1 Zoltan J. Acs – László Szerb the Global Entrepreneurship and Development Index for the Netherlands the Analysis of The

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Zoltan J. Acs – László Szerb

The Global Entrepreneurship and Development Index for the Netherlands

The analysis of the entrepreneurial position of the Netherlands

1 Table of Contents

1. Introduction 2. The basic characteristics of the Netherlands 3. The small and medium-sized enterprise (SME) sector in the Netherlands 4. The global entrepreneurship and development index 4.1 Definitions 4.2 The structure of the index 5. The position of the Netherlands in the GEINDEX and in the sub-index levels 6. The position of the Netherlands on the pillar level 7. The position of the Netherlands on the variable level 8. The policy applicability of the GEINDEX 9. The evolution of entrepreneurship policy in the Netherlands 10. Challenging areas in entrepreneurial activity 10.1 Firm growth 10.2 Labour force 10.3 Education system 10.4 Innovation 11. Policy recommendation 11.1 Firm growth 11.2 Labour force 11.3 Education system 11.4 Innovation 12. Conclusion

References

Appendix A

• Table A.1: The Description of the Individual Variables Used in the GEINDEX • Table A.2: The Description of the Institutional Variables Used in the GEINDEX

Appendix B

• Table B.1: The Global Entrepreneurship Sub-Index Rank of the Countries • Table B.2: Entrepreneurial Attitudes Index and Pillar Values • Table B.3: Entrepreneurial Activity Index and Pillar Values • Table B.4: Entrepreneurial Aspirations Index and Pillar Values

3 1. Introduction

The development of the global entrepreneurship index The discovery of the importance of knowledge in economic growth has unleashed an unprecedented interest in entrepreneurship. It is suggested by endogenous growth theory that knowledge in the hands of agents is exploited through the firm formation process and turned into innovations. Thus a strong entrepreneurial sector is crucial for achieving and maintaining the innovation-driven stage of economic development (Acs and Szerb, 2009). In order to better understand the role of entrepreneurship, scholars have been searching for measures to compare the entrepreneurship performances of different countries, regions or cities, and policymakers require a proper benchmarking criterion for entrepreneurship development. This is a relatively recent effort and to date there has been no acceptance of a dominant variable or index to measure entrepreneurship across countries. In fact, some researchers are sceptical about the feasibility of constructing such an index and describe it as a “search for heffalump” (Carland et al., 2001) or looking for a “Holy Grail” (Hindle, 2006). Both of these researchers refer to the difficulty of constructing a definition and/or index of entrepreneurship.

For a long time, indicators of entrepreneurship, such as the self-employment rate, business ownership rate, or business density ratio, have focused purely on individual or firm levels aggregates. Since 1999, the Global En- trepreneurship Monitor (GEM) research consortium has worked to measure and to compare entrepreneurial activity across countries. The most well-known entrepreneurship measure used by GEM researchers is the Total Early-stage Entrepreneurial Activity (TEA) index, which measures the percentage of a country’s working-age population that are actively trying to start a new business and those who at least partially own and manage a young business aged less than 3.5 years. The application of the TEA index as a measure of entrepreneurship has been criticised for many reasons. Most troubling was the finding that developing countries lead the rank of nations. In other words the economies of Peru, Thailand or Uganda, for example were considered more entrepreneurial than those of the US, Australia or the Nordic countries, which may be true from a quantitative perspective but surely not from a qualitative one (Acs and Szerb, 2009). As a result it was feared that traditional indicators of entrepreneurship would give policymakers false guidance by promoting an increase in the quantity of entrepreneurship, rather than in its quality.

To incorporate the element of quality into the measurement of entrepreneurship, increasing attention has been paid to investigating the contextual nature of entrepreneurship. Besides the GEM expert-based entrepreneurial framework condition measures, the World Bank publishes annually the “Ease of doing business” index, which serves to capture the influence of regulations on firm startup. Another widely applied and recognized index is Michael E. Porter’s competitiveness index reported yearly by the World Economic Forum (WEF). It aims to capture the institutional and political factors, among other related measures, that influence country productivity and competitiveness. Lastly, the Index of Economic Freedom is one of the oldest commonly recognized global indexes in operation since 1995. While institutions are vital for a flourishing entrepreneurial sector, they only provide part of the picture (Acs and Szerb, 2009).

The shortcomings of previous entrepreneurship indicators that focused either on quantity or quality created the urgent need for a more comprehensive measurement tool. This stimulated the development of the “Global Entre- preneurship and Development Index” (GEINDEX). It successfully overcomes the deficiencies of previous measures by combining the basic requirements. First, the index is sufficiently complex to capture the multidimen- sional nature of entrepreneurship. Second, it distinguished between the qualitative and quantitative aspects of entrepreneurial activity by thirdly incorporating both individual-level and institutional variables (Acs and Szerb, 2009).

In contrast to previous entrepreneurship indices, the relationship between the GEINDEX and economic development is mildly S-shaped, which implies a positive relationship between entrepreneurship and economic development (Acs and Szerb, 2009). Therefore, the GEINDEX is here considered an appropriate tool to provide policy guidance of national governments.

4 Outline of the paper The purpose of this paper is to contribute to our understanding of economic development by applying the GE- INDEX to the economy of the Netherlands. In doing so, the report evaluates the entrepreneurial performance of the Netherlands in the context of previous entrepreneurship policy. It identifies areas where further public intervention is needed and derives actionable recommendations for policymakers. Overall, we find that the Netherlands hosts one of the most developed and sophisticated entrepreneurial environments among the 71 participating countries all around the world. It performs exceptionally strong in terms of entrepreneurial attitudes, implying a general attitude of the Dutch population towards recognizing opportunities, knowing entrepreneurs personally, attaching high status to entrepreneurs, accepting the risk associated with business startup, and possessing the skills required to successfully launching businesses (Acs and Szerb, 2009). At the same time, the GEINDEX highlights four unsatisfactory, relatively weak points in the Dutch entrepreneurial performance, which broadly relate to firm growth, labour force, education system and innovation. We find evidence that the Dutch government has long recognised the need for public intervention in these fields. In fact, tremendous progress has been through the launch of a wide spectrum of initiatives over the past decade. How- ever, despite all efforts, our analysis reveals considerable potential for improvement, which we attempt to con- ceptualise in form of actionable recommendations.

The remainder of this report is structured as follows. At the outset, we present a condensed overview of the main characteristics of the Netherlands. In section three, we briefly describe the small and medium-sized enterprise (SME) sector in the Netherlands. Then we provide a basic description of the GEINDEX in section 4. Sections 5 to 7 investigate the Dutch entrepreneurial position, based on the GEINDEX and the sub-indexes. The analysis includes an in-depth investigation of the GEINDEX’s building pillars, sub-indexes, and variables. We also compare the Netherlands to its competitor countries, most importantly the Western European countries. In section 8 we explain the policy applicability of the GEINDEX. Then, a discussion of the evolution of entrepreneurship policy in the Netherlands is provided in section 9. Based on the areas of weaknesses pointed out by the GE- INDEX, section 10 tracks the political progress made in four broad categories: (10.1) firm growth, (10.2) labour force, (10.3) education system and (10.4) innovation according to trends, challenges, policy initiatives and remaining challenges. In the section 11, we bring together our findings from the policy review and GEINDEX analysis. We present policy suggestions for improving the entrepreneurial performance of the Netherlands in the areas (11.1) firm growth, (11.2) labour force, (11.3) education system and (11.4) innovation. In section 12 we conclude.

5 2. The basic characteristics of the Netherlands

Size of population (million): 16.6 Per capita GDP US$ 2008 (PPP, World Bank): 40 850 Level of development: innovation driven

Rank in Doing Business Index 2009-2010: 30/183 Rank in Global Competitiveness Index 2008-09: 10/133 Rank in Economic Freedom Index 2009 12/179

Global Entrepreneurship and Development Index rank (point): 10 (0.62) Entrepreneurial Attitudes sub-index rank (point): 7 (0.70) Entrepreneurial Activity sub-index rank (point): 12 (0.67) Entrepreneurial Aspirations sub-index rank (point): 16 (0.48) Weakest pillar to improve (value): HIGH GROWTH (0.28) Weakest variable to improve (value) KNOWENT (0.18)

6 3. The small and medium-sized enterprise (SME) sector in the Netherlands

To provide a short overview of the entrepreneurial sector in the Netherlands, the small and medium-sized enterprise (SME) sector will be briefly explained.

In 2010 the Netherlands hosted approximately 815 000 enterprises. Almost all of these enterprises (810 000) are SMEs. These are enterprises with up to 250 employees. The SMEs can be subdivided into three groups: (1) medium sized (50-250 employees), (2) small (10-50 employees), and (3) micro (max 10 employees). In 2010, almost all of the SMEs are micro (98.4%); only 1.3% is small; and just 0.3% is medium sized. Although there are only approximately 5 000 large enterprises (250+ employees) they do create 41.1% of the jobs. The medium sized enterprises (50-250) count for only 16.9% of employment and the micro and small enterprises combined for 42% of employment. In 2010 in terms of sector focus, micro and small enterprises are concentrated in services (33.5%). A large group is also concentrated in construction and agriculture/forestry/fishery (12.7% and 10.4% respectively). Mi- cro and small enterprises are further concentrated in retail and wholesale (9.2% and 7.2%). Medium sized enterprises (50-250) are active in services (22.4%). Furthermore they are concentrated in government, wholesale, construction and the metal industry (10.2%, 9.4%, 7.9% and 7.9% respectively). Finally, the large enterprises (250+) are concentrated in health care, government and services (21.4%, 17% and 13.3% respectively) (kennissite MKB en ondernemerschap).

In summary, SMEs form a major part of the Dutch economy. Almost all SMEs are micro enterprises. They form a considerable part of the job market and are concentrated in various sectors.

