Greece needs to urgently improve incentives for entrepreneurship

Economic theory, supported by empirical studies, considers entrepreneurship (the ability to combine and coordinate the traditional factors of production) to be a significant contributor to economic growth. Among other things, it is seen as bolstering competition and creating jobs. Moreover, small and medium-sized enterprises (SMEs) are the backbone of the economy and an important factor of economic and social cohesion. Despite this, Greece lags significantly behind in recognizing, cultivating and tapping entrepreneurship, which figures low in all international evaluation studies, such as: – The Global Economic Freedom Index, which notes Greece’s bureaucratic procedures, high tax burden, the unappealing regulatory framework and the cost of setting up new businesses. – Reports by the Organization of Economic Cooperation and Development and the United Nations conclude that foreign direct investment is traditionally hampered by the multiplicity of laws, red tape, an underdeveloped transport network and comparatively high taxation. – According to a World Bank report, approval for setting up a new business in Greece requires 16 different procedures and 45 days. On the basis of these two indices, Greece is ranked 125th among 132 nations. The cost of founding a new enterprise approaches 70 percent of the country’s per capita income. – The World Economic Forum’s annual report ranks Greece as a laggard among European Union members regarding microeconomic competitiveness, a basic factor of which is the quality of entrepreneurial environment. At the end of 2003, the country’s absorption rate of the 2001-2006 EU-subsidized investment program for improving competitiveness was still 22 percent, and of the Information Society program, 19 percent. After great delay, the Greek government undertook some initiatives for reducing the tax burden and simplifying procedures and tax inspections in SMEs. But such measures tended to be piecemeal and frequently ineffective, as shown by the lack of coordination between the 13 new centers for entrepreneurial and technological development. A comprehensive plan for cultivating entrepreneurship must have the following guidelines and policy axes: – Decentralization and rationalized management of administrative services through the setting up of one-stop shops. Local chambers could contribute with simplification of procedures for setting up new firms and drastic reduction in the costs involved, cutting red tape in dealings with public authorities and elimination of disincentives in the regulatory framework. Also needed is simplification and long-term stabilization of the tax system – a minimum of four years – and a substantial reduction in tax rates, particularly regarding undistributed profits; expansion of development incentives, including the closer involvement of banks; and facilitating businesses in obtaining capital. Besides banks, alternative sources of financing must be sought for SMEs, including venture capital; supporting firms with know-how to encourage them to tap electronic business facilities. Finally, priority must be given to cultivating a favorable climate in education for innovation and entrepreneurship and the harmonization of education and training with the economy’s requirements. (1) Christos Staikouras is a lecturer at the Athens University of Economics.