While the United States has long stood at the forefront of technological and economic development, Europe faces a deficit of high-end entrepreneurship. Understanding the contrasting paths of the United States and European countries illustrates the importance of new business formation and economic growth. High-end entrepreneurship is linked to better job prospects for the middle class—a more important goal than ever during a time of labor-market uncertainty, when American policymakers have questioned the social benefits of wildly successful businesses.
We undertook a project to study high-end entrepreneurship. The work focuses on “superentrepreneurs”—the nearly 2,500 individuals in the world who have built up billion-dollar fortunes by creating new firms or growing small businesses into large, successful ventures. The point is to measure the tip of the iceberg: by looking at such superentrepreneurs, we can understand better which countries are more supportive of free enterprise.
Historically, Europe has been a global leader in technology and entrepreneurship. Switzerland and Cyprus are home to plenty of billionaires, and they have among the highest concentrations of high-level entrepreneurs in the world—trailing only Singapore (the U.S. ranks fourth globally on this measure). Some other European countries, such as Sweden, Ireland, and the U.K., rank among the top ten, and still nurture successful business.
Today, however, Europe as a whole lags not only the U.S. but also China in high-impact entrepreneurship. And many large European countries, such as France, Spain, Italy, and Germany, have a deficit of superentrepreneurs. Even those Eastern European economies that are embracing free-market policies lack both the size and research-and-development investment to generate more than a few high-impact entrepreneurs. Europe has only 0.8 superentrepreneurs per million, compared with 3.1 per million for the U.S.
Worldwide, one in 20 billionaire entrepreneurs are women. In China, which has 0.9 superentrepreneurs per million, 71 women have earned billion-dollar fortunes through entrepreneurship. The U.S. has 28 female superentrepreneurs, and Europe just eight. In European economic systems, female-dominated sectors such as education, health, and elder care are limited by public-sector oligopolies and regulations, reducing opportunities for high-impact entrepreneurship. By contrast, the U.S., as well as Asian economies such as China’s, are more open to entrepreneurship in health and education, which helps explain why otherwise gender-equal Europe is so far behind in this regard.
Strong property rights, fewer constraints on business, lower taxes on profits and capital gains, and better education are associated with having more high-end entrepreneurs. One more superentrepreneur per million adult inhabitants is linked to 0.88 percentage points lower unemployment. For the intermediate-educated middle class, this figure rises to 1.1 percentage points.
Though Europe plays a key role in global entrepreneurship and technological progress, the continent currently suffers from an entrepreneurial deficit. European policymakers should focus on making business-friendly reforms, encouraging further integration of a common European market, and removing barriers to entrepreneurship in women-dominated fields of the economy.
The lesson for American policymakers: don’t get complacent. Past success is no guarantee of fostering entrepreneurship in the future, and stagnation—not to mention falling behind in global competition—is a real possibility, absent smart policy. We believe that a renewed focus on boosting entrepreneurship is needed on both sides of the Atlantic.