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Small business as an engine of progress: European lessons for Ukraine
A true portrait of the business in the European Union, where small enterprises make up 94%, provide 50% of jobs and generate 35% of added value
6 October, 2024
Industry
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Euro-integration of Ukraine
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What is a typical business in the EU? No, these are not multinational companies hidden behind the glass of skyscrapers, not fashionable hotels in priceless palaces of the Restoration Era. 98.8% are small and micro enterprises that employ almost 79 million EU citizens and migrants (more than 18% of the entire EU population). Impressive?
At the same time, the share of micro-businesses, such as coffee shops, workshops, bakeries, studios, hostels, individual consulting, etc. accounts for as much as 94%! Small and very small businesses provide 50% of all EU jobs and generate more than 35% of added value.
While large enterprises account for only 0.16% of the total number of commercial organizations, providing only 35.3% of all jobs and 47.5% of all added value produced in the economy of the EU countries.
This is the true portrait of the business in the European Union, where Ukraine so persistently strives to get, according to a recent Eurostat report.
| UE Business Structure | |||||
|---|---|---|---|---|---|
| Index | Totally | Micro (fewer than 10 employees) | Small (10-49 employees) | Medium (50-249 employees) | Big (more than 250 employees) |
| Number of enterprises, thousand; % of the total number | |||||
| Number of enterprises, 2022 | 31 998 000 | 30 119 000 94,1% | 1 513 000 4,7% | 246 600 0,8% | 52 704 0,16% |
| Number of employees, 2022 | 159 908 000 | 48 498 000 30,3% | 30 278 000 18,9% | 24 628 000 15,4% | 56 504 000 35,3% |
| Added value, 2021 | €9 393 mln | €1 807,7 mln 19,2% | €1 513 mln 16,1% | €1 609,6 mln 17,1% | €4 463 mln 47,5% |
Source: Key Figures on European Business. 2024 edition. Publications Office of the European Union. July 2024 https://ec.europa.eu/eurostat/en/web/products-key-figures/w/ks-et-24-001
The thicker the rod, the bigger the fish: the causes of big business success in the EU
Of course, large factories and companies are very important for the functioning of the economies of the EU countries, but the important question is how did such a concentration of capital appear that resulted in the fact that such a small percentage of commercial organizations became so significant for the economy?
Big business has a special status in the labor and financial markets, as well as tools and mechanisms, which are not available to small/micro businesses, for lobbying its decisions at the highest authorities level both in its country and in Brussels. It also has sufficient resources to cope with a high regulatory burden and to pay fees to lawyers, accountants, financial, project consultants, etc.
- They are one of the inseparable parts of the VIP syndicate of other people's property disposers.
- They largely support the political framework in the EU countries.
- They do not allow liberalization of market entry conditions, as well as reduction of regulatory and transactional burden on business.
Transnational companies work in tandem with big business, too.
146 thousand multinational enterprises (MNEs), i.e. multinational enterprises, were registered in the EU and EFTA countries (Switzerland, Iceland, Liechtenstein, Norway) in 2022. 64% of them are controlled from EU countries, 9% from EFTA countries, 27% from other countries (USA, Great Britain, China, including Hong Kong).
The mentioned European companies (MNEs in EU-EFTA) created 48 million jobs. It is important to note that 76% of them are controlled by companies from the EU countries.
In general, multinational enterprises are very valuable for the economy of the European Union. They provide 28% of all jobs, and industry is the largest employment sector for MNEs in the EU-EFTA.
Without small and micro businesses, the European Union would have long ago slipped into toxic syndicalism and oligarchy. It is small firms and self-employment that are not only a driver of the economic growth, but also create a unique environment of entrepreneurial valuables, from which new productions of tangible and intangible valuables are born.
The freer the legal, regulatory, and financial environment for small and micro-businesses, the higher the chances of achieving a real economic breakthrough in the long term.Share
Why do you think the European Union has lost the competition to the United States and Asia?
The state has built too high barriers between big and micro/small European businesses. As a result, there has occurred the thing that always happens in a situation of restriction of competition: big business rests on its laurels. Its reluctance, inertia, lack of innovation, arrogance, and the attitude of "I will come to an agreement with officials and politicians, anyway" are a brake.
Such an environment is a burden for micro and small businesses, since the European Union, instead of a universal, sectoral/geographical neutral, equal for all commercial organizations, has turned into a regulatory spotted giraffe with a thousand special zones and territories, tens of thousands of regulatory acts that create special tax, financial, customs , regulatory regimes for favorites of the nomenclature.
The European Union and EU member states have carried out a massive transfer of economic power from the hands of the Consumer to the hands of VIP-disposers of someone else's properties, violating the automatic market mechanisms of coordination, correction of the movement of the most diverse forms of capital. Being pushed by big business, the European Union has plunged into a zone of stagnation itself, with an increasing number of spheres of degradation. No, this does not mean at all that the European Union and its members are doomed to slide into the condition of third world countries. Stocks, reserves, sources of generation of added value are definitely available. But what about development?
European integration and small business: how not to lose it
It is critically important for Ukraine to see the difference in legal, regulatory, financial, and investment regimes for big businesses and MNEs in the EU-EFTA on the one hand and micro/small businesses on the other hand.
Big business in Ukraine is strongly connected with VIP-disposers and consumers of other people's goods (politicians, security forces, law enforcement officers, "shadow entrepreneurs"). To a large extent, it was formed due to the status of "disposer of someone else’s property", that is, the state property, and easily gets along with the big European business, with the Big Brussels Bureaucracy.
- They will coordinate regimes, rates, regulations, the procedure for issuing permits, licenses and certificates.
- They determine the number and rules of activity for special zones/territories/technology parks.
- They approve programs and projects for those who will receive subsidies and compensation.
In such a situation, Ukrainian micro and small businesses will fall victim to the agreements of the Great Bureaucracy of the European Union and the Ukrainian political establishment.
Formally, at the level of the law, it is possible to simply copy-paste the European Acquis communautaire, and Brussels will declare Ukraine's readiness to become a member of the European Union at the request of EU big business. Such a decision will be beneficial for the EU/Ukraine bureaucracy, numerous consulting structures that will serve new programs, projects and flows. At the same time, the Government of Ukraine, with a high degree of probability, will deprive national small and micro businesses of the chance to become a full-fledged driver of rapid, long-term economic growth and development.
Attracting foreign investments to the country, its inclusion in global and regional valuables chains is an imperative for the Ukrainian economic policy.
Modernization of Ukraine is impossible without the participation of various foreign capital (money, intangible assets, technologies, access to networks, management).
A bet on the model of entrepreneurial growth is a necessity today
Basic elements of the model of entrepreneurial growth: “small state”, unconditional protection of private property, simple, universal, neutral "flat" taxes, multi-currency and free movement of capital, free labor market, shift of the risk management center to "producer-consumer" relations without the participation of the state.
Today, the Ukrainian government conducts economic, tax, monetary, and regulatory policies in favor of big business and foreign consumers.
The country's legislation is similar to a sieve, where there are benefits, subsidies, special regimes for certain business sectors and regions. In such a situation, it is the Official with an unprecedented scope of discretion in interpreting the legislation that is in charge.
This is a model of a general interventionist state.
It makes 3% of the country's population rich and prosperous. The other 97% pay their bills or simply leave the country in search of a better life.
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Yaroslav Romanchuk
A well-known Ukrainian and Belarusian economist, popularizer of the Austrian economic school in the post-Soviet space. He specializes in reforms in transitional economies in the post-socialist space.