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Leading policy-makers and scholars explain how market forces, deregulation, and consumer choice can work to improve health care for all Americans.

Commentary

Risky Business
Carl J. Schramm, Wall Street Journal Europe, 5-3-06

This op–ed, for the WSJ's European edition, isn't about health care, strictly speaking. But Shramm offers a powerful explanation of why America's embrace of entrepreneurial risk taking has spurred the creation of millions of new jobs during the last 20 years, while Europe's own private sector has remained stagnant. The lesson for American policymakers thinking about health care reform is that we must extend that dynamism and entrepreneurial spirit to the health care sector through deregulation and reforms that put consumers, not bureaucrats, in charge of health care spending.

During two decades in which the United States has created 30 million net new jobs, Europe has failed to add a single additional position to its work force. That's the most alarming economic fact out of Europe today. But fear not, people of Europe: While there are lessons to be learned from the U.S., this is not a call to adopt the American system wholesale.

To their credit, European policy makers have correctly identified the cause of this gap: an entrepreneurial deficiency. In contrast to Americans, Europeans are not starting and building enough small and medium-size businesses. For nearly three decades in the U.S., the smallest firms have accounted for almost all net job creation. The U.S. new business start-up rate has held steady over this period, between 10% and 15% of all firms. Meanwhile, the already anemic average start-up rate in the European Union has decreased. Simply put, over more than 20 years, recent start-ups and rapidly growing small businesses in the U.S. have more than made up for lost jobs in America's shrinking big companies. Three-quarters of the Fortune 100 companies last year did not exist on the 1980 list. But without a vibrant entrepreneurial sector, Europe has had similar big-company job loss as the U.S. without offsetting robust job gains in its small and medium-size enterprises.

Yet the EU has virtually nullified the benefit of identifying its problem by getting the remedy all wrong...

In the U.S., the top quartile of companies as measured by productiveness grows at a much faster rate than less-productive companies. In the EU, however, it is the bottom quartile–the least productive companies–that grows most quickly. As a 2005 European Commission study notes: "The U.S. eliminates its least productive companies; the EU does not." The reason is that an economic culture of controlled growth is embedded in many European countries. These countries follow an explicit policy of consolidating economic activity in the hands of very large, though not necessarily highly productive, firms. In fact, much of Europe is hostile to business. British Chancellor of the Exchequer Gordon Brown, who is successfully advancing a U.K. growth policy built on expanding entrepreneurial activity, has observed that many of Europe's entrepreneurs have moved to London because the economic culture is more supportive and congenial.

Viewed this way, the Lisbon Agenda enforces values antithetical to entrepreneurial thinking. It calls for planning, linear and orderly views of economic growth, uniformity among nations, the creation of central institutions such as a European M.I.T., and more bureaucracy. The alternative–and correct–approach is to break down barriers to risk taking, make risk capital more available, strengthen research capacity at universities, and encourage an environment of controlled chaos.

To be very blunt, entrepreneurial activity cannot be treated as the side ring at the circus. It is not to be tolerated or encouraged as an important adjunct to the economy. It must become the economic culture itself. That is, entrepreneurial thinking must be alive in big business, government and university education, as well as in small and medium-size enterprises.



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