ENTERPRISES

There has been very little impact of the recession on the ability of the United States to foster innovation, entrepreneurship and competitiveness in the most advanced sectors of the U.S. economy. The downturn primarily hit the real estate and financial sectors. The high-tech sector was less affected, and the largest technology companies have been doing well. Evidence for this is a massive build-up of liquidity, having increased by more than 40% over the past year, led by Apple. The 10 largest tech companies including Apple, Microsoft, Dell and Intel added more than $65 billion since the recession. This will enable such companies to strengthen their technological base by acquisition of smaller companies. The expected shake-out in the industry did not take place.
The other factor that has strengthened a significant portion of large American corporations is the strength of their brands. According to the BrandZ ranking, 17 of the top 20 global brands were American. There has been a clear shift among these top brands toward technology companies, at the expense of consumer groups. Top brands also emerged from the recession much stronger than their rivals. The strengthening of American brands is due to vigorous international property rights (IPR) protection, particularly trademark and patent protection, in the United States (and abroad).
The stimulus package of February 2009 is expected to foster innovation and entrepreneurship in the energy sector with positive implications for existing companies and startups in this sector. The Obama administration also decided to stabilize the automobile industry and prevented the possible liquidation of Chrysler and General Motors. Since these companies have been restructured, the United States Treasury is now GM’s largest shareholder (61%) and also holds 10% of Chrysler shares. Total assistance to the automobile industry amounted to $81 billion, of which 50% were outright subsidies. This is the most extended industrial policy action in U.S. history and is based on the assessment of the administration that, barring such action, employment and income in the Midwest would have collapsed.

It is fairly easy to start a business in Denmark, as the economy is not overly regulated and there is little bureaucratic red tape. The amount of investment, especially foreign direct investment (FDI) could be higher. Unit labor costs are relatively high. Still, the economy is reasonably competitive. Interest rates as well as energy costs have remained relatively low.
The government is actively trying to improve the country’s business environment. This has been a part of the National Reform Program, the Danish contribution to the Lisbon Strategy. In this program, the government identified five challenges in the microeconomic area, namely enhancing competition in certain sectors, strengthening public sector efficiency, developing a knowledge society, securing environmental sustainability and encouraging entrepreneurship.
The goal of the government’s enterprise policy by 2010 was for Denmark to be one of the countries where most new enterprises are launched, and by 2015 to be one of the countries where most new growth enterprises are launched.
These goals echo the European Union’s Lisbon Strategy 2000-2010, which is now widely judged to have been a failure. The open method of coordination did not produce the structural reforms required in many countries for Europe to become more competitive. Needless to say, national performance varies a lot. In a recent evaluation document from the European Commission, Denmark is listed as having the highest employment rate in 2009 after the Netherlands. And Denmark has the third highest expenditure on R&D, after Sweden and Finland.
Comparative studies of entrepreneurship find that Denmark is among the top countries in terms of enterprise start-ups. However, the financial crisis has apparently affected start-ups in Denmark more than other countries. However, although the number of start-ups is relatively large, there are relatively fewer high-growth start-ups.

Enterprise policy has managed to clear the way for a high degree of competitiveness, and Finland ranks ninth in the IMD World Competitiveness Scoreboard 2009 and sixth in the World Economic Forum’s Global Competitiveness Index 2009-2010. Finland has also been fairly successful when it comes to eliminating bureaucratic red-tape and market regulation. The Ministry of Trade and Industry bears the overall responsibility for the promotion of exports and the internationalization of enterprises, as well as managing export promotion policy to ensure that Finnish enterprises have at least equal internationalization conditions and operating possibilities in the market compared to competitors. With public services and subsidies, enterprises operating in the home market are encouraged to internationalize their business. Enterprise policy has internalized the thought that economic growth is closely linked to the development of technology and its innovative applications. As evident from the good Finnish competitiveness performance, inputs in the development of technology and innovation have indeed created preconditions for sustainable economic growth. The environment for innovation has been developed in a way which not only responds to changes but also foresees future needs.

According to the World Bank’s Doing Business Reports 2009 and 2010, New Zealand achieves a top position not only based on its highly un-bureaucratic procedures for establishing a business but also due to a recent reduction of the corporate tax rate. However, enterprise policy alone cannot solve a number of structural problems that remain, including disadvantages which relate to the smallness of the economy and its geographical isolation. The economy is still characterized by a large, though very competitive, agricultural sector. Major problems for innovations remain in three areas: there are few companies in high-tech sectors; there are few large companies; human capital development is impeded by the fact that top personnel in high-tech sectors are often trained overseas.

