Entrepreneurship and the NAP

In response to the EU Employment Guidelines, Austria's National Action Plans (NAPs) for employment for 1998 and 1999 (issued in June) have sought to strengthen entrepreneurship. However, little impact is discernible so so far in a country with a very low level of self-employment, where the social partners are still coming to grips with the issue.

Since 1998, all EU Member States are obliged to draw up annual National Action Plans (NAP s) for employment (EU9805107N) based on the EU's Employment Guidelines. Member States submitted NAPs for 1999 during summer 1999, analysing implementation of the 1998 Plans and describing the policy adjustments made to incorporate the changes introduced by the 1999 Employment Guidelines (EU9810130F). Austria is no exception (AT9802164F) and its 1999 NAP was issued in June 1999.

One of the four "pillars" of the Employment Guidelines concerns "developing entrepreneurship", covering issues such as the reduction of obstacles to entrepreneurial activity and the creation of new employment opportunities, complemented by the reduction of the administrative costs of enterprises, the total cost of labour, and VAT on labour-intensive services. These have been taken up in the Austrian NAP, and below we examine the evidence for 1998 and 1999 on the formation of new companies, and the prevailing environment for entrepreneurship.

Recent dynamics of enterprise formation

According to recent figures from the Austrian Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ), 20,637 new enterprises were founded in 1998. This was down from 21,706 in 1997, but compared favourably with the 19,843 recorded in 1996 and the annual 14,000-15,000 of the three preceding years. There is speculation that some company start-ups may have been postponed firm 1998 to 1999 because of new subsidies, and that this may have accounted for the decline from the 1997 figure. There were an estimated 10,000 new companies set up in the first half of 1999. However, all these figures include insurance brokers who may work part-time, parallel to some other full-time employment. If they are excluded, the number of new companies was about 19,600 in both 1997 and 1998. However, the figures do not include self-employed physicians setting up, nor an unknown number of self-employed people, mostly in services, who are not obliged to become members of WKÖ because they do not run a formal enterprise. Nor do they include clubs and associations, which are also important in providing a range of services. Generally it is difficult to decide what is a new enterprise. The WKÖ's figures, provided for the first time in 1999, are based on a definition in which at least two of three characteristics - name, location, industry - has to be changed in order for an enterprise to qualify.

Initial capital was less than ATS 500,000 in about three-quarters of the new start-ups, and 21% received subsidies. Some 55% started out without employees, while the remainder each employed about 1.9 workers on average. In other words, the 35,000 new jobs created through business start-ups were almost evenly divided between the self-employed and their employees. More than a quarter of the people founding businesses were unemployed, but in a survey fewer than half of them stated that this was the reason for setting up. More than half of the people founding businesses had completed a formal apprenticeship at some time in the past. Crafts and trades accounted for 42.3% of all new enterprises, and were followed by commerce with 36.4%, tourism and entertainment at 13.4% and transportation at 5.9%. More specifically, bars and restaurants came first, ahead of consulting and computing.

Total active WKÖ membership rose to 276,410 in 1998, up 5,400 or 2% on 1997. However, Austria's share of entrepreneurs and self-employed in the economically active population outside agriculture is only 6.8%, compared with an EU average of 12.5%. Only in Denmark is the share smaller.

Facilitating business start-ups

The social partners, the coalition government partners and the provincial governments all have their own ideas on what are the greatest obstacles to enterprise formation. While some blame the "Austrian mentality", WKÖ and the Federation of Austrian Industry (Vereinigung österreichischer Industrieller, IV) blame the copious bureaucracy, the high cost of labour, and the risk of criminal proceedings in case of bankruptcy. The Federal Chamber of Labour (Bundesarbeitskammer, BAK) and the Austrian Social Democratic Party (Sozialdemokratische Partei Österreichs, SPÖ) blame foremost the Trades Regulations (Gewerbeordnung, GewO) as these invest WKÖ members with the power to grant or deny entrepreneurs the right to set up.

According to a survey by the Spectra research organisation, 57% of Austrians associate entrepreneurship with stress, 47% with long hours, and 40% with permanent danger of losing one's livelihood.

Two recent initiatives have been of great potential significance for business start-ups. The first is the proposed Environment Act on Production Facilities (Umweltgesetz für Betriebsanlagen, UBAG), which was meant to streamline and speed up the licensing process for new facilities. Currently, this takes 28 months, on average. The Act faltered in June 1999 when the coalition partners could not agree on a joint proposal. Second, the Federal Ministry for Economic Affairs (Bundesministerium für wirtschaftliche Angelegenheiten, BMwA) has set up a special service that attempts to act as a guide and facilitator in order to minimise the friction between people setting up companies, the bureaucracy, and financiers.

The 1998 tax reform aimed to reduce the level of taxation and social security contributions on labour, but in the end provided little respite (AT9903137N). The issue remains alive but became tied up with the trade union demand for legal equality of wage earners and salary earners (AT9906153N) and is now deadlocked.

The reform of bankruptcy procedures has been on the agenda for some time. Since October 1997, there has been an option to reorganise the business instead of going bankrupt. This was proposed by the social partners and approved by parliament but has remained unused since, apparently because of the costs associated and some ambiguity over the expected effects on the company's survival chances. Of about 5,000 bankruptcies per year 1,500 result in criminal proceedings. WKÖ thinks that this is entirely unjustified in two-thirds of cases.

The Trades Regulations contain several hundred sections, and are essentially meant to ensure that only those qualified can carry on trades and crafts. The outcome of the licensing procedure, however, depends critically on the multitude of industry bodies within WKÖ. This is seen as a sure way of limiting competition. At the same time, WKÖ attempts to act supportively through its company formation service.

Commentary

The fact that consistent data on new start-ups over a period of six years are now available for the first time is a useful step forward attributable to the NAP. Also attributable to the NAP is a greater willingness by the trade unions to entertain the thought that entrepreneurship cannot be taken for granted and is not something to demonise, or to be afraid of. This also applies to WKÖ, which has been formidable in protecting its members from competition by new entrepreneurs. Thus the 1998 and 1999 NAPs represent only the meagre beginnings of something that is almost totally new to the social partners and the government.

A campaign, initiated by the IV employers' association, to raise cost-awareness among legislators in parliament - two-thirds of whom are civil servants - may be useful, but there are no laws or directive relevant to enterprises which the social partners do not have extensive opportunity to criticise when they are drawn up. They have shown a strong tendency to concentrate on gaining exceptions to new rules, many of them costly in one way or another. Very often new legislation is in fact the social partners' creation.

Being self-employed is often not very lucrative. It usually means long hours and an income no greater than could be earned in dependent employment. The greater impediment, without a doubt, is that entrepreneurs must already be competent in the technical skills of their trade in full in order to be allowed to set up. The Trades Regulations are often likened to medieval guild regulations - they certainly have it in common that the insiders decide on who is admitted. (August Gächter, IHS)

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