Where Companies Start Up

Two weeks ago, the OECD and the EU's statistics agency, Eurostat, published the first set of comparable data on measures of entrepreneurial activity, such as entry and exit rates, and the rate of formation of high-growth companies. So far the data -- which the OECD and Eurostat collected this year from the business registers maintained by national statistics offices, using harmonized definitions of the variables -- cover 15 European countries, the U.S., Canada and New Zealand. It is the beginning of a data collection project funded by the Kauffman Foundation.

Among the countries surveyed, the most rapid formation of firms is taking place in Eastern Europe. Leading the pack in the rate of employer firm formation in the services sector are countries like Romania (with 16% growth in a year), Slovakia (14%) and Estonia (13%). Lagging behind with rates around 10% or lower are Austria, Italy and the Netherlands.

One puzzle is why, in some countries like Romania and Slovakia, new firms form rapidly but don't go on to achieve high growth levels -- in contrast to other new EU countries, such as the Czech Republic and the Baltics, where significantly more high-growth companies are created. The tax study of Doing Business suggests one answer: the tax burden on businesses.

The most valuable contribution to this Kauffman Foundation initiative is the data themselves. Previously, the only entrepreneur data came from the Global Entrepreneurship Monitor, a flawed methodology exercise that relied on phone calls to households to collect the information. Imagine who sits at home and answers such surveys...surely not the entrepreneurial types. According to the Monitor, East European countries are inferior to Latin American ones, and even to West European ones on the rates of new business entry...an unlikely result. The new OECD-Eurostat survey, in contrast, finds Eastern Europe to be an exciting place for entrepreneurs, as one would expect.