Switzerland scores high in terms of competitiveness. Tax policy is very employer-friendly, with a corporate tax rate that at 21.2% is significantly below the OECD average of 26.8%. During the past 15 years, the government has reduced the level of protectionism, a trend arguably triggered or facilitated by changes in the international environment. Still, the old traditions of collusive pricing and the expectations of state protectionism remain discernable in the agricultural and small and medium-sized business sectors. However, it is difficult to argue that current public policy is innovation-averse. This said, it is unclear to what extent public policy itself has contributed to the formation of strong levels of innovation and entrepreneurship, combined with strong competitiveness and a medium level of private corporate investment.

Positive assessments of the United Kingdom’s enterprise policy in a number of comparative rankings (for example, by the World Economic Forum) have largely reflected the country’s good macroeconomic performance in the decade after the mid-1990s. There is agreement that the cost of doing business in the UK is comparatively low, and that regulation is comparatively light. If one looks at more precisely measurable indicators, however (such as R&D spending as a percentage of GDP as a measure of innovation), the country’s performance must be ranked in the lower half of the OECD countries and toward the bottom of the G-7 economies. Other measures – which are unsurprisingly those most often cited by officials (such as information and communications technology (ICT) investment) – paint a much more positive picture. Moreover, innovation in services has been seen as a priority for government action since the publication of a report on this issue in August 2008.

With the service and creative economy (and particularly the financial services in industry) playing such an important role in the UK today, trademark developments and the protection of intellectual property rights are more important than the patent applications of yore. Enterprises in the United Kingdom have been actively supported and promoted by government policy in this area, a drive which can thus be regarded as quite successful.

Skills development, especially in manufacturing, has long been recognized as a problem area in the United Kingdom. But with the country having largely moved to a service economy, this is now seen as a less pressing problem. In the last two years, various initiatives to address the skills gaps identified in the 2006 Leitch report have been taken, but problems clearly remain. A new Commission for Employment and Skills became operational in the spring of 2008, and a Skills Funding Agency became fully operational in 2010. It is also noteworthy that in the 2008 National Reform Program prepared as the UK’s response to the Lisbon strategy, enhancement of skills is given high prominence.

Economic policy and regulatory settings are, broadly speaking, conducive to investment and innovation. However, claims of skill shortages, particularly in traditional trades, persist despite the economic downturn. Private sector research and development expenditures also remain low by developed country standards.

As part of steps taken to address skills shortages, the government established in 2008 Skills Australia, an independent statutory body providing advice to the government on Australia’s current, emerging and future workforce skills needs and workforce development needs. In order to improve the supply of workers with skills in demand, the federal government has reviewed and modified skilled immigration policy several times during the period under review. Most recently, in February 2010, the government revoked the wide-ranging list of 106 occupations given priority under the skilled migration program and announced a list focusing on high-value professions and trades, to be developed and reviewed annually by Skills Australia. Other changes made to skilled immigration policy, not involving Skills Australia, have included giving greater priority to employer-sponsored applicants and tightening visa requirements for temporary skilled workers, such as increasing the minimum rate of pay.

Successive governments have sought to introduce policies at various times to encourage innovation and to increase investment in business and industry. The most comprehensive plan of recent years was Backing Australia’s Ability, a five-year program introduced by the Liberal government in 2001. The program established a cabinet subcommittee, chaired by the prime minister, to oversee the allocation of a five-year budget of AUD 2.9 billion. Most of the funds were allocated to infrastructure (particularly in the IT area), competitive research grants (primarily in the universities), and to a program supporting investment in research and development. A range of tax changes were also introduced in order to increase incentives for individuals and small businesses to increase their investment in research and development. The Labor government elected in 2007 has maintained the policy emphasis on innovation. The new government hosted the Australia 2020 Summit in February 2008, which brought together 1,000 prominent Australians to discuss ten major areas of policy innovation. Much of the subsequent report, “Responding to the Australia 2020 Summit,” dealt with the importance of innovation in increasing productivity and economic growth.

The Labor government also established a Review of the National Innovation System in January 2008 in order to prepare a green paper to canvass possible policy options. The subsequent report, “Venturous Australia - Building Strength in Innovation,” was published in 2009. To date, the government has not formally responded to the report.

Like other European countries, Belgium acknowledges that the country’s investment in R&D is currently insufficient and professes the goal to increase R&D investment to 3% of GDP. Accordingly, the government intensified innovation-fostering measures a few years ago, partly by extending fiscal support for innovation, partly through a more innovation-oriented industrial policy at the regional level (Brussels, Flanders and Wallonia), with a significant increase in subsidies to R&D. The problem is that access to these subsidies is complicated by the scattered responsibilities across many different institutions. This makes “the Belgian innovation system quite complex” as acknowledged by the very authority in charge of innovation policy. Entrepreneurship is also made difficult by high labor taxes and further administrative complexity. This hampers the expansion of small enterprises and limits entrepreneurship below the country’s potential. There are, however, quite successful policies, for instance the second wave of the Walloon “Plan Marshall 2.vert” launched in 2008, which helps develop new ventures around environmentally friendly technologies and around universities and companies, which fosters innovation and creates new niches for employment.

