Europe Must Nourish Its Startups

Europe's newfound muscle in software proves that Continental technology companies can compete in global markets. But French, German, and other governments deserve no credit. Policymakers wasted tens of billions of dollars over the last 15 years pumping up big national corporate champions that stumbled badly. They did little to cultivate smaller, nimbler companies with better products. European business culture is also profoundly anti-entrepreneur. Banks don't loan to small, promising companies, and industry won't buy from them. Even if startups manage to cobble together private funding and a few customers, politicians levy punishing taxes on them. The result: Europe lags in the global technology race despite its strong science and highly educated population.

Until recently, the Continent's hottest technology entrepreneurs had to move to the U.S. to create new businesses. Now, a new generation is trying to make it in Europe. But their numbers are a fraction of the annual proliferation of startups in the U.S., especially in software. If European politicians don't give more backing soon, these entrepreneurs won't reach the critical mass needed for global competition.

There are signs of change. Last year, for the first time, the European Union doled out $250,000 to each of three hot software startups. The 20 finalists, ranging in age from 20 to 40, were techno-wizards in ponytails, not the big-company fat cats who normally milk the EU for research funds.

It's time for governments to act. They can begin by giving entrepreneurs real tax breaks. So far, none has dared to do more than pay lip service to the importance of small companies--a policy which perpetuates the status quo and dooms Europe to ever-increasing unemployment.

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