4. The Global Entrepreneurship and Development Index

Before going into the details of our analysis, we will describe our major tool, the Global Entrepreneurship and Development Index, including its construct, pillars, sub-indexes, and variables. This index is unique in that it incorporates both individual and institutional variables. Therefore, we are able to identify the relative importance of the institutional setup and individual effort in countries’ entrepreneurial performance. Another unique charac- teristic is the way we calculate the sub-indexes: the Penalty for Bottleneck takes into account the weakest pillar value of a particular sub-index and penalizes for the differences between pillars. This methodology is based on the theory that the performance of the system depends on the weakest link, and there is only imperfect substitu- tion among the pillars.1 A corollary is that entrepreneurship policy should focus on improving the worst- performing pillar because it has the positive effect of upgrading other pillars in that particular sub-index, and ultimately in the GEINDEX. Altogether, the index construction integrates 31 variables, 16 from GEM and 15 from other data sources, into 14 pillars, three sub-indexes, and a “super index.” The exact description of the building-block variables can be found in Appendix A.

4.1 Definitions

Taking into account all of these possibilities and limitations, we define entrepreneurship as a dynamic interaction of entrepreneurial attitudes, entrepreneurial activity, and entrepreneurial aspirations that vary across stages of economic development. All three sub-indexes contain several indicators or pillars, which can be interpreted as the quasi-independent building blocks of this entrepreneurship index. In this section, we describe the sub- indexes, indicators, and variables. The three sub-indexes of attitude, activity, and aspiration constitute the entrepreneurship super-index, which we call the Global Entrepreneurship and Development Index, or GEINDEX.

The entrepreneurial attitude (ATT) sub-index aims to identify the attitudes of a country’s population as it relates to entrepreneurship. For example, the pillar known as opportunity perception potential is essential to recognizing and exploring novel business opportunities. To exploit these opportunities, it is also critical to have the proper startup skills and personal networks. Moreover, fear of failure to start a business can have a negative effect on entrepreneurial attitudes, even when opportunity recognition and startup skills exist. Entrepreneurial attitudes are believed to be influenced by the crucial institutional factors of market size, level of education, culture, the general riskiness of a country, and a population’s rate of Internet use, all of which enter the indicator as interaction variables.

The entrepreneurial activity (ACT) sub-index is principally concerned with measuring startup activity with high growth potential. This high growth potential is determined by quality measures, including opportunity motiva-

1 For more details about the PFB methodology, see Acs and Szerb (2009).

7 tion for startups that belong to a technology-intensive sector, the entrepreneur’s level of education, and the level of competition. The institutional variables include the freedom to operate a business, the capability to absorb technology, the extent of staff training, and the dominance of powerful business groups.

The entrepreneurial aspiration (ASP) sub-index refers to the distinctive, qualitative, and strategic nature of entrepreneurial activity. Entrepreneurial businesses are different from regularly managed business, thus it is particularly important to be able to identify the most relevant institutional and other quality-related interaction variables. The newness of a product and of a technology, internationalization, high growth ambitions, and financial variables are included in this sub-index. The institutional variables measure the R&D potential, the sophistication of a business and of an innovation, the level of globalization, and the availability of venture capital.

4.2 The structure of the index

The variables can be at the individual level (personal or business) or institutional level. All individual-level variables are from the GEM Adult Population Survey. The institutional variables are obtained from various sources, like the World Economic Forum, The Heritage Foundation, Coface, etc. We calculate all pillars or indicators from the variables using the interaction variable method; that is, by multiplying the individual variable with the proper institutional variable. The indicators are the basic building blocks of the sub-index: entrepreneurial attitudes, entrepreneurial activities, and entrepreneurial aspirations. The PFB method calculates the three sub- indexes from the indicators. Finally, the super-index, the GEINDEX, is simply the average of the three sub- indexes. The structure of the methodology can be seen in Table 1.

Table 1: The structure of the global Entrepreneurship and Development Index

5. The position of the Netherlands in the GEINDEX and in the sub-index levels

8 The following part of the report analyses the entrepreneurial performance of the Netherlands in terms of the GEINDEX and the three sub-indexes. The data set is based on the pooled data from 71 counties in the 2002 - 2008 time period.

The GEINDEX values and the associated rank of the 71 countries can be seen in Table 2. Countries marked by grey colour are on the same level of innovation driven development as the Netherlands.

Table 2: The GEINDEX rank of the countries

Rank Country GEDINDEX Rank Country GEDINDEX 1 Denmark 0.76 37 Poland 0.29 2 Canada 0.74 38 Croatia 0.28 3 United States 0.72 39 Peru 0.28 4 Sweden 0.68 40 China 0.28 5 New Zealand 0.68 41 Colombia 0.28 6 Ireland 0.63 42 South Africa 0.28 7 Switzerland 0.63 43 Turkey 0.27 8 Norway 0.62 44 Mexico 0.27 9 Iceland 0.62 45 Dominican Republic 0.26 10 Netherlands 0.62 46 Indonesia 0.26 11 Australia 0.60 47 Hungary 0.25 12 Belgium 0.58 48 Romania 0.25 13 Finland 0.56 49 Macedonia 0.24 14 United Kingdom 0.56 50 Egypt 0.24 15 Singapore 0.56 51 Jordan 0.23 16 Germany 0.54 52 Panama 0.23 17 Puerto Rico 0.54 53 India 0.23 18 France 0.50 54 Brazil 0.23 19 Slovenia 0.49 55 Venezuela 0.22 20 Korea 0.49 56 Thailand 0.22 21 Israel 0.47 57 Russia 0.22 22 Austria 0.45 58 Tunisia 0.22 23 Hong Kong 0.45 59 Morocco 0.22 24 United Arab Emirates 0.42 60 Jamaica 0.21 25 Czech Republic 0.42 61 Algeria 0.19 26 Chile 0.41 62 Serbia 0.18 27 Italy 0.41 63 Kazakhstan 0.18 28 Spain 0.40 64 Bosnia and Herzegovina 0.18 29 Japan 0.40 65 Iran 0.17 30 Saudi Arabia 0.38 66 Ecuador 0.17 31 Malaysia 0.36 67 Bolivia 0.16 32 Latvia 0.36 68 Syria 0.16 33 Portugal 0.35 69 Guatemala 0.15

9 34 Greece 0.32 70 Philippines 0.13 35 Uruguay 0.30 71 Uganda 0.10 36 Argentina 0.30

According to Table 2, the Netherlands ranks 10th in the GEINDEX with 0.62 points. The leading country Den- mark surpasses the Netherlands by 0.14 points. In a comparison of 17 Western European countries, as marked in red above, reveals the Dutch position in the upper 50%, occupying the 7th rank. The Dutch entrepreneurial performance is strong relative to emerging markets. Its score is more than twice that of China on the 40th rank, India (53rd), Brazil (54th) and Russia (57th)

Figure 1 contains the relative position of the Netherlands not only in the GEINDEX but also in the three sub- indices in terms of per capital GDP. The red curves represent trend lines of the overall index and the sub-indices. The trend line is based on third degree polynomial fitting. If a country positions below the trend line, this indicates a lower level of performance than implied by the overall development trend. A position above the trend line means a relatively favourable performance.

Figure 1: The relative position of the Netherlands in the GEINDEX and the sub-index level.

Figure 1 indicates that the overall entrepreneurial performance of the Netherlands is slightly above the development predicted by the trend line. It also outperforms the trend line in terms of entrepreneurial attitudes and activity. The difference is quite significant in the case of entrepreneurial attitudes (7th) and only marginal for entre-

10 preneurial activities (12th). The performance of the Netherlands is below the development implied by the trend line in terms of entrepreneurial aspirations (16st). The exact sub-index values can be found in Appendix B.

It is also interesting to compare the evolution of entrepreneurial performance over time with the corresponding aggregated performance. Figure 2 displays the overall index and its three sub-indices over the years 2006/2007, 2007/2008 and 2008/2009 as well as the pooled performance from 2002 to 2008.

Figure 2: The change of the GEINDEX and the sub-indices in the Netherlands 2006-2009

According to Figure 2, the entrepreneurial performance of the Netherlands has deteriorated since 2006/2007, except from its performance on the attitude sub-index. The GEINDEX score over the years 2006-2009 has only marginally decreased with 0.06 points. On the aspiration sub-index the Netherlands lost only slightly with 0.02. In contrast, the Dutch performance on the activity sub-index impaired much more, with a loss of 0.20 points. On the attitude sub-index its performance improved with 0.03 points. The pooled index over the period 2002-2008 (0.60) is higher than the current index (0.53). The same holds for the activity and aspiration sub-indexes. Only the current performance on the attitude sub-index is outperforming the pooled data. These findings can be interpreted as a slow decline in entrepreneurial activity index since 2002, except from an improvement in entrepreneurial attitude.

11 6. The position of the Netherlands on the pillar level

In this part of the report we investigate the entrepreneurial performance position of the Netherlands on the pillar level. The GEINDEX comprises 14 pillars divided into the sub-categories attitudes, activity and aspirations. The pillar level analysis allows us to identify the particular strengths and weaknesses of the Netherlands as well as meaningful comparison of those to other countries.

Figures 3a and 3b serve as a basis for analysis. These figures essentially contain the same data, but presented in a different manner. The traffic light system shows the relative position of the Netherlands to other countries. The green colour implies a ranking in the best third of the countries (best 24 countries), the amber colour indicates a position in the second third (25-48) and the red colour in the lowest third (49-71) in the particular pillar.