It should be noted that innovation, entrepreneurship, competitiveness (best captured by productivity) and investment are determined by many factors, not just government policy, so one cannot necessarily infer the success or failure of enterprise policy from the state of these variables. To be sure, the federal government has many policies designed to promote the success of enterprises, including relatively streamlined procedures for the establishment of a business, generous tax incentives for research and development spending, and corporate tax rates that are on the decline.

Three weaknesses of the Canadian economy are low spending on R&D by the business sector, low investment per worker in information and communications technologies (ICT), and slow productivity growth. Enterprise policies have certainly targeted these areas of weakness, but there has been little improvement. Of course, this continued underperformance does not mean that policies in these areas have had no positive impact (there is no counterfactual), but they certainly have not been highly successful.

The Czech Republic has been successful in attracting foreign investment and features a high share of self-employed individuals and employers within the active labor force. Barriers to setting up enterprises appear relatively high, but can be easily overcome by buying a pre-registered company from one of the many firms that offer this service, by relying on experienced consultants, or in important cases, the inward investment agency. The most important constraints on domestic businesses are not state bureaucracy but the lack of a sophisticated business environment. Thus risk capital, required for investment in new businesses that develop expensive new technologies, is hardly available at all. This follows from the cautious and conservative approach of the foreign-owned banks. As a result, incoming multinational companies can flourish using finance and technology from outside the country, and it is relatively easy to set up a small business, but the missing element is a community of dynamic businesses able to improve the economy’s international competitiveness.

With regard to competitiveness indicators, Germany holds a medium position, ranked behind several other members of the European Union. The most prominent disadvantages of Germany as a business location include high levels of regulation and bureaucracy. Nevertheless, Germany is an attractive investment location for private equity investors, and is expected to gain further importance. Significant advantages include the availability of capital sources and the country’s strong innovation potential.
Growth has been particularly weak in the service sectors. In contrast, the manufacturing sectors expanded rapidly prior to the recent crisis, leading to a strong increase both in imports and exports. However, the increase in exports was temporarily halted by the crisis, which hit Germany harder than many other countries from the perspective of GDP growth. Conversely, the German economy has also benefitted particularly strongly from the economic recovery in 2010.
In recent innovation surveys, Germany has continued to occupy a weak middle position, while competitors such as Canada or the Netherlands have made greater progress. While the strength of intellectual property rights, research-intensive industries, and networking between companies and research facilities is above the OECD average, Germany has significant weaknesses in research, development and education; its unfavorable climate for the employment of women; and an overly restrictive immigration law for non-European Economic Area citizens. Above all, the difficulty of access to loans or venture capital remains one of the system’s gravest weaknesses. The Act on the Modernization of Framework Conditions for Venture Capital and Equity Investments and the law on venture capital investment, adopted in August 2008, were important steps in this direction. However, these acts need to be revised thoroughly since the European Union recently blocked parts of them due to doubts on the measures’ compatibility with EU guidelines on risk capital. The strengthening of the German venture capital market should be a central element of future strategies.

The government has, and still does, put special emphasis on fostering innovation and entrepreneurship in the use of geothermal energy. Former debate on whether geothermal energy resources should be privatized and opened to foreign investment came to an end in late 2007, even before the economic collapse, with the so-called REI affair. In the autumn 2007, a merger was proposed between Reykjavík Energy Invest, a subsidiary of the publicly owned Reykjavík Power Company (Orkuveita Reyjavíkur, OR), and the privately owned energy investment company, Geysir Green Energy. However, citing the risk of putting public money into risky investments in the energy sector, the city council of Reykjavík subsequently decided that OR should withdraw from the merger process.
Generally, Icelandic government policy has been supportive of innovation and entrepreneurship, but has not managed to guarantee economic competitiveness. Innovation, entrepreneurship and competitiveness have been emphasized in government enterprise policies, both in terms of general policy and regional policy. These are still a focus in the new government’s policy, as seen in its 2010 presentation of the so-called Offensive Plan (Sóknaráætlun), a 10-year plan for strengthening the economic system of the whole of Iceland.

At the close of the review period, Iceland remained embroiled in a deep economic and political crisis sparked by the collapse of its three main banks in 2008. There is a heated debate over the extent to which the country’s economy should be rebuilt by further investments in energy, which might then be sold to foreign enterprises such as aluminum smelters. One of the two parties currently in government, the Left Green Movement (Vinstri hreyfingin grænt framboð), is reluctant to take further steps toward this kind of enterprise policy, mainly because of the party’s environmental policy. With the Ministry of Environmental Affairs in its portfolio, the Left Greens are in a position to delay ongoing plans to build aluminum smelters in the Reykjanes peninsula and the Húsavík region in the northeast. Therefore, investment plans in heavy industry, at least as a tool for emerging from crisis, remain stalled.

