Chart of the day

Excerpts from the accompanying article in The Economist:

According to an analysis of the world’s 500 biggest publicly listed firms by Nicolas Véron and Thomas Philippon of Bruegel, a think-tank, Europe gave birth to just 12 new big companies between 1950 and 2007. America produced 52 in the same period (see chart 1). Europe has only three big new listed firms founded between 1975 and 2007. Of those, two were started in Britain or Ireland, which are closer to America in their attitude to enterprise than continental Europe. Europe’s big privately held firms, too, mostly date from before 1950, often a very long time before. 

...Many aspiring entrepreneurs simply leave [Europe]. There are about 50,000 Germans in Silicon Valley, and an estimated 500 start-ups in the San Francisco Bay area with French founders. One of the things they find there is a freedom to fail. If your firm goes under in France, says Dan Serfaty, the French founder of Viadeo, a fast-growing business-networking website, you don’t get a second chance. 

...If young firms are to survive near-terminal mistakes, or fluctuating demand, they need to be able to reduce staff costs quickly and cheaply when necessary. That is far harder in many European countries than elsewhere. The complexity and cost of firing people in Europe is a big concern for American venture capital, says Georges Karam, the chief executive of Sequans Communications, a French chipmaker for smartphones which went public on the New York Stock Exchange last year. A fund in Boston recently pulled its investment in a start-up which its French founder had intended to begin in America but then had to bring back to France for family reasons. 

The cost of paying out large severance packages (six months of severance pay is typical even for very recent hires) can be a huge drain for a small company. “In San Francisco and in China, a communist country, I pay one to two months,” says a beleaguered French chief executive who does not want his name attached to such a sensitive subject. Big severance packages also make it much harder for start-ups to recruit the professional managers that can take them into the big league. Experienced executives are loth to forgo such reassuring goodies by resigning. 

Anil de Mello, who started Mobuzz, a Spanish online-video firm, in 2005, watched his fledgling company implode with the onset of the financial crisis. He thought bankruptcy would give him a new start. But after business creditors were dealt with, Spanish social security pursued him for five more years to extract repayment of severance money it had paid to the firm’s employees on his behalf. Mr de Mello nearly gave up being an entrepreneur entirely. Instead he started his next company—devoted to bringing down roaming tariffs for mobile-phone users—in Switzerland, where the labour laws are less of a deterrent.

Remember, the European economic model is premised on the idea that it is better for workers by protecting them from the harder edges of capitalism. But there's nothing to protect workers from if there are no jobs to be had and no entrepreneurs to create them.