Figure 3a: The relative position of the Netherlands on the pillar level

Sub-Index Pillar NL 33% percentile 67% percentile 0.65 OPPORTUNITY PERCEPTION 0.28 0.51

0.44 0.34 0.54 STARTUP SKILLS 0.97 ENTREPRENEURIAL NONFEAR OF FAILURE 0.35 0.69 ATTITUDES 0.73 NETWORKING 0.18 0.38 1.00 CULTURAL SUPPORT 0.28 0.57

0.74 OPPORTUNITY STARTUP 0.23 0.56

0.76 0.26 0.49 ENTREPRENEURIAL TECH SECTOR ACTIVITY 0.43 QUALITY OF HUMAN RESOURCE 0.24 0.48 0.89 COMPETITION 0.27 0.52

0.32 NEW PRODUCT 0.08 0.31

0.53 0.20 0.47 ENTREPRENEURIAL NEW TECHOLOGY ASPIRATIONS 0.28 HIGH GROWTH 0.24 0.37 0.63 INTERNATlONALIZATION 0.31 0.62 0.83 RISK CAPITAL 0.09 0.29

12 Figure 3b: The relative position of the Netherlands on the pillar level (spider diagram)

The conclusion to be drawn from Figures 3a and 3b is clear; the Netherlands displays a strong entrepreneurial performance across all 14 pillars. It performs significantly to marginally above the 67% percentile in 11 pillars and above the 33% percentile in three pillars.

With regard to entrepreneurial attitudes the Netherlands has particular strength in nonfear of failure (97%) and cultural support (100%). This means, that a high percentage of the population does not believe that fear of failure would prevent them from starting a business and starting a business is encouraged by a pro-enterprise culture. The strong cultural support in the Netherlands arises from a very low level of corruption and the population’s positive attitude towards entrepreneurship as a career choice. Less strong, but still convincing is the Dutch performance in the categories opportunity perception and networking. Put differently, people in the Netherlands identify good opportunities to start a business in the area where they live, and networking plays an important role. It is generally believed that entrepreneurs who have better networks are more successful, can identify more viable opportunities and have access to critical resources. Less convincing is the score of the Netherlands on startup skills, only above the 33% percentile. Hence, the extent to which Dutch people believe that they possess adequate startup skills is moderate. Lack of education might play a vital role.

When it comes to entrepreneurial activity in the Netherlands, the country scores particularly high on competition. This indicates uniqueness in the products offered by Dutch entrepreneurs combined with a moderate market power of already existing businesses. The index also shows strong scores on opportunity startup and tech sector. In other words, the Dutch entrepreneurs seem to be opportunity-motivated when starting a business. In addition, these businesses seem to have the opportunity to start in a technology sector, with relatively promising perspec- tives of business survival and potential growth.

13 Confirming earlier findings, the Dutch positioning is weakest in the sub-category aspirations. Here rankings are only marginally better than the 67% percentile except a stronger score on risk capital. On high growth the Neth- erlands is scoring only marginally better than the 33% percentile. Hence, not many Dutch entrepreneurs plan to grow fast within the next 5 years. The other moderate scores are on new product, new technology and internationalization. With respect to new product, Dutch entrepreneurs do not seem to produce new products. The application/creation of new technology is also not very promising in the Netherlands. Entrepreneurs are moderately likely to engage in exporting. The strongest score within the sub-category aspiration is the provision of risk capital. Risk capital is well provided, particularly in the form of equity rather than debt. Risk capital is considered crucial for fulfilling entrepreneurial aspirations that are beyond an entrepreneur’s personal financial resources.

An analysis of the absolute scores on pillar level provides us with another perspective on the strengths and weaknesses of the Netherlands (Figure 4). The lowest scores per sub-index are achieved on the dimensions startup skills, quality of human resource and high growth. The highest scores per category are recorded in terms of cultural support, competition and risk capital.

Figure 4: The strengths and weaknesses of the Netherlands at the pillar level

A further evaluation can be made by comparisons with other countries. In the following figures we provide two comparisons: one with 17 Western European countries (Figure 5) and one with Belgium and Denmark (Figure 6).

Figure 5 compares the Dutch entrepreneurial performance with that of the EU19. The spider diagram effectively visualises the strong performance of the Netherlands on the attitude sub-index, except from startup skills. The Netherlands also has relatively strong performance within the activity sub-index on opportunity startup, tech sector and competition, and within the aspirations sub-index on risk capital. The Netherlands is being outper- formed by the EU19 on the pillars startup skills, quality of human resources, new product and high growth.

Figure 6 allows a more detailed analysis of the performance of the Netherlands compared to Belgium and Den- mark. The Netherlands shows an unsatisfactory positioning in the pillars startup skills, opportunity startup, quality of human resource, new product and high growth. On all other dimensions it either outperforms Belgium and Denmark or ranges in the middle of the two.

In conclusion, the above comparisons reconfirm the Dutch deficits in terms of entrepreneurial aspirations, high growth; in terms of attitudes, startup skills; and in terms of activity, quality of human resources. New product (aspirations) now comes more clearly across as an area of concern as well.

14 Figure 5: The comparison of the Netherlands to the EU19

EU19: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom, Iceland, Norway, Switzerland

Figure 6: The comparison of the Netherlands to Belgium and Denmark

15 7. The position of the Netherlands on the variable level

While the pillar level analysis is useful to identify the weak and strong points of entrepreneurship, it largely disregards the contribution of the individual and institutional variables to one particular indicator. In the following section, we examine the Dutch performance on variable level. The analysis is based on Table 3, which uses the traffic light system to illustrate the Dutch position relative to best, the second and the third best performing countries.

Table 3: The relative position of the Netherlands at the variable level

INSTITUTIONAL VARI- ABLES INDVIDUAL VARIABLES PILLARS

OPPORTUNITY PERCEP-

I- MARKETAGGLOM 0.66 OPPORTUNITY 0.54 TION 0.65 T T EDUCPOSTSEC 0.64 SKILL 0.35 STARTUP SKILLS 0.44

RIAL A BUSINESS RISK 1.00 NONFEAR 0.90 NONFEAR OF FAILURE 0.97 U NE TUDES E INTERNETUSAGE 1.00 KNOWENT 0.17 NETWORKING 0.73 PR

E CORRUPTION 0.95 CARSTAT 0.66 CULTURAL SUPPORT 1.00 TR N

FREEDOM 0.77 TEAOPPORT 0.85 OPPORTUNITY STARTUP 0.74 C- TECHABSORP 0.70 TECHSECT 0.60 TECH SECTOR 0.76

RIAL A

U QUALITY OF HUMAN RE- ITY NE

V STAFFTRAIN 0.84 HIGHEDUC 0.38 SOURCE 0.43 E TI

PR MARKDOM 0.94 COMPET 0.73 COMPETITION 0.89 E TR

N E GERD 0.41 NEWP 0.33 NEW PRODUCT 0.32 I- P S INNOV 0.73 NEWT 0.44 NEW TECHOLOGY 0.53

RIAL A BUSS STRATEGY 0.86 GAZELLE 0.19 HIGH GROWTH 0.28 U TIONS NE GLOB 0.92 EXPORT 0.54 INTERNATlONALIZATION 0.63 A E R

PR VENTCAP 0.97 INFINV 0.71 RISK CAPITAL 0.83 E TR

N E INSTITUTIONS 0.81 INDIVIDUAL 0.54 GEI 0.62

As expected, Table 3 illustrates the maturity and sophistication of the institutional environment in the Nether- lands. With the exception of the variable techabsorp, defined as the level technology absorption capacity in a country, the Netherlands consistently ranks among the top 33% of the countries.

Significant potential for improvement can however be identified among individual variables. Reinforcing earlier findings, the Netherlands displays a relatively strong performance in terms of entrepreneurial activity. Here all scores are in a satisfactory range except from higheduc. Hence, the quality of entrepreneurs in terms of their education can be improved. This is an important variable as it is widely held that entrepreneurs with higher education degrees are more capable and willing to start and manage high-growth businesses.

However, what a short glance reveals is that the Netherlands faces significant challenges regarding the individual factors of entrepreneurial attitudes. Although the overall score on the entrepreneurial attitude sub-index is high (a 7th ranking with a score of 0.70, the individual factors are clearly underperforming. It seams that people lack substantial confidence in their ability to identify business opportunities. Even more striking are the scores on skill and knowent. On those variables the Netherlands ranks among the lowest 33%. Hence, Dutch people do not seem to believe that they possess adequate startup skills nor do they know an entrepreneur personally.

Also regarding entrepreneurial aspirations, the Netherlands faces significant challenges on the individual factor level. Both scores on newt and export leave room for improvement. Dutch entrepreneurs do not seem to use new technologies nor do they seem to export much. On newp and gazelle the Netherlands even ranks among the lowest 33%. Dutch entrepreneurs do not offer new products and they do not have intentions to grow over 50% in 5 years.

The rankings of the individual variables in the sub-index entrepreneurial aspirations validate our earlier findings. They also confirm the additional challenging area of innovation added in the comparison with other countries. It indicates general deficiencies in the capacity of small businesses to attract highly educated employees, grow beyond a critical size and eventually expand internationally. In addition, Dutch small businesses seem to lack innovation in terms of exploiting new technologies or new products. Both lack of highly educated employees as well as lack of innovation will hamper the growth of small business. Moreover, the lack of growth potential will eventually prevent them from entering foreign markets.

Figure 7 portrays the best and worst variables of the Netherlands in absolute terms. The absolute numbers are weak among the variables knowing an entrepreneur, high growth firms and new products. The Dutch performance is exceptionally strong in terms of business risk, internet usage and formal venture capital.

Figure 7: The best and worst three variables of the Netherlands

In conclusion, deficiencies in four major categories are identified: Labour force addresses the low score on the individual variable higheduc within activity; Education system covers the weak performance on the individual variable skill within attitudes; innovation and firm growth attend to the weak performance of the Netherlands among the individual aspirations variables. Innovation covers the clear deficiencies in terms of new product and new technology. Growth addresses the low score on the individual variable gazelle. Eventually, both lack of innovation and growth will explain the limited export capacity of the Dutch entrepreneurs. It follows from the above discussion, that these four areas should be at the heart of future government intervention, i.e. entrepneur- ship policy.