The breakdown of the corporate concertation in April 2010 also included the failure of the strategy of Jeannot Krecké, minister of economic affairs. Krecké wanted to achieve a “roadmap” toward the reestablishment of competiveness with 65 proposals. The minister and employees complained that Luxembourg suffered a 27% decline in labor unit costs during the period from 1998 to 2009 vis-à-vis Germany, according to Eurostat figures.
On the other hand Luxembourg’s enterprise policy offers very little room for maneuvering due to the country’s small size and its lack of industrial diversification. As Luxembourg’s economy relies very strongly on the financial sector (responsible for 45% of GDP, including indirect contributions by service providers) (1), the great challenge for enterprise policy is the fostering of diversification through a two-way strategy. This includes, first, custom-tailored investment and R&D incentives for local business and, second, attracting new business worldwide.
Founded in 2008, “Luxembourg for Business” operates as a trade promotion agency to foster the country’s outbound economic activities. In recent years, a dozen companies in the communication and media sector have gained a foothold in Luxembourg. E-business is also promoted as a new economic niche; several large international information and communications technology (ICT) companies have locations in Luxembourg. (2 )
Other sectors are promoted with varying degrees of success. One of these is logistics. Luxembourg airport represents the fifth largest air cargo hub in Europe, and a road/railway piggyback service operates between Luxembourg and the French/Spanish border. Another is the automotive sector, where around one-fifth of activity is said to be devoted to research and development. This includes, inter alia, the multinational tire manufacturer Goodyear, DELPHI (which concentrates on the design, development and testing of components related to energy and engine management systems) and IEE (producing sensing products). An emerging sector, biomedicine, includes three projects being undertaken in collaboration with the University of Luxembourg and renowned international partners: a bio-bank, a systems biology center and a cooperative research project to validate markers for lung cancer.

The Dutch business sector’s investment rate is not high. However, the share of investments in information and communication technology as part of total investments in the Netherlands is high. The business ownership rate in the Netherlands was higher in 2007 than it was from 2002 to 2005, which indicates that there is an increase in the number of people that engage in entrepreneurial activity. The business ownership rate has in fact risen in most countries, but the increase in the Netherlands was so distinct that the county improved its international position in this area.

The Netherlands scores well on some aspects of its investment climate. Both government policies and the stability of the political and economic system make the Netherlands attractive for foreign investments, despite the relatively high labor costs. The performance of the Dutch economy is characterized by a high per capita GDP, sustained GDP growth, high labor productivity (GDP per hour worked) and a high employment rate. However, the growth in the employment rate among the older aged (aged 55–65) is lagging slightly behind that of other countries. In addition, after Germany the Netherlands has the lowest number of hours worked, which depresses the GDP per person employed.
Business enterprise R&D expenditures have increased. However, this was not sufficient to improve the international position in this area. The number of innovative companies also increased, but not enough to lift the Netherlands out of the lower regions of the benchmark countries.
The self-employment rate in the Netherlands increased to such a level that the position within the group of benchmark countries has also improved. The birth rate of enterprises has also risen, but this was accompanied by an increase in the exit rate of enterprises. The amount of people that are actively engaged in starting-up a business is below the EU average of 5.5%. New enterprises in the Netherlands are characterized by an above-average size of enterprise, but with a persistently low proportion of fast growers.

The Tusk government has pursued an active enterprise policy. Building on a comprehensive law on the freedom of economic activity passed in February 2008, it has sought to lower bureaucratic barriers to entrepreneurial activity. Part of this entails a one-stop-project aimed at reducing (from four to one) the number of offices that need to be contacted for registering a start-up, but which has progressed relatively slowly. A second key element of the government’s enterprise policy has been a strong commitment to privatization. The government originally aimed at privatizing 316 state companies, including a major bank (Bank Handlowy), the airline LOT, the Warsaw stock exchange, but also coals mines and enterprises in the chemicals sector. Although the economic crisis complicated the privatization, the government succeeded in privatizing a substantial number of companies and in raising €8.7 billion by 2010.

Sweden is usually ranked among the top three in the world in terms of research and development spending per capita. The government has made research and development a priority for a long time. In addition, the state has long had programs aimed at supporting the creation of new (small) businesses. Enterprise policy has been able to achieve the goals of fostering innovation and global competitiveness. The linkages from innovation and prototype creation over to industrial concepts are highly problematic in Sweden.
Scholars observing innovation policy in Sweden refer to it as “the Swedish paradox,” which circumscribes precisely this strange pattern of high levels of innovation spending and very low output in terms of new businesses created as a result of that spending. It is not clear what explains this paradox. An EU study shows that Swedes are the most risk-averse group within the EU, and the idea of starting a business that will not be profitable seems to be daunting to Swedes.
Partly related to this paradox, corporate investment is extremely low in Sweden - among the lowest among the OECD group of countries. Investment in research and development is high, but investing in manufacturing industry is very low.

