm is considerably longer in Sweden than in Denmark and the US. The regulatory and administrative opacity index consists of two components: information on licenses and permit systems, and communication and simplification of rules and procedures in at least some markets in 24 manufacturing and services sectors. Sweden has a relatively good system in this area. The administrative burden is about the same in Sweden and Denmark compared to the US, with enforcing contracts being the only exception. When it comes to labor market regulations Sweden is lagging behind both Denmark and the US in most cases. The exceptions are incentive compensations and number of administrative procedures when recruiting the first employee.

14 14 4. Incentives Reversed ranking N Sweden rank Denmark rank USA rank S rel. DK S rel. USA Personal Income Tax Highest Marginal Income Tax plus Social Contributions, Average Income Tax plus Social Contributions, Business Tax SME Tax Rates, Taxation of Corporate Income Revenue, Bankruptcy Legislation Actual Cost to Close a Business, Actual Time to Close a Business, Bankruptcy Recovery Rate, Administrative Burdens Start Up Number of Procedures to Start a Business, Number of Days to Start a Business, Costs Required for Starting a Business, Administrative Burdens Production Regulatory and Administrative Opacity, Administrative Burdens on Firm Creation, Burden and Government Regulation, Registering Property, Procedure Time and Costs to Build a Warehouse, Enforcing Contracts, Time it takes to Prepare, File and Pay Corp And Income Tax, VAT and Social Contributions, Labor Market Regulation Difficulty of Hiring, Difficulty of Firing, Ease of Hiring Foreign Labor, 2007.* Extent of Incentive Compensation, 2008.* Rigidity of Hours Index (overtime etc) Number of Adm. Procedures when ** + ** Recruiting the First Employee, Number of Adm. Procedures when ** ** Recruiting Additional Employees, *not reversed ranking **data not available Source: Most tax data come from the OECD Revenue Statistics and the Tax Data Base. The information about the administrative burden at firm creation is from the World Bank s Doing Business data base. The surveys measuring entrepreneurship culture show that it is less popular to be an entrepreneur in Sweden than it is in Denmark and the US. Sweden is at the bottom when being self-employed, wishing to have one s own business and entrepreneurship among managers are compared. Entrepreneurial motivation is, however, high in both Sweden and Denmark according to the GEM-survey. The status of entrepreneurs in the society is,

15 15 according to the indicator images of entrepreneurs, rather poor in the two Nordic countries. In the US, entrepreneurs have a very strong position when their image is ranked against civil servants and managers, professions which have a much higher status in Denmark and Sweden. 5. Entrepreneurship Culture N Sweden rank Denmark rank USA rank S rel. DK S rel. USA Cultural and Social Norms, Entrepreneurial Motivation, Self-Employment Preference, The Wish to Own One s Own Business, Desirability of Becoming Self-Employed, Risk for Business Failure, 2007.* Entrepreneurship among Managers Images of Entrepreneurs *reversed ranking Source: The indicators mainly come from the GEM/GERA data base and the EU Flash Euro Barometer: Entrepreneurship. 7. Discussion Denmark and Sweden have chosen quite different strategies when it comes to choosing targets and indicators for their entrepreneurship policies. The Danish strategy is a major step towards identifying key policy areas and measures and thereby towards improving the conditions for entrepreneurship. The Swedish strategy, on the other hand, indicates that Swedish politicians are reluctant to set targets and develop indicators that make it possible to undertake meaningful evaluations of their policies although they realize the importance of entrepreneurship for employment and productivity growth. The fact that the present Swedish government has chosen an indicator that shows a positive development of entrepreneurship, and disregarded indicators that they used to refer to but show no development at all, could also indicate that they are eager to show results. Negative attitudes among Swedes towards entrepreneurs and entrepreneurship, as shown in the Danish evaluation, might be an explanation for the reluctance among Swedish politicians to set up meaningful targets and indicators. They would, in other words, be reluctant to put pressure on themselves to undertake reforms that would improve conditions for entrepreneurship but that might be politically unpopular. Despite the differences in strategies, Denmark and Sweden show quite similar results in both entrepreneurship performance and most aspects of the entrepreneurship framework. There are, however, often differences between indicators belonging to the same aspect. The access to loans is, for instance, better in Denmark than in Sweden where the venture capital market is better developed. The only major exceptions from this pattern are labor market regulation and entrepreneurship culture, where the ranks of Denmark are higher than those of Sweden for almost all indicators. The analytical work made by Denmark could be useful also for Sweden, as well as for other countries, in identifying the kind of institutional framework that promotes entrepreneurial activities. According to the Danish analysis, both Denmark and Sweden need to lower income as well as capital taxes and to improve entrepreneurship education. Sweden also needs to

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