8. The policy applicability of the GEINDEX

Before going into details about the public policy suggestions for entrepreneurship, we should clarify the policy applicability of the GEINDEX. While other indexes have focused on entrepreneurship at the innovation-drive stage, the newly created GEINDEX takes into account entrepreneurship at all stages of development, as shown in Figure 8. First, the three entrepreneurial sub-indexes are not of equal importance. The attitude sub-index, the ATT, measures society’s basic attitudes toward entrepreneurship through education and social stability. The activity sub-index, or ACT, measures what individuals are actually doing to improve the quality of human resources and technological efficiency. The aspiration sub-index, or ASP, which is a proxy for strategy, measures how much entrepreneurial activity is being directed toward innovation, high-impact entrepreneurship, and globalization.

Second, the temporal aspect of these sub-indexes in development is also important. Attitudes are essential and must come before either activity or aspirations. This is in part cultural, as certain societies (read communism and feudalism) outlawed entrepreneurship. Attitude is followed by activity, and aspirations then become important. In some sense, this process is cumulative over time; however, it has large overlaps.

A third important aspect of development is the roles of institutional and individual variables. While institutional improvement is vital for factor-driven countries to step up to the next level of development, the enhancement of individual characteristics is increasingly critical for innovation-driven economies.

Figure 8: Mapping of the Sub-Indexes onto Stages of Development

There are some important policy implications for countries being at different levels of development, which is summarized in Table 4. Factor-driven economies need to focus on entrepreneurial attitudes, start to develop activity, and then begin the process of enabling entrepreneurial aspirations. Efficiency-driven economies’ key focus should be on entrepreneurial activity; however, the continuous improvement of attitudes and the development of entrepreneurial aspirations are also important. In innovation-driven economies, the key focus should be on aspirations. However, both attitudes and activity need to be improved to keep a balance across the three sub- indexes.

Table 4: Policy suggestions for the different stages of development

Attitudes Activity Aspirations

Factor-driven econo- Key focus Develop Start enabling mies

Efficiency-driven ec- Continuous Key focus Develop onomies improvement

Innovation-driven ec- Continuous Continuous Key focus onomies improvement improvement

9. The evolution of entrepreneurship policy in the Netherlands

To get an understanding of the public intervention by the Dutch government so far, a discussion of the evolution of entrepreneurship policy in the Netherlands will be provided in this section.

Support to SMEs and entrepreneurship has been addressed in the policy papers of the ministry of Economic affairs for entrepreneurship since the 1950s. A shift in focus has occurred between 1982 and 1987. Before this period the policies were mainly focused on the functioning of the existing SMEs. Verheul et al (2002) argue that with respect to start-ups the policies were restrictive as they aimed to prevent business failure by a range of startup requirements. Since 1982 entrepreneurship becomes the central theme in the policies. Rather than concentrat- ing on start-up requirements, the policies strive to stimulate new business by creating opportunities and removing obstacles (Meijaard, 2008). I will briefly explain each of the policy papers from 1982 that focus on entrepreneurship.

1982: ’The broad themes of SME policy’/’Starters policy’ The goal of this policy is to solve the unemployment problem by stimulating entrepreneurship. Entrepreneurship is promoted through (1) advice and support, (2) legislative branch and education, (3) business premises, (4) fiscal and social insurance, (5) finance and capital requirements and (6) income support to start-ups. The main target group are unemployed people, even though this group seems to be the least suitable to become entrepreneurs. Hence, the main goal of the policy was to solve the unemployment problem (among minorities) rather than to explicitly stimulate entrepreneurship (Kuiper, 2010).

1987: ‘Creating room for Entrepreneurship’ This policy aims to stimulate economic growth, employment and to improve the economic structure. The policy consists of two parts: integration and functional. The goal of the integration part was to integrate the SME policy in the overall economic policy. The functional part focuses on specific SME characteristics for which a separate policy is required. The goal of the policy is to solve the problems of (1) a lack of dynamics within the SME sector, (2) unexploited potentials caused by the lack of dynamics, (3) a deficiency of quality of entrepreneurs and (4) insufficient support to start-ups. A central theme within this policy is to modernize the settling law. This law was introduced in 1937 and requests minimum requirements from start-ups: creditworthiness, knowledge of trade and of entrepreneurship. In 1988 this law was modernized to promote more start-ups. In 2007 this law was completely abolished. Only 25 million guilders became available to execute the overall policy. The underlying idea was that the SME sector should not be privileged to other groups (Kuiper, 2010).

1995: ‘Jobs through Entrepreneurship’ The goal of this policy paper is to increase employment, mainly by stimulating the SME sector. The policy consists of three parts according to entrepreneurial phase: (1) entrepreneurship in general, (2) start-ups and (3) growing firms. The SME sector is supported through improved fiscal schemes, less administrative rules, improved flexibility and quality of labour and the availability of finance. The explicit social targets disappeared and fiscal policy became the driver of entrepreneurship. In line with this, 700 million guilders became available and the number of fiscal policy instruments increased (policy paper ‘Jobs through entrepreneurship’, 1995).

1999: ‘The entrepreneurial society’ In this policy paper the lack of starters, innovative and growing entrepreneurs is acknowledged. Actions are initiated based on three pillars: (1) a market planning stimulating open and accessible markets; (2) a reduction of administrative rules and barriers; and (3) the creation of a more productive climate for entrepreneurs (fiscal, financial, education, export, regional and local policies). Again, fiscal policy was a key tool to support entrepreneurship with 845 million guilders available (policy paper ‘The entrepreneurial society’, 1999).

2003: ‘Action plan for entrepreneurship’ This policy consists of plans for each of the three phases of entrepreneurship: start, growth and transition. For each phase a separate policy is created that comprises of five sub policies aimed at: (1) influencing the personal preferences for entrepreneurship (mainly within education), (2) improving the information, knowledge and skills for entrepreneurship, (3) improving the accessibility of finance (4) improving the accessibility of labour and the transition employment-entrepreneurship and (5) removing institutional barriers to growth (policy paper ‘Action plan for entrepreneurship’, 2003). Meijaard (2008) has evaluated the 2003 policy and discovers that the Netherlands is performing decent in the start phase in comparison to other European benchmark countries. In 2005, 9.9 % of enterprises are start-ups, which gives the Netherlands a 5th ranking. The growth phase can be analyzed by measuring employment- and

19 sales growth. In the Netherlands employment growth was 6.6% as compared to an average of European benchmark countries of 9.6%. The transition phase can be measured by turmoil (the sum of access and entrance of companies). The turmoil is moderate and hence there seems to be a preference of starting a company than taking one over. The performance of the policies in the three different phases can be judged on the urgency of it, the attention devoted to it and the result. The main conclusion is that during the period 2003-2007 the policy attention directed towards the growth phase was below its urgency (Meijaard, 2008).

In conclusion, the government has supported entrepreneurship since the 1950s. From the 1950s until the 1980s the policies focused on the functioning of the incumbent SMEs and were restrictive towards start-ups. Since 1982 start-ups were supported. In the 1980s, the central theme was the unemployment problem and the entrepreneurship policies were designed to solve this problem. The policies had a larger social agenda. Since 1995, an economic focus replaced the social: entrepreneurship was now seen as the driver of economic growth. Fiscal support became available for each of the phases of entrepreneurship: start, growth and transition. Since 1999, the government acknowledges two specific challenging areas within entrepreneurship: innovation and growth. These are since then addressed with fiscal and various other policies

10. Challenging areas in entrepreneurial activity

As mentioned in the previous section, the Dutch government has already recognised and addressed the challenging areas firm growth and innovation. Less specifically, but also addressed are the areas labour force and education system. As these four areas are clearly pointed out by the GEINDEX, each of them will be thoroughly evaluated in this section according to trends, challenges, policy initiatives and remaining challenges.

10.1 Firm Growth

Trends The Netherlands has a slightly below average percentage of high growth companies based on sales in comparison to other countries. The comparison for the period 2004-2007 can be found in figure 9 (Snel et al., 2010). In 2008, the high growth percentage seems to be lower with 8% according to the CBS (van Praag, 2010).

Figure 9: Percentage of fast growing enterprises based on sales (min. sales growth of 60% in 3 years) per country

High growth firms distinguish themselves by explicit growth ambitions, innovation through new products/services in new markets, co-operation with other companies, participation in networks and a strong international orientation from the start-up of the firm (Van Essen & Meijaard, 2009). Van Dijk et al. (2009) support these findings in their study on high growth firms in the Netherlands. These growth ambitions should be correlated with High-growth expectation of early-stage Entrepreneurial Activity (HEA), which is the prevalence of new and nascent entrepreneurs who expect their business to employ at least 20 people in 5 years time. The percentage of HEA entrepreneurs among all TEA entrepreneurs is 9.6% over the period 2002-2008 in the Netherlands, which is below the average of innovation-driven economies of 12% (Hessels et al., 2009). With respect to private finance for growing entrepreneurs there is an increasing trend of investments in start/early phase enterprises since 2005, expressed both as a percentage of the total amount invested and as a percentage of the total number of firms invested in by Dutch private equity firms. Figure 10 and 11 show these

20 trends (PwC, 2002-2009). Note that these figures have to be interpreted with care as the 2008 economic downturn must have had its effects: negative on expansion- and positive on start/early phase investments.

Figure 10: Percentage of total amount invested by Dutch private equity firms

Figure 11: Percentage of total number of firms invested in by Dutch private equity firms

Challenges There are four areas that might challenge the firm growth of SMEs: aspirations, finance, supply of labour and institutional barriers.

Aspirations. The lack of firm growth might be explained by the motivation of entrepreneurs to start a new business. In 2008, 47% of the early-stage entrepreneurs decided to start a new business to be independent. Hence, they might not be motivated to grow their business, as that would make them dependent on other companies (Timmermans et al. 2008). In line with this is the below average prevalence of HEA entrepreneurs in the Nether- lands (Hessels et al., 2009). This lack of ambition to grow seems to be an extremely important factor explaining the lack of actual growth in the Netherlands (Stam et al. 2007, 2009 & van Dijk et al., 2009).