The trend towards deregulation in combination with the wave of privatization which began more than 20 years ago has come to an end, at least for the moment. In response to the financial crisis, the government was forced to re-enter territory it had already left, such as nationalizing a bank in 2009.
In the past, two factors have contributed to progress in the Austrian economy. First, a relatively open Austrian market gave it broad exposure to international and regional competitive forces. Second, Austrian business has been active in private R&D, and Austria has been singled out as a prominent innovator in recent years. A generous fiscal treatment of private R&D expenditures has certainly contributed to that development.
However, the regulatory and competition framework of services has not kept pace with international and European standards. Austria lags significantly behind in competition policy, with a relatively weak competition authority. Only the vast area covered by European competition law has been able to minimize the negative effects of those weaknesses in Austrian policy.
The rejuvenation of the Austrian economy could lead to an increase of investments into the domestic as well as the European economy. Currently, the long and intense business engagement of Austrian economic agents in Central and Eastern Europe seems to have been rolled back in favor of investments in more stable economies.

The current global downturn has been accompanied by a collapse in international foreign direct investment (FDI). Having reached an all-time high in 2007, worldwide flows fell by 14% in 2008 and by a further 30% in 2009. This collapse might be expected to have had particularly adverse implications for Ireland, given the dependence of its modern manufacturing sector on FDI.
However, the evidence suggests that the country has fared better than might have been expected on this front. This is borne out by a recent study of the performance of Ireland’s inward FDI sectors during the current recession, which shows that foreign-owned firms played an important role in helping to stabilize the economy in the face of severe downturns in both the export and domestic markets. This was due to the fact that export demand for pharmaceutical products and medical devices in particular remained relatively buoyant. Employment in Irish-owned and state-assisted firms, on the other hand, fell more over the course of the downturn than did employment in the private sector as a whole. Sectors such as information and communications technology (ICT), pharmaceuticals and international financial services are experiencing substantial structural change, and their future prospects will depend on ongoing developments in the global FDI market, including the growing sophistication of China’s manufacturing sector and changes in the international regulatory and corporate-tax environments, especially in the United States.
Thus Irish policymakers are struggling to compete in a complex environment to attract and retain leading-edge firms. The evidence from the recent recession suggests that they have been reasonably successful in this area.
Subsidies both to foreign-owned and domestic industries are justified on the grounds that they may stimulate research and development. Enterprise Ireland is a state development agency focused on transforming Irish industry, concentrating on indigenous Irish companies. Its objectives include helping these firms to invest in research and innovation. Educational expenditure, especially at the tertiary level, is directed toward encouraging cooperation between universities and industry. There has been an explosion of “business studies” courses at all levels and an emphasis on stimulating entrepreneurship. Start-up businesses are encouraged by a tax regime and compliance legislation that are, by European standards, not excessively burdensome.
Evidence indicating the success of the measures listed above in stimulating indigenous technological innovation remains patchy, as shown by the modest rate of new patents registered by Irish firms and researchers.
The trend in unit wage costs is cause for concern with regard to Ireland’s competitiveness. Ireland has been losing competitiveness on this front due to (1) a relatively high rate of wage inflation and (2) the appreciation of the euro relative to the U.S. dollar (which remains a more significant trading currency for Ireland than for any other euro zone country). Membership in the euro zone and its effects on the Irish economy are important aspects affecting the country’s overall competitiveness. The recent strength of the euro (especially relative to the U.S. dollar and UK pound sterling) has serious adverse implications for Ireland’s competitiveness. These have been partially offset by reductions in Irish wages and prices in 2008 and 2009, and more recently by the depreciation of the euro.

Following the years of economic reform under Prime Minister Koizumi (2001 – 2006), later governments have become ever more restrained in their support of a pro-business approach. Even with the most recent LDP-led government under former Prime Minister Aso, the emphasis had shifted strongly in favor of recalibrating earlier reform measures that had gone too far in the eyes of leading politicians. As a case in point, former reform minister Heizo Takenaka has totally lost influence, and has withdrawn from political functions.

It is illuminating to look at the role of postal reform. While this is only one area, although a particularly important one, it is understood in Japan to be emblematic of any government´s willingness and efforts to reform the enterprise sector. The privatization of postal services, which includes the leading savings-collecting organization in Japan, the Postal Bank, had been a centerpiece of Koizumi’s agenda, and a significant piece of the platform on which he won his landslide victory in the parliamentary elections of 2005. Under succeeding governments, politicians moved away from the original reform goals, and those who had always been against the privatization gained an ever-stronger position within the LDP and the government. During the final months of the Aso cabinet, when the election of 2009 was at stake, Aso openly declared that he had always been against postal reform and that he wanted to reconsider it. The DPJ-led coalition is even more clearly opposed to the postal reform, as one of its leading members, Financial Services Minister Shizuka Kamei, has always been an outspoken critic. During an important meeting in February 2010, it was decided that the government should retain 51% of the stock in the postal holding company.

