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British, French leaders push EU to help small business
Sarkozy - Brown - Photo Council of the European Union
(LONDON) - British Prime Minister Gordon Brown and French President Nicolas Sarkozy wrote to EU chiefs Wednesday to urge them to help small businesses cope with the global credit crunch, Brown said.
Brown told the Institute of Directors' annual conference at the Royal Albert Hall in London that the pair was taking action to help smaller firms weather the financial storm.
"French President Sarkozy and I are today asking the presidency of the European Union, and the president of the European Commission to propose a new action plan across Europe to help small businesses cope with the impact of the credit crunch," Brown said.
"In this world of global financial difficulties, it is essential that immediate action at home is accompanied by cooperation overseas."
Brown told some 3,000 delegates the world was witnessing a "speed, scale and scope of global change that is frankly unprecedented" and "probably the biggest restructuring of the global economy since the Industrial Revoution."
"People will probably look back to say that this is the first truly global financial crisis of this new era of globalisation," said Brown, who spent 10 years from 1997 as finance minister under Tony Blair's premiership.
"We are also taking action to support small businesses, expanding the small businesses loan guarantee scheme so that new capital is made available and asking the European Investment Bank to improve access to finance for medium-sized firms."
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Policymakers can benefit from understanding how peer networks and the financing environment impact the kinds of people who become entrepreneurs.
People with a higher fraction of co-workers who have been entrepreneurs are more likely to try it themselves. Moreover, peer effects substitute for an individual's own background—those whose parents have been entrepreneurs benefit less from exposure to entrepreneurial peers.
Not everyone who wants money to start a new business necessarily deserves it. Wealthy people are often able to start inadvisable businesses because they don't need to undergo the reality check of an investor's approval for funding.
Examining government policy:
Nanda notes that much of his work is broadly connected to government policy in relation to economic development and entrepreneurial activity.
"In the peer effects paper, we see that policies that may encourage one person to become an entrepreneur have knock-on effects that go beyond that one individual, which in turn can influence overall economic activity," he says.
Meanwhile, the finance paper shows that a straightforward government policy of providing cheap credit for any and all new ventures may not be the most efficient use of taxpayer dollars.
"There are different ways that governments can try to spur entrepreneurial activity," Nanda remarks. "Each approach has its own costs and benefits, whether it's a direct subsidy, a loan guarantee program, or a venture capital model where the government is a direct investor."
In the future, Nanda hopes to find a situation where a government would randomize its funding of businesses so that he could study the outcome. "That's truly how to find out what does and does not work in a given environment," he says.