Finance. Another reason explaining the weak performance on firm growth could be the deficiency of finance. In terms of informal investments, 1.7% of the adult population indicates to be an informal investor in 2008, which gives the Netherlands a score below the average of the GEM countries of 4.7%. These investments are particularly interesting as they are skewed towards the nascent and growing business, whereas venture capitalists focus on slightly later stages (Hessels et al., 2008). In terms of overall finance, the availability of it for growers seems quite good from an international perspective (Meijaard, 2008). Van Dijk et al. (2009) support that the availability of finance is not hampering

21 growth. Of the high growth firms in their research, 94% had enough access to finance in the past years and 84% did not perceive obtaining finance as a barrier to growth. Hence, the actual availability of finance does not appear to be a large problem (although informal investments could be improved). Rather, it is more likely to be a problem of disconnection between demand and supply. Timmermans et al. (2008) find that growing firms have limited communication with banks and are not aware of other means of finance. Besides this disconnection, motivation to obtain finance also plays a role. The Expertgroup Finance SMEs introduced by the government in May 2006 discovered that entrepreneurs do not want to grow beyond the size they can finance by their own means to remain independent. Hence, 85% of the SMEs over the period 1990- 2003 share this believe, which is a high percentage in comparison to other EU countries. The Expertgroup does find that the 15% that desires to grow through extracting external finance often ex- periences difficulty attracting finance, particularly start-ups and innovative firms, so called technostarters (von Dewall, 2007).

Supply of labour. There is a clear lack of educated employees with the aspiration to become entrepreneur (Mei- jaard, 2008), which is perceived as another crucial cause for the limited firm growth (Van Praag, 2010). Con- firming this, Van Dijk et al. 2009 find in their study that 67% of the high growth firms struggle finding qualified employees as compared to 36% of the control group (non high growth firms). Moreover, the success of the high growth firms appears to be correlated with the education of their employees. Hence, 36% of the employees of the high growth firms are highly educated versus less than 10% of the average SMEs (Van Dijk et al. 2009). Another drawback regarding the labour market in the Netherlands is its inflexibility, which is particularly burdensome for entrepreneurs. According to the 2010 World Competitive Report the Netherlands scores extremely low on ‘flexibility of wage determination’ (122 out of 133) and on ‘hiring and firing practices’ (114 out of 133).

Institutional barriers. Institutional barriers might also explain the limited firm growth. First, the perception of administrative burdens hampers the growth ambitions of entrepreneurs. Second, firms with growth ambitions experience difficulty with institutional barriers (Meijaard, 2008). However, overall (not specific to the growth phase) the administrative or regulatory burden for enterprises has decreased by 25% over the 1998-2008 period (Van der Hoeven et al., 2009). Also from an international perspective the Netherlands scores good on institutions; the Netherlands is ranked 10th out of 133 countries and above the average of other innovation driven countries (Schwab, 2009). An overall good score on institutions but extremely weak score on particular pillars can explain the contro- versy on institutional barriers. Hence, the Netherlands scores extremely low on ‘burden of government regulation’ with a ranking of 91 out of 133 (Schwab, 2009); explained as dealing with construction permits on which the Netherlands scores 26th out of the 27 OECD countries (The World Bank, IFC & Palgrave Macmillan, 2009). Another interesting aspect of institutional barriers is the fiscal tax. In 2010, entrepreneurs pay a lower effec- tive tax tariff than employees. This difference decreases rapidly when income/salaries increases. Taxes seem to promote the choice of entrepreneurship over employee at the lower end of the income scale but not at the higher end. In other words, the fiscal policy does not stimulate entrepreneurs to grow (van Praag, 2010).

Policy initiatives For each of these areas, it is important to analyze whether policy initiatives have tackled the challenges.

Aspirations. Limited policy initiatives have been implemented to improve growth aspirations.

Finance. Some policy initiatives are implied to improve the accessibility of finance. Formal investment is addressed since 1971 with a special Financing Scheme (BF scheme). This scheme was set up to improve access to the capital market. It was followed up by the Growth facility, which enables SMEs to obtain more easily risk- bearing capital in the event of rapid growth or a business take-over. The Growth Facility offers a 50% guarantee from the government to banks and private equity firms. In addition, the bank loan scheme was set up: the Small and Medium-Sized Enterprises Guarantee Scheme (BBMKB). The Government acts as a guarantor for the areas of the loan that the bank perceives as limitedly secured (Van der Hoeven et al., 2009). Since 2008, micro credit is offered to SMEs that do not meet the qualifications to gain access to traditional finance. Informal investment is tackled by the Business Angel Programme, which supports both entrepreneurs in search for capital and their potential investors (Van der Hoeven et al., 2009).

Supply of labour. Entrepreneurship programmes have been set up within all education levels to stimulate entrepreneurship awareness and aspirations among students. The inflexibility of the labour market has not yet been addressed.

Institutional barriers. Some policy initiatives were directed to tackle institutional barriers. In 2003, The Contra- dictory Regulation Reporting Point was created to identify legislative and regulatory contradictions. In 2005- 2006, The Project Simplification Licenses was set up, under which all centralised and decentralised licenses were re-assessed. This assessment led to an abolishment of 40% of the licenses and 21% of the licensing systems. In 2008, the Regulatory Reform Group was formed to improve the regulation unit. At the end of 2007, there were more than fifty instruments to review the effects of new measures (Van der Hoeven et al., 2009).

Remaining challenges Despite the policy initiatives implemented, there remain several challenges.

Aspirations. There remains a lack of ambitions to grow, which might be explained by two arguments. First, Dutch people set up their business to become independent and hence might not be motivated to grow. Second, the type of entrepreneurs that dominate in the Netherlands might explain the lack of ambitions. These are independent professions and small retailers that do not intend to grow. Snel et al., 2010 support the lack of ambitions within this group with their finding of the lowest high growth in revenues percentage (17.5%) in the trading / hotel & catering industry sector.

Finance. There remain three challenges. First, absence of finance that does not want a controlling stake in firms. Second, there remains a shortage of informal investments. Third, there is still a disconnection between demand and supply of finance.

Supply of labour. There still is a lack of educated employees that desire to work within an entrepreneurial firm. Moreover, the labour market is still inflexible.

Institutional barriers. The tax tariffs are unfavourable for growing SMEs.

10.2 Labour force

Trends Since 1999, the amount of Beta sciences2 university graduates has only increased very slightly and has decreased as a percentage of total university graduates, as shown in figure 12 (Kennisbank platform Beta Techniek).

Figure 12: University graduates in the Netherlands

In 2006, the Netherlands is compared to a peer group of 25 countries on the number of Beta graduates. The Netherlands scores below average with 17% of the total number of graduates in higher education. With respect to employment for Beta graduates the Netherlands scores average (Van den Broek & Hamer, 2008). This below average score on percentage of Beta graduates remains in 2009 (CBS report, 2009). On the number of total uni-

2 Beta sciences are the exact sciences that are based on laws of nature, and theories characterized by mathemati- cal modeling, logic and experimental testing.

23 versity graduates the Netherlands scores average in an international comparison in 2009 (CBS report, 2009). Hence, although the amount of overall university graduates is adequate, there is a shortage of Beta graduates. Over the period 2003-2008 most students considered entrepreneurship a desirable career choice (by around 80%) and entrepreneurship was also given high status (by around 67%). Other indicators of attitudes and perceptions are also positive compared to other innovation-driven countries: fear of failure (28%) and perceived opportunities (39%) remained quite stable over the period. Only perceived capabilities (38%) scores slightly below the average of innovation-driven economies (40%) (Hessels et al., 2009). Nonetheless, there appears to be a large gap between attitudes on entrepreneurship, which are stable and positive, and entrepreneurial intentions that are lacking. Over the years 2001-2008 (with a small peak in 2004 and 2005) not more than between 5% and 6% of the Dutch population expects to start a new business within the next three years as compared to 11% for other innovation-driven economies (Hessels et al., 2009). In addition, Van der Sluis et al. 2008 find in their meta-analysis that the choice of becoming an entrepreneur is not related to the number of years of education. Hence, educated people do not seem to choose more often for entrepreneurship than other people, explaining the absence of intentions among university graduates. These differences between attitudes and perceptions on the one hand and intentions on the other might be due to differences between genders. Whereas the difference in perception of failure between genders is not significant, the differences between perceived capabilities and opportunities are significant in 2008: 49% of males think they possess the required knowledge and skills as compared to 27% of the females; 43% of the males perceive opportunities versus 36% of the females. The intention to set up a business rate also shows a significant difference: 8.1% of the males as opposed to 2.6% of the females expects to set up a new firm in the next three years. However, the rate of female participation (3.3%) as opposed to male participation (7.1%) in entrepreneurship in the Netherlands is at the average of innovation-driven countries and hence gender does not explain the gap between attitudes/perceptions and intentions (Hessels et al., 2009). This large gap might however be explained by the high opportunity costs involved with entrepreneurship in the Netherlands. Meijaard (2008) argues that the lack of intentions is caused by the large difference in social security within small entrepreneurial firms versus within large firms. More than 10% of entrepreneurs live under the poverty line; the poverty among entrepreneurs is three times as high as among employees (van Praag, 2010).

Challenges As can be read from the previous graph, there are insufficient university Beta graduates in particular, who are crucial for technological innovation. The amount of university graduates in general has increased but they lack aspirations to become entrepreneur. First, because Dutch people seem to be unaware that education contributes to the success of an entrepreneur. They assume that only a small percentage of entrepreneurs is highly educated. As such, university graduates consider themselves too well educated for entrepreneurship (Cardia & van Praag, 2007). Second, there are high opportunity costs of entrepreneurship (van Praag, 2010). Higher educated graduates seem to prefer working for a large, established corporation rather than being an entrepreneur (CBS, 2009). As most of them tend to start their career working for these corporations, they follow the main stream and are able to stay within their comfort zone. These corporations offer good working conditions and more security, and consequently these graduates have no incentives to leave and start their own business in the consequent years.