Norway has experienced a long period of sustained growth, and corporate investments are accordingly high. The extent to which this is due to government policy is questionable. On the one hand, the bureaucracy is streamlined and it is easy to set up a new company. Moreover, macroeconomic stability and good institutions provide a good business environment.
It is difficult to identify industrial policies that actively foster entrepreneurship and growth. Government priorities are distorted by regional and sectoral objectives, favoring traditional activities, such as agriculture and fisheries which have not contributed to the recent surge in economic growth.
Enterprise policy has in some instances been contradictory, trading off competition policies with other objectives. For example, the two biggest companies in the Norwegian offshore oil industry, Statoil and Hydro, have been allowed to merge in spite of the risk that this will generate a monopolistic structure in this key sector.

Enterprise policies have been partly successful in achieving their objectives, as a wave of bankruptcies of large companies, as took place during the Asian financial crisis, has thus far been prevented. The large fiscal stimulus and the devaluation of the currency proved particularly beneficial to large companies with strong exports. On the other hand, small and medium-sized enterprises (SMEs) were struck very hard by the crisis, and bankruptcies were rampant. Thus, the already huge gap between big companies and small and medium-sized enterprises is further widening.
Since the mid-2000s, various administrations have attempted to facilitate productivity enhancements in the SME sector through the use of investment tax credits. In addition, generous personal and corporate income tax deductions were offered in an attempt to nurture the establishment of SMEs outside the Seoul metropolitan area, but without much success.
The government also uses the entry of foreign competitors to force domestic companies to innovate. For example, it waived telecom regulations to allow the Apple iPhone into the Korean market in early 2010, seeking to force Korean cell phone makers to improve their own smartphone technology. Still, despite strong efforts by the government, the oligopolistic structure of the Korean market renders the investment climate for foreign investors difficult.

Legally and strategically, Turkey’s enterprise policy matches EU norms and is close to strategies applied in the European Union. In the period under investigation, Turkey enhanced its capabilities in terms of sectoral planning, but failed to publish the long awaited Industrial Strategy Document. The government continued its path of privatization and adopted regulations aimed at mitigating the social effects of privatization. In 2008, detailed strategies for the steel, leather, textile and clothing sectors were published. Small and medium-sized enterprises (SMEs) were helped mainly through the provision of new information facilities, new tax payment procedures and the introduction of electronic customs procedures. Nevertheless, Turkey did little to better the situation of SMEs, which are considerably smaller and less well equipped in terms of technical and administrative know-how, experience and access to foreign markets than their counterparts in Europe.
However, significant progress has been recorded in recent years with respect to improving the business environment, and investment levels have risen. The Medium Term Strategic Targets was published in December 2008 by the Turkey Investment Support and Promotion Agency, taking into consideration the views and recommendations of the private sector. In July 2009, the Council of Ministers published a decree governing the establishment of development agencies. Plans have been made for the establishment of investment support offices, aiming to shorten and simplify the investment process by supporting investors during the permit and license procedures.
Although the investment climate in Turkey has improved considerably over the last seven years, the change has not yet been reflected in international competitiveness studies such as the World Bank’s Doing Business 2010 report. In that study, Turkey was ranked 57th out of 178 countries. In general, from the point of investment through the stage of actually doing business, issues such as intensive bureaucracy, ambiguity and redundancy of permitting, approvals and licenses are ongoing problems, despite various regulations that have been introduced. According to the Doing Business 2010, Turkey ranks at 56th place in terms of starting a business, 121st place for closing a business, 145 place in terms of “employing workers,” 57th place in terms of “protecting investors,” and 27th place in “enforcing contracts.”

The Chilean government is aware of the need to foster innovation, and has developed certain instruments aimed at supporting economic activity, but often fails in the implementation of its policies. Highly bureaucratic procedures retard success.
R&D expenditure as a share of GDP is very low in Chile compared to other OECD countries, and is largely undertaken by the government rather than the private sector. A number of reforms aimed at boosting R&D spending have been put in place, in the form of earmarked taxation (a royalty tax on mining), higher government expenditure, and stronger tax incentives for private R&D spending. Nevertheless, results have been disappointing to date, in part because of bureaucratic hurdles to the approval of private and public projects. The macroeconomic regime is very supportive of private investment, enabling significant international competitiveness due to the flexible exchange rate, low inflation, the presence of a fiscal rule, low barriers to foreign trade or capital flows, and low sovereign risk premiums. World-class financial regulation has led to a deep and diversified financial system and capital markets that allow private firms access to a wide variety of external financing sources (equity, bonds, bank loans). Chile’s generally market-friendly economic regime implies that an overall level playing field has been established regarding entrepreneurship and private investment. However, red tape and excessive regulation of business openings and closings remain in place, inhibiting the creative destruction of firms, and hence reducing the scope for further gains in efficiency and competitiveness. Labor-market rigidities and bureaucratic environmental impact assessments inhibit and delay private investment projects.

