Entrepreneurial Europe

Europe's biggest economic problem is that it lacks the kind of entrepreneurial culture that powers America's economy. There are not enough start-up companies or large companies that are capable of innovation. Europe does have pockets of excellence, such as Silicon Fen around Cambridge, and Munich's cluster of biotech firms. But Europe's venture capital industry is puny, and it lacks a stockmarket for high-growth companies comparable to Nasdaq. So Europe is falling behind in newer industries such as internet services, biotechnology and software.

Many of the remedies, of course, depend on action by national governments. It is their responsibility to ensure that education instills business skills, that rules on share options reward risk, that the laws on creating and winding up companies are simplified and that pensions are portable enough to enable people to shift jobs easily.

But the Prodi Commission can play a crucial role in setting a new European economic agenda. It should draw attention to the problems, forge a consensus on what needs to be done and encourage the governments to exchange best practice. And there are problems which which will require direct action at an EU level. A pan-European venture capital market, for example, would require some harmonisation of the tax treatment of dividends. The EU also has a role to play in improving intellectual property rights, for example in the creative industries.

Although Europe has much to learn from the US it does not have to adopt its entire social model. The crucial challenge for reformist Europeans is to strive for a society that handsomely rewards innovative, risk-taking companies and individuals, but also preserves strong levels of social protection. That is the theme of a major new CER research programme. Charles Leadbeater will write a report that analyses Europe's entrepreneurial performance and makes recommendations to both national governments and the EU. The report will also attempt to sketch out the lines of a new European model, one that combines risk and ambition with social equity.