Political progress To solve the problem of the lack of Beta graduates The Platform Beta Technology was established after the EU Lisbon Agreement in 2000. The goal of the Lisbon Agreement was to make the EU the most competitive knowledge economy in 2010. The target was an increase in Beta technicians of 15% in 2010. Part of The Platform Beta Technology is the Beta/Engineering Delta Plan, established in 2003, aiming to solve the shortage of Beta educated employees for Beta and technical jobs. The goals of the plan are to improve the attractiveness of Beta studies and jobs, to influence the study choices of teenagers and to improve the attractiveness of the Netherlands vice versa other countries for Beta and technical employees (Nooij & Wijnhoven, 2003). In addition, in 2008 The Taskforce Technology, Education and Labour Market (TOA) was established (Erken, 2008). The strength of the programme is its regional approach. The TOA is supported by the platform Beta Technology. Various entrepreneurship programmes within education have addressed the absence of aspirations to become entrepreneur among university graduates. These will be addressed in the next section education system.

Remaining challenges There remains a lack of Beta graduates in particular and an absence of entrepreneurial aspirations among university graduates in general. The high opportunity cost of entrepreneurship that partly causes this deficiency of aspirations is still not addressed.

24 10.3 Education system

Trends In 2008, 38% of the adult population (18-64 years of age) agree that they have the knowledge, skill and experience required to start a business, as compared to 40% in other innovation-driven economies. Hence, the Nether- lands scores only slightly below other countries (Hessels et al., 2009), contradicting the low score on startup skills within the GEINDEX. Since 2000 increased attention is devoted to entrepreneurship within education. This does not seem reflected by an increase in the Opportunity Entrepreneurial Activity (OEA) Index. The relatively stable trend in this index can be found in figure 13 (GEM data). Note that the OEA index has to be interpreted carefully as it includes all types of entrepreneurs, also the non-educated.

Figure 13: The Necessity Entrepreneurial Activity and Opportunity Entrepreneurial Activity indexes for the Netherlands

This finding is supported by Oosterbeek et al. 2010 in their study. They find an insignificant effect of an entrepreneurship education programme offered to students on their self-assessed entrepreneurial skills and a negative effect on their intention to become an entrepreneur. This might be due to a more realistic view of the challenging needs of starting an own business. Nonetheless, this result has to be interpreted with caution as the effect of the programme is only analyzed within one school. Education in general seems to be very useful to entrepreneurship. Van der Sluis et al. (2008) find in their meta-analysis that 67% of the studies on education and entrepreneurship find a positive link between education and the success of an entrepreneur. More particularly, entrepreneurs with a higher education earn more, their firms survive longer, grow faster and have higher incomes. However, this positive link might be caused by other factors: more intelligent and motivated people are more educated and hence more educated people are better entrepreneurs. The unbiased effect of education is measured in a study by Van Praag et al. (2009). They find that entrepreneurs have higher returns to education than employees in terms of income because they face fewer (organizational) constraints when optimizing their profitable employment of their education (Van Praag et al. 2009), and because they can more easily obtain starting capital (Parker & van Praag, 2006). The previous studies were all based on data from the US. To overcome this limitation Van Praag & Cardia (2007) carried out a study on Dutch data. They find that 62% of the 200 most successful entrepreneurs in the Netherlands has obtained a university degree as compared to 12% to 13% of the starting entrepreneurs (and the employed population). In addition, 28% of those 200 successful entrepreneurs has obtained a higher education degree. Hence, 90% of the successful entrepreneurs is highly educated. Moreover, those highly educated successful entrepreneurs had been above average students: finishing their studies quicker and graduating more often ‘cum laude’.

Challenges Bosma et al. (2002) argue that the success of entrepreneurship programmes depends heavily on the attitude, knowledge and skills of school principals and teachers. The university teachers that provide entrepreneurship courses might not be suitable to teach as they focus on theory whereas practical skills seem to be at least as important. Nonetheless, the advantage of universities is that they reach the right target group: the highly educated students. Dutch people seem to be unaware of the fact that education contributes to the success of an entrepreneur (van Praag & Cardia, 2007).

25 Political progress Attention for entrepreneurship within education was mainly lacking until the 1990s. The turnaround came with the policy paper of 1999, ‘The entrepreneurial Society’. In his policy, the Ministry of Economic Affairs gave the integration of entrepreneurship education at all levels of the educational system a prominent place on the agenda. The three aims were for students to (1) become aware about entrepreneurship opportunities, (2) be able to develop the personality traits that contribute to successful entrepreneurship and (3) be introduced to the aspects necessary to engage in entrepreneurship (knowledge of market analysis etc.) Part of the policy was also the es- tablishment of the Commission for Entrepreneurship and Education in 2000. The commission’s objectives were: (1) creating more awareness within the educational system, (2) drafting proposals for projects, and (3) drafting proposals to eliminate educational obstacles that impede the move to entrepreneurship. During the period 2000- 2002, the government reserved a budget of € 5.9 million for a Subsidy Scheme on Entrepreneurship for pilot projects (Gibcus et al., 2010). In 2004, the action programme ‘Learning Entrepreneurship’ was initiated in which all major actors in the field of education and entrepreneurship participated. In 2006, the introduction of the subsidy scheme ‘Entre- preneurship and Education’ strengthened this programme. In 2006 the government reserved a budget of € 20 million, and in 2007 a budget of € 17 million. These budgets were for the creation of Entrepreneurship Pro- grammes at primary, secondary schools and upper secondary vocational education, and Centres of Entrepreneur- ship at higher professional education and universities. In 2008, a total of 28 projects have been set up: 22 Entre- preneurship Programmes involving 5000 students and 1300 teachers (9 within primary education, 8 within secondary education, and 5 within middle vocation education) and 6 Centres of Entrepreneurship involving 6450 students and 430 teachers within higher education and universities with a subsidy of € 12 million. The aims of the period 2009-2011 with a budget of € 33 million are to: (1) increase the amount of educational institutions that have incorporated entrepreneurship in their policies, organisation and programme, and (2) increase the number of students behaving more entrepreneurial, being more positive towards entrepreneurship and that will start their own enterprise within five years after graduating (Gibcus et al, 2010). Gibcus et al. (2010) have assessed the effect of the programmes over the period 2007-2009. They find that the missions of the educational institutions pay more attention to entrepreneurship, from 29% to 32%. In addition, the anchoring of entrepreneurship in the curriculum has increased, from 18% to 22%. However, within primary and secondary education this anchoring lags behind upper secondary vocational-, higher professional- and university education. Students perceive more opportunities to focus on entrepreneurship and have become more enthusiastic about entrepreneurship as part of their career wish. 70% of the students also indicate that their study programme in general teaches them fundamentals that are key to entrepreneurship. Nonetheless, students still seem poorly advised about the availability of entrepreneurship facilities (Gibcus et al., 2010).

Remaining challenges As supported by Oosterbeek et al. 2010 and by the absence of an increasing trend in the OEA index from 2002- 2009, entrepreneurship education programmes do not stimulate students sufficiently to become entrepreneur. This might be due to a more realistic view of the challenging needs of starting an own business. The current university teachers might not be suitable for the job. Rather, they should be selected on their practical experience within the field of entrepreneurship. Although the number of entrepreneurship programmes has evidently increased, students still seem poorly informed about the entrepreneurship facilities available (Gibcus et al, 2010).

10.4 Innovation

Trends A good indicator of innovation is the number of technostarters3. From a decrease in technostarters of around 7000 in 2001 to slightly less than 6000 in 2004, their number has gradually increased since 2004 to almost 7000 again in 2009. The SME-sector was more innovative in 2002 than in 2008, as sown in table 5. The innovativeness remained more or less constant in the period 2002-2007, but weakened in the first half of 2008, probably because of the economic downturn (Van der Hoeven et al., 2009).

3 A technostarter is defined as: ‘An enterprise that has existed for 5 years or less, is economically active and is not part of a larger company and is active in technology. It commercializes new products, processes or services based on its own developed innovations or on a new application of existing technologies. The enterprise invests heavily in Research and Development’ (Van der Hoeven et al, 2009)

26 Table 5: Innovation indicators of Dutch SMEs, in 2002 and 2008

Indicator 2002 2008

% innovative firms 65 50 % having introduced new products and services 33 28 % having improved business processes 58 38 % making use of external networks for knowledge 50 39 % co-operating with other businesses and organisations 35 29

From an international perspective, entrepreneurs in the Netherlands are quite similar to average entrepreneurs in the EU or OECD with respect to product and business innovation in 2008. However, The Netherlands performs below EU- and OECD-average when it comes to technology innovation (the newness of technology). Especially when it comes to the use of the very latest technology the Netherlands is underperforming; 2% of all TEA as opposed to 9% in the EU (Hessels et al., 2009). According to the European Innovation Scoreboard (EIS), the Netherlands is included in the group of innovation followers, behind the group of innovation leaders. This classification is based on the Summary Innovation Index (SII). This index is based on 25 innovation indicators that have been classified into five dimensions: (1) innovation drivers (the structural conditions required for innovation potential), (2) knowledge creation (investments in R&D activities), (3) innovation & entrepreneurship (efforts towards innovation at the firm level), (4) application (performance expressed in terms of labour and business activities and their value added in innovative sectors) and (5) intellectual property (the achieved results in terms of successful know-how). The Netherlands scores above average on most dimensions (as compared to the other countries in the innovation followers group), but performs worse in the dimensions ‘innovation & entrepreneurship’ and ‘appli- cations’. Within the group of innovation followers, the Netherlands belongs to the group of slow growers, risking convergence to the average EU level of innovation performance. Regarding finance, in 2009 there is an increase in the percentage of investment from Dutch private equity firms devoted to the innovative sectors: ICT and healthcare & biotechnology. Figure 14 shows the slightly increasing trend over the years 2004-2008 and the strong increase in 2009 (PwC, 2002-2009). In contrast, The Expertgroup found that particularly the start-ups and innovative firms, the so-called technostarters, struggle finding finance (von Dewall, 2007). Nonetheless, the increase in technostarters since 2004 proves that this absence of finance might be conquered.