There is no lack of initiatives, fiscal or financial incentives, and regulatory frameworks put in place by successive governments to support innovation and entrepreneurship. The problem is rather the jungle of policy instruments put in place by the national government but also by regions, provinces or even communes. Some have barely any impact except contributing to red tape while others have been extremely successful, at least at first glance. This is illustrated by the case of the newly created statute of self-employed persons (statut de l’auto-entrepreneur) which allows individuals to set up easily a small, independent business. Not only employed people but also pensioners, civil servants or young students can create a small business. No taxes are paid until a minimum of financial revenue has been secured. In less than one year, 600,000 people have established such new “start-ups.” But most of them have no capital. In many ways, it is telling example of the challenging economic situation of individuals, many of whom use this opportunity as a kind of last-resort solution. But at the same time, this framework can allow the blossoming of new initiatives and the emergence of independent activities. If it fails, the costs are practically none while it can be expected that from so many grassroots initiatives, some successful ventures might emerge.
Research and development is mainly concentrated within few large multinational companies.
The fiscal incentives put in place by the Fillon government have been widely used, but it is too early to assess their real impact. On the whole, the present government has been favorable to measures capable of contributing to the improvement of competitiveness. The decision taken in 2007 not to tax additional hours worked by employees or the scrapping of the unpopular local business tax (taxe professionelle) paid by companies at the local level can be judged from that viewpoint. Nonetheless, the French statutory corporate tax rate is still one of the highest in the OECD.
Giving incentives to consumers to encourage them to hire proper contractors rather than rely on the informal market by lowering VAT has also been a positive move that has been highly valued by small businesses. However, the lowering of VAT from 17.9% to 5.5% in the restaurant industry had little effect on both employment and prices. It is considered rather as a windfall benefit for the industry and a costly move for the budget (a loss of €3.5 billion). Other measures, such as the possibility to pay less wealth tax by investing in medium-size companies or by financing research in lieu of paying the wealth tax have also been perceived positively but are likely to have only moderate effects.

Hungary is among the countries with the highest inward investment. Its economy has been characterized by a strong gap between a dynamic multinational economic sector and a weaker and fragmented sector of small and medium-sized enterprises (SMEs) and about a million self-employed. In the period under review, governments succeeded in attracting foreign investment, but did relatively little to support the domestic sector of the economy. The neglect of the domestic sector was a major point in Fidesz’s campaign against the governing coalition.

Enterprise policy is in a state of transition. In 2007 the state export bank, Bancomext, was replaced with Promexico, which has a wider remit, including the attraction of foreign investment. Abstracting from the current recession, it does seem that the share of investment in GDP, as well as the productivity of investment, is on a slowly improving trajectory as a consequence of the structural reforms of the last decades. Promexico is influenced by the Chilean government’s successful Fundacion ProChile. The aim of ProMexico is to seek out opportunities to bring foreign direct investment into Mexico, as well as encouraging business opportunities more generally, and the institution can engage in public-private sector partnerships with this in mind. It is too early to say whether this new organization will be successful, but it corresponds more to the international “best practices” of other export-oriented economies. President Calderón has also redefined the role of foreign embassies, asking them to focus more on trade and business affairs as part of an overall push to push Mexico’s foreign policy more toward economic issues. It is also worth noting that a significant part of Mexico’s enterprise policy is in the hands of the states rather than the federal government. Competition for investment between states is gradually making Mexico more competitive, and can be traced back to decentralizing reforms aimed at giving Mexican states a more market-oriented federal structure. Some states are quite dynamic, though not all of them are, and interstate competition is hampered by the structural disadvantages faced by several poorer states especially in the southern part of the country. Mexico still lags behind its main Asian competitors with respect to enterprise policy.

Portugal is ranked by foreign investors as one of the least competitive countries in Europe, and private investment has been decreasing since 2003. Enterprise policy does not stimulate private investment. However, the government under Prime Minister José Sócrates has attempted to make it easier to open new businesses and to encourage investment. In Decree Law No 244, of July 23, 2007, the government created the Portuguese Agency for Foreign Investment and Commerce (Agência para o Investimento e Comércio Externo de Portugal, AICEP). In 2006, Portugal was ranked 33rd of 175 countries in a World Bank survey on the speed at which businesses could be opened. Consulting firm Ernst & Young presented a report in Lisbon on November 6, 2009, at the Agency for Portuguese Foreign Investment, highlighting the inefficiency of the judicial and fiscal system, and citing this as a major obstacle to foreign investment in Portugal. However, there have been improvements, notably through the Simplex program. A 2009 OECD report found that “significant steps have been taken towards reducing the number of licenses and the waiting time for application approval.” This improvement is exemplified by the “On-the-Spot-Firm” measure, which has reduced the time necessary to legally set up a business from over 50 days to less than an hour.

