CHAPTER SEVEN

Europe’s High-Tech Ambitions

HIGH-TECH ENTREPRENEURSHIP IS ALL the rage in Europe these days. The French have established a high-powered ministry that will make the encouragement of high-tech entrepreneurship a top government priority. The West Germans are starting up venture-capital firms on the United States model and are talking of having their own Silicon Tal, or valley. They have even coined a new word—Unternehmer-Kultur (entrepreneurial culture)—and are busy writing learned papers and holding symposia on it. Even the British are proposing government aid to new high-tech enterprises in fields such as semiconductors, biotechnology, or telecommunications.

The Europeans are right, of course, to be concerned about the widening high-tech gap between themselves and their U.S. and Japanese competitors. Without indigenous high-tech capacity and production, no country can expect to be a leader anymore. And yet, the European belief that high-tech entrepreneurs can flourish, all by themselves and without being embedded in an entrepreneurial economy, is a total misunderstanding.

One reason is politics. High tech by itself is the maker of tomorrow’s jobs rather than today’s. To provide the new jobs needed to employ a growing work force a country needs “low-tech” or “no-tech” entrepreneurs in large numbers—and the Europeans do not want these. In the United States, employment in the Fortune 1,000 companies and in government agencies has fallen by 5 million people in the last fifteen to twenty years. Total employment, however, has risen to 106 million now from 71 million in 1965. Yet high tech during this period has provided only about 5 million new jobs: that is, no more than smokestack industry and government have lost. All the additional jobs in the U.S. economy—35 millions of them—have been provided by middle-tech, low-tech, and no-tech entrepreneurs: by makers of surgical instruments, of exercise equipment for use in the home, of running shoes; by financial-service firms and toy makers; by “ethnic” restaurants and low-fare airlines.

If entrepreneurial activity is confined to high tech—and this is what the Europeans are trying to do—unemployment will continue to go up as smokestack industries either cut back production or automate. No government, and certainly no democratic one, could then possibly continue to subordinate the ailing giants of yesteryear to an uncertain high-tech tomorrow. Soon, very soon, it would be forced by political realities to abandon the support of high tech and to put all its resources on defending, subsidizing, and bailing out existing employers and especially the heavily unionized smokestack companies. The pressures to do that are already building fast.

In France, the Communists pulled out of the government over this issue in 1983. President François Mitterrand’s own Socialist Party, especially its powerful and vocal left wing, is also increasingly unhappy with his high-tech policies. They are also increasingly unpopular, moreover, with large employers. Indeed the French Right, in its attempt to regain a majority in the 1986 parliamentary elections, made a reversal of Mr. Mitterrand’s industrial policy its main plank and demanded that France give priority to employment in existing industries and scuttle high-tech entrepreneurship.

In West Germany, demands to shore up old businesses to maintain employment and to deny access to credit and capital to new entrepreneurs are growing steadily. Banks are already under some pressure from their main clients, the existing businesses, which expect them not to provide financing to any conceivable competitor, and in West Germany the banks are the main channel for capital and credit, if not the only one. Even in Britain, there is growing pressure on Prime Minister Margaret Thatcher—especially from back-benchers in her own Conservative Party fearful of their fate in the next election—to forget all the big plans for encouraging high-tech entrepreneurship and concentrate instead on bolstering the ailing old industries.

There is a subtler but perhaps more important reason why high-tech entrepreneurship won’t work except in a much broader entrepreneurial economy. The necessary social support is lacking. High-tech entrepreneurship is the mountaintop. It must rest on a massive mountain: middle-tech, low-tech, no-tech entrepreneurship pervading the economy and society.

In the United States, 600,000 businesses are now being founded each year, about seven times as many as in the booming 1950s and 1960s. But no more than 1.5 percent of these—about 10,000 a year—are high-tech companies. The remaining 590,000 new ventures each year range from no tech—the new ethnic restaurant or a garbage pickup and disposal service—to such middle-tech concerns as a small robotized foundry for special-purpose nonferrous castings. Without these, however, the high-tech ventures would be stillborn. They would not, for instance, attract high-caliber workers.

In the absence of an entrepreneurial economy, scientists or engineers would then prefer (as they still do in Europe) the security and prestige of the “big-company” job. And a high-tech venture equally needs accountants and salespeople and managers—and none of them would want to work in small, new enterprises, high-tech or not, unless it became the accepted thing to do, if not indeed the preferred employment. Thirty years ago such people in the United States also looked to the big established company, or to government, for their job and career opportunities. That they are now available to the new venture, despite its risks and uncertainties, is what has made possible our entrepreneurial economy and the jobs it creates.

But the impetus for this did not come from glamorous high tech. It came from a multitude of quite unglamorous but challenging jobs with good career opportunities in all kinds of totally unglamorous low-tech or middle-tech businesses. They provide a massive entrepreneurial economy. High tech provides the imagination, to be sure, but other firms provide the daily bread.

And then also, no tech, low tech, and middle tech provide the profits to finance high tech. Contrary to what most people believe, high tech is distinctly unprofitable for a long time. The world’s computer industry ran at a heavy overall loss every year for thirty years; it did not break even until the early 1970s. IBM, to be sure, made a lot of money; and a few other—primarily U.S.—computer makers moved into the black during the 1960s. But these profits were more than offset by the heavy losses of the big electric-apparatus makers: GE, Westinghouse, Siemens, Phillips, RCA, and others. Similarly, it will be at least another ten years before either the biogenetic industry or robot makers as a whole break even, and probably just as long before the microcomputer industry overall makes any money. During that period the no-tech, low-tech, and middle-tech ventures provide the profit stream to finance the capital needs of high tech. Without them, there is unlikely to be enough capital available.

So far, however, there is little recognition of these facts to be found in Europe, and none among European governments. Things may change. Our own entrepreneurial surge started some fifteen years ago. Western Europe is by and large some fifteen years behind the most important U.S. demographic trends—the baby boom, the baby bust, and the explosion in college education.

In the United States these very trends are surely contributing factors in the renewal of entrepreneurship. With the tremendous number of educated baby-boomers already in good jobs, opportunities in the big companies and in government are beginning to be scarce and young people entering the labor force are willing and eager to join small and new ventures. In Europe, the baby-boomers are just hitting the market.

So far, however, European governments are still hostile to entrepreneurs other than in high-tech areas (in France contemptuous to boot). European tax laws, for instance, penalize them and restrict their access to capital and credit. But European society also discourages people, and especially the educated young, from doing anything so “uncouth” as going to work for anyone but a government agency or a big, established company. Unless this changes—and so far there are few signs of this—the infatuation with high-tech entrepreneurship will neither revive the ailing European economies nor even provide much high tech. It must end the way an earlier European high-tech infatuation, Concorde, ended: a very little gloire , an ocean of red ink, but neither jobs nor technological leadership.

(1984)