Figure 14: Percentage of total amount invested by Dutch private equity firms

The following trends are remarkable with respect to R&D expenditures. In 2005, 1092 patents from the Netherlands were registered at the triadic patent families (European Patent Office, the Japanese Patent Office and the US Patent and Trademark Office), which is 11 patents on $100 million spent on R&D. Within a reference group of 25 countries, this gives the Netherlands a second place score. (van den Broek & Hamer, 2008). In the same year, the Netherlands was the 10th largest requestor of EP patents, the patents that end up at the European Patent Bureau (EOB), via the EOB or via the World Intellectual Property Organisation (WIPO). In 2009, the Netherlands still scores high on patents in an international comparison (CBS, 2009).

27 These Dutch requests are mainly from the large multinationals, with Philips and Unilever covering 50% combined, and less so from the SMEs (Oomen, 2007). The CBS (2008) supports that entrepreneurs (and hence SMEs) spend relatively low on R&D. In 2006, the Netherlands scores average on R&D expenses compared to 25 reference countries with 1.5% of GDP. The lack of private investments as compared to the average is compensated by the above average public investments (Broek, van den & Hamer, 2008). Those private R&D expenditures are lower than the OECD average because of a sector composition effect (the share of knowledge-intensive industries in the overall economic structure of the Netherlands is below the OECD average) and an intrinsic effect (mainly caused by poor R&D investments from abroad) (Erken, 2008). The intrinsic effect is supported by a decreasing trend in requests for patents from abroad up until 2009 (Jaaroverzicht NL Octrooicentrum 2009, 2010). The private R&D expenses seem to have increased, but insufficiently to improve the Dutch position from an international perspective (CBS, 2009). In addition, the results of academic work on innovation are most of the time not commercialised. This is the so called ‘knowledge paradox’: there is excellent knowledge; but this knowledge is not converted in economic and social performance (Hughes, 2003).

Challenges There is lack of innovation within the SME sector in the Netherlands, which might be caused by the absence of informal finance (Van der Hoeven et al., 2009). There also is a shortage of private and particularly foreign private investment in R&D (Erken, 2008). In addition, the results of academic work on innovation are often not commercialised (Hughes, 2003).

Policy initiatives Various policy initiatives have been implemented to overcome these challenges. Since 1994 the R&D tax incentive exists called the WBSO. The WBSO compromises of: (1) a compen- sation for employment costs of R&D, (2) an R&D deduction for entrepreneurs and (3) an additional compensa- tion for start-ups. Since 1994, the number of projects and the size of the budgets for WBSO have increased. Three evaluation studies showed promising results on its effectiveness and its low administrative burden (Brou- wer et al. 2002; De Jong & Verhoeven 2007 and Lokshin & Mohnen 2007). Since 1996, The Guarantee scheme has been initiated that offers favourable conditions for SMEs (BBMKB), which has proven to be very successful, with € 745 million at its disposal in 2009 (Van der Hoeven et al., 2009). Also in 1996, the Dutch Leading Technological Institutes (LTIs) were set up to solve the ‘knowledge paradox’. The institutes bring together the business world, knowledge institutions and the government. Four institutes were founded: (1) the Telematica Institute, (2) the Dutch Polymer Institute, (3) the Netherlands Institute for Metals Research and (4) the Wageningen Centre for Food Sciences. In 2005, a fifth institute was set up: TI Pharma (Telematica instituut). Since 1998, three programmes were initiated. First, the Twinning Pro- gramme, aimed at the stimulation of new business in the ICT-sector, and second the BioPartner programme to stimulate new business in the Life Sciences. Both programmes offer finance, facilities, coaching and networks. Third, the Dreamstart was set up that offers support services to technostarters (Van der Hoeven et al., 2009). In 2004, the TechnoPartner Programme was introduced, in which the previous three initiatives were combined. The main parts of the programme are: (1) The TechnoPartner Seed & growth facility, since 2005, which mobilizes the Dutch venture capital market to invest in high-tech starters by offering subordinated debt; (2) The Techno- Partner Knowledge Exploitation Subsidy Arrangement (SKE), since 2004, creates cooperation agreements between knowledge institutions and companies to support techno start-ups; (3) The TechnoPartner platform, since 2004, provides information, coaching and expertise to high-tech entrepreneurs; and (4) The Business Angel Programme (BEP), since 2005, promotes financing from informal investors (OECD: SMEs, Entrepreneurship & innovation, 2010). In 2003, the national innovation platform was initiated to create and carry out ideas for the further development of the knowledge economy. The platform consists of top executives from business, science and government (Van der Hoeven et al., 2009). Since 2003, innovation vouchers have been provided to SMEs. The SMEs can ‘cash in’ the voucher with a technology or innovation provided of their choice. Small vouchers are worth € 2500 and large vouchers are worth € 7500. The government contributes a maximum of € 5000. The aim of these vouchers is to stimulate SMEs to use public research and technology institutes for their knowledge questions (SenterNovem).

Remaining challenges There remains a lack of innovation by SMEs in particular. There is still a lack of private and particularly foreign private investments in R&D. Despite the LTIs, the innovation platform and the innovation vouchers the ‘knowledge paradox’ still seems to exist (Van der Hoeven et al., 2009).

28 11. Policy recommendations

Using the GEINDEX we have identified four areas that are important to spur entrepreneurship: firm growth, labour force, education system and innovation. To improve these areas, governmental policies have to be implemented.

11.1 Firm growth

Our analysis of the GEINDEX has consistently pointed to the weak performance of the Netherlands in terms of firm growth, as reflected in the low percentage of high-growth business in TEA who intend to employ at least 10 plus persons and plan to grow over 50 percent in 5 years. High growth forms one of the three weakest pillars of the Netherlands and the underlying variable Gazelle one of the three weakest variables. The Netherlands does score adequate on strategy, the other variable that together with Gazelle creates the High growth pillar. In other words, the lack of growth is more likely caused by be a deficiency of intention than by a lack of ability to outline a strategy that leads to growth. Bringing our findings from the index and earlier policy review together, we suggest the following causal relationship. The unsatisfactory performance in the aspirations pillar can be partly attributed to: (1) A lack of intentions to grow (2) A shortage of qualified educated employees (3) An absence of informal investments (4) The inflexibility of the labour market (5) The high tax tariffs for higher income entrepreneurs (6) The disconnection between demand and supply of finance In order to tackle these challenges, we suggest the government should focus on its entrepreneurial growth policy on the following aspects:

Policy suggestion 1: Government should support the growth of SMEs without their loss of independence. A tool could be the stimulation of hybrid finance Dutch entrepreneurs decide to start a business to be independent. This is supported by the 47% of the early-stage entrepreneurs that decided to start a new business to be independent in 2008. Entrepreneurs do not want to grow, as that would make them dependent on others (Timmermans et al. 2008). To overcome this problem, the government should support growth without loss of independence for entrepreneurs. A viable solution would be the provision of more hybrid finance, which supports the growth of firms financially without demanding a controlling stake.

Policy suggestion 2: Government should increase awareness and attractiveness of entrepreneurship among students by improving entrepreneurship programmes To overcome the second problem of a lack of qualified educated employees, more positive attention should be dedicated to entrepreneurship within education. This subject will be further discussed in the section education system.

Policy suggestion 3: Government should stimulate informal investments According to the GEM report, only 1.7% of the adult population indicates to be an informal investor in 2008, which gives the Netherlands a score below the average of the GEM countries of 4.7%. These investments are particularly interesting as they are skewed towards the nascent and growing business (GEM report, 2008). The government should expand and strengthen its incentive mechanisms for these investors in particularly, for example by setting up large co-investment funds and better support networks.

Broader policy suggestions: • Government should improve the flexibility of the labour market by abandoning its restrictive rules • Government should improve the communication and coordination between demand and supply of finance • Government should reduce the tax tariffs for higher income entrepreneurs

In conclusion, the Netherlands is clearly underperforming on growth of entrepreneurs, which is particularly crucial to stimulate economic growth and to compete internationally. However, it is a challenging area to tackle because a major cause is the lack of intentions to grow. Nonetheless, these intentions can be influenced and in combination with the suggested policy initiatives the score of the Netherlands on high growth can be improved significantly.

29 11.2 Labour force

Our analysis of the GEINDEX pointed quality of human resources as a second area of concern for the Nether- lands. The quality of human resources is measured in terms of the level of education possessed by the entrepreneur. It is widely held that entrepreneurs with higher education degrees are more capable and willing to start and manage high-growth business (Acs, Z. J. & L. Szerb, 2010). This lack of qualified educated human resources is correlated with firm growth, the previous area of concern in the Netherlands. Dutch firms do not grow as they lack educated human resources. Bringing our findings from the index and earlier policy review together, we suggest the following causal relationships. The unsatisfactory performance in the activity pillar can be partly attributed to: (1) High opportunity costs of entrepreneurship (2) A lack of Beta university graduates that are particularly important for innovative entrepreneurial firms In order to improve these areas, we suggest the government to implement the following two proposals in its entrepreneurial education policy:

Policy suggestion 1: Government should reduce the opportunity costs of entrepreneurship There are two options to decrease these opportunity costs. The government can either increase the security benefits of entrepreneurs or decrease the security benefits of employees. The benefits of entrepreneurs could be improved by setting up individualized pension systems and by enabling entrepreneurs to obtain a mortgage. The benefits of employees could be lowered by less attractive pensions and more restrictive mortgages.