The Berlusconi government’s 2008 program listed the creation of a more favorable environment for enterprises as one of its main goals. However, action in this direction has been limited. There have been a number of fiscal and regulatory provisions aimed at enabling greater flexibility in wages and overtime work, favoring new technological investments, and making bureaucratic requirements for opening new businesses somewhat less burdensome. The government has also decided to implement a new nuclear energy policy, with the goal of reducing energy costs and diversifying sources of generation. But in spite of some positive elements, enterprise policies introduced to date have not represented major improvements in several areas of significant weakness. Some of these areas of particular importance include: (1) the burdens created by the inefficiency of the public administration and by cumbersome and complicated regulations; (2) the excessive tax burden; (3) the economic environment’s low degree of competitiveness; (4) infrastructural backwardness, and the limited public resources devoted to research and the promotion of advanced investments; and (5) the high costs of energy.
Policymakers have also discussed the introduction of single points of contact (sportelli unici), where business founders can perform all the operations necessary in setting up a company in a short time. Italy lags behind many other countries in terms of the days consumed in the process of opening a business. Another problem and obstacle to new enterprises in the manufacturing and trade sectors is the difficult geography of the Italian peninsula (mostly mountainous areas, only a few plains, large North-South split), exacerbated by the old and limited road and rail transportation system. A further obstacle to foreign enterprise investment is the relatively weak command of foreign languages on the part of potential employees.

The Spanish business sector is relatively weak in terms of entrepreneurship and competitiveness, and companies tend to be disproportionately small (in 2008, only 14 Spanish firms were among the world’s 500 biggest companies), low-tech, and locally focused. Substantial red tape, high business set-up costs and high tax rates complicate things even further. Recent government initiatives such as the 2006 Business Promotion Plan have done little to rectify this situation, but the economic crisis has put more pressure on the government to tackle the flaws in Spain’s business conditions more radically.
As part of the Plan E program, the government committed to reduce administrative charges paid by self-employed workers and companies to the Treasury by 30%. The government has also announced that it will streamline its procedures so as to make it possible to create a company in 24 hours, compared to today’s average of 14 to 19 days (the so-called Plan Empresa 24 horas). An omnibus law was passed in late 2009 adapting existing national regulations to the European directive on services. A plan was also introduced to promote freight transport by train. On the financial side, a new service was opened by the Official Credit Institute (ICO) aimed at making it easier for small and medium-sized enterprises to access credit. As part of the draft law for a sustainable economy (which had not yet passed in spring 2010), two new funds will be introduced in the near future designed to support public and private investment projects with the potential to improve competitiveness in new technologies, the information-based economy, environment and energy. In addition, a reduction in social security contributions has been proposed. As a whole, the burgeoning array of new measures and initiatives produced on almost a daily basis is very difficult to summarize. Most fundamentally, doubts can be cast on the feasibility and impact of these measures, and on the presence of a clear underlying purpose. Meanwhile, only limited attention is being paid to longer-term issues such as competition in the telecommunications sector.

During the period under review, Greece tried to improve enterprise policy by limiting restrictions on investment, proceeding with privatization operations and lowering the top corporate tax rate to 25%. However, investment restrictions remain in some utilities: Greece applies restrictions to prospective non-EU investors in sectors including banking, mining, broadcasting, maritime services and air transport. In contrast to its stated intent to welcome innovation, investment and entrepreneurship, the Greek government has been unable to overcome the sluggishness and corruption rampant in some quarters of the public administration (particularly among tax, customs and town-planning authorities). The negative impact of bureaucracy on enterprise policy is compounded by rising labor costs, particularly non-wage labor costs. This is true for the reporting period even though monthly salaries remained very low: On average, unit labor costs rose by 4.9% between 2008 and 2009, which is close to the OECD average (4.2%). However, in 2008 the monthly salary of a newly hired unmarried worker without children was only €681.
The data too shows contradictory indications, perhaps indicative of the mix of good intentions and partial enterprise policy failures. Gross fixed capital formation by the private sector as a share of the GDP rose by almost 17.9% in 2005 – 2008, which is close to the OECD average (19.2%). However, GDP growth in Greece averaged 0.95% in 2007, 0.15% in 2008 and -0.65% in 2009. It is currently estimated to be at -0.80%, while inflation is as high as 3.9% (April 2010). The new government has also talked of easing enterprise regulations. To sum up, enterprise policy was more successful before 2008 than it was in the reporting period, and is currently tied to the downturn of the Greek economy as a whole.

Enterprise policy in Slovakia has largely focused on attracting foreign investment. As a result, the Slovak economy has become highly dependent on foreign investors, most notably in the automotive and the electro-technical sectors, and was hit hard by the economic crisis. The strong output decline in 2009 has underlined the need for diversification and for strengthening the domestic industry. The Fico government paid some attention to this issue in its government manifesto, but failed to do anything about it.