Policy suggestion 2: Government should improve the attractiveness of Beta studies by changing the curriculum: more practical rather than theoretically oriented Since 2006 the Netherlands scores below average on the amount of Beta graduates in international perspective (Broek, van den & Hamer, 2008, CBS report, 2009). These Beta graduates are particularly important for the growth of innovative entrepreneurs. To increase the number of graduates, Beta studies should become more appealing. The government should make the studies more practically oriented and consequently accessible for a larger group of students.

In conclusion, we recognise the shortage of educated employees for entrepreneurship in the Netherlands. This deficiency is hampering the growth of entrepreneurs. The shortage of educated labour is caused by a lack of Beta university graduates in particular and an absence of intentions among university graduates in general. To solve these problems Beta studies should be made more attractive and the opportunity costs of entrepreneurship should be reduced. Some political progress has already been made to improve intentions among university graduates through the setup of entrepreneurship programmes within education. How these can be improved will be addressed in the next section.

11.3 Education system

The third area of concern for the Netherlands that stems from the GEINDEX is startup skills. On the underlying variable level skill, the Netherlands scores among the lowest 33%. Skill is defined as the percentage of the population aged 18-64 that believes they possess adequate startup skills (Acs, Z. J. & L. Szerb, 2010). There are two areas that are important when analyzing this weak score. First, the believe of possessing the adequate startup skills, and second the education that teaches those skills. It will be most interesting to analyze the education of startup skills and how this education might influence the believe about startup skills. Interesting to note is that the low score in the previous area of quality of human resources might be linked to the low score on startup skills as both fall within the entrepreneurial education policy of the Netherlands. Bringing our findings from the index and earlier policy review together, we suggest the following causal relationship. The unsatisfactory performance in the attitude pillar can be partly attributed to: (1) Entrepreneurship educational programmes not assuring students that they possess the skills to become an entrepreneur and stimulating them to become one (2) Students not being informed about the availability of entrepreneurship facilities (3) A lack of adequate teachers of entrepreneurship that have practical experience within the field In order to tackle these challenges, we suggest the government should focus on its entrepreneurial education policy on the following aspects:

Policy suggestion 1: Government should stress the attractiveness of entrepreneurship in its educational programmes to make entrepreneurship more appealing as a profession More positive attention should be directed to entrepreneurship within education to make entrepreneurship more appealing as a profession. The problem seems not the lack of university graduates, but the absence of their ambi-

30 tion to become entrepreneur. Although their attitude towards entrepreneurship is positive, they have no intention to become entrepreneur. Since 1999 more attention has been paid to entrepreneurship within education and 28 programmes have been initiated in the Netherlands. Nonetheless, the Opportunity Entrepreneurial Activity Index has not increased. It might be that these programmes provided students a more realistic view of the challenging needs of starting an own business. To solve this problem, the government should change its entrepreneurship programmes, with more time devoted explaining the advantages of entrepreneurship and providing solutions to the practical challenges of it.

Policy suggestion 2: Government should promote educational institutes to inform students better about the entrepreneurship facilities available Although the number of entrepreneurship programmes has evidently increased, students are still poorly informed about the entrepreneurship facilities available (Gibcus et al, 2010). To solve this problem educational institutes should provide more information about their entrepreneurship programmes on their website, within their facilities and during open days.

Policy suggestion 3: Government should select entrepreneurship teachers on their practical experience The success of entrepreneurship programmes seems to depend heavily on the attitude, knowledge and skills of school principals and teachers (Bosma et al., 2002) The current university teachers might not be suitable for the job as they lack practical experience within the field. Rather, teachers with practical experience should be selected. As such, a more practical orientation within those programmes becomes more easily to achieve as well.

In conclusion, since the policy paper of 1999, ‘The entrepreneurial Society’ increased attention has been paid to entrepreneurship within education. Nonetheless, opportunity driven entrepreneurship has not increased during this period. It might be that these programmes raise students’ awareness of the practical challenges of entrepreneurship. Therefore, the government should design the programmes such that they provide tools to solve those challenges. By providing student these tools and by motivating highly educated people to become entrepreneur, the Dutch score on the startup skill pillar could be improved.

11.4 Innovation

Our more in depth GEINDEX data at the individual variable level has pointed to the relatively weak performance of the Netherlands in terms of innovation, as reflected by a low level of new products and new technologies. Particularly weak is the new products individual variable, on which the Netherlands scores among the lowest 33%. This variable is defined as the percentage of new business offering products that are new to at least some of the customers. The new technology score is also low, defined as the percentage of the businesses whose principal underlying technology is less than 5 years old. Hence, innovation seems to lack in the Netherlands, especially regarding new products. The low scores on the gazelle and export individual variables within aspirations might be correlated by this deficiency of innovation. Without innovation it becomes challenging to grow and to compete with firms abroad. Bringing our findings from the index and earlier policy review together, we suggest the following causal relationships. The unsatisfactory performance in the aspirations pillar can be partly attributed to: (1) Limited innovation by SMEs (2) The knowledge paradox: knowledge on innovation is generated but not applied in practice (3) A shortage of foreign investment in R&D (4) A lack of private investment in R&D

In order to overcome these problems, we suggest the government should focus on its entrepreneurial innovation policy on the following aspects:

Policy suggestion 1: Government should support informal investors investing in innovative entrepreneurs by reducing their risks The lack of innovation could be explained by the unavailability of finance to invest in innovation. Despite the set up of the Business Angel Programme, there remains a lack of informal finance for innovation (Van der Hoeven et al., 2009); formal finance for innovations seems to have increased. The government should support informal investments by reducing their risks. Initiating guarantee schemes could be a viable policy improvement.

Policy suggestion 2: Government should solve the knowledge paradox by judging the performance of academics on the marketability of their output Although academic work on innovation is widely carried out, it is most of the time not commercialised. The government can solve this knowledge paradox, by judging the performance of academics more on the market-

31 ability of their output. Consequently, their work will become more demand-driven (Ministry of Economic Af- fairs, 1995b; OECD fostering entrepreneurship, 1998 & Hughes, 2003).

Broader policy suggestions: • Government should improve the Dutch investment climate to attract more foreign investment in R&D; better availability of scientists and an outstanding knowledge base • Government should stimulate private investments in R&D by improving their attractiveness by lower- ing taxes on their private returns

In conclusion, we recognise that the Netherlands is underperforming on innovation. On the one hand, it will be extremely difficult for the Netherlands to outperform global competitors in terms of innovation activity as the Dutch economy lacks knowledge-intensive industries. On the other hand, the government can clearly stimulate innovation to improve the Dutch performance in this area. The government has already made much improvement through tax incentives and by setting up technology institutes, an innovation platform and the TechnoPartner Programme. Nonetheless, room for improvement to stimulate informal investments, to solve the knowledge paradox and to attract foreign and private R&D remains.

12. Conclusion In this paper the GEINDEX is applied to the economy of the Netherlands to create an understanding of economic development in the Netherlands. The critical role of entrepreneurship as driver of economic growth and innovation is increasingly recognised in the Netherlands. As such, the Dutch government provides support to SMEs and particularly entrepreneurship since 1982. Today, the Netherlands has a dominant SME (mainly micro) sector and scores promising on the GEINDEX; the GEINDEX shows that the Netherlands hosts one of the most developed and sophisticated entrepreneurial environments among the 71 participating countries all around the world. None- theless, in recent years entrepreneurship activity does not seem to have improved much despite the various policy initiatives implemented by the Dutch government. Four unsatisfactory, relatively weak points in the Dutch entrepreneurial performance highlighted by the GEINDEX might explain this lack of improvement. They broadly relate to firm growth, labour force, education system and innovation. Bringing these areas together we can find clear links between them. Because Dutch entrepreneurs do not innovate much on the products they offer they might find it challenging to grow. The lack of educated labour is another factor that holds back growth. Although highly educated graduates are present in the Netherlands, they do not seem to choose entrepreneurship as their future profession. Education on entrepreneurship has evolved, but nonetheless might not be stimulating enough to change the entrepreneurial aspirations of the Dutch students. The government has already identified and addressed these areas. Nonetheless, by identify- ing the interdependency between the areas and by providing support in all four simultaneously could significantly improve entrepreneurial activity in the Netherlands.

32 References

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34 Appendix A

Table A.1: The Description of the Individual Variables Used in the GEINDEX

Individual vari- Description able OPPORTUNITY The percentage of the 18-64 aged population recognizing good conditions to start business next 6 months in area he/she lives, SKILL The percentage of the 18-64 aged population claiming to posses the required knowledge/skills to start business NONFAIRFAIL The percentage of the 18-64 aged population stating that the fear of failure would not prevent starting a business KNOWENT The percentage of the 18-64 aged population knowing someone who started a business in the past 2 years NBGOODAV The percentage of the 18-64 aged population saying that people consider starting business as good carrier choice NBSTATAV The percentage of the 18-64 aged population thinking that people attach high status to successful entrepreneurs CARSTAT The status and respect of entrepreneurs calculated as the average of NBGOODAV and NBSTATAV TEAOPPORT Percentage of the TEA businesses initiated because of opportunity start-up motive TECHSECT Percentage of the TEA businesses that are active in technology sectors (high or medium) HIGHEDUC Percentage of the TEA businesses owner/managers having participated over secondary education COMPET Percentage of the TEA businesses started in those markets where not many businesses offer the same product NEWP Percentage of the TEA businesses offering products that are new to at least some of the customers NEWT Percentage of the TEA businesses using new technology that is less than 5 years old average (including 1 year) GAZELLE Percentage of the TEA businesses having high job expectation average (over 10 more employees and 50% in 5 years) EXPORT Percentage of the TEA businesses where at least some customers are outside country (over 1%) INFINVMEAN The mean amount of 3 year informal investment BUSANG The percentage of the 18-64 aged population who provided funds for new business in past 3 years excluding stocks & funds, average INFINV The amount of informal investment calculated as INFINVMEAN* BUSANG