June 25, 2004

ONLY BETTER (via The Other Brother):

Europe's 'insult' to the Internet (Declan McCullagh, June 21, 2004, CNET News.com)

A report released last month by the European Private Equity and Venture Capital Association shows that the usual heaping helpings of taxes and regulations continue to hurt the growth of stock markets and funds available for start-up companies in Europe. It rates the United Kingdom, Luxembourg and Ireland as the most attractive for investment.

That should be no surprise. Statistics compiled by the European governments bear this out. The total tax burden for the average worker is 48.3 percent in France, 50.7 percent in Germany, and an astonishing 52.6 percent in Hungary. Compare this to a total tax rate in Ireland of just 25.8 percent and the U.K. of 29.7 percent--the two countries that are most like the U.S. in political temperament.

Thomas Hellmann, a professor at Stanford Business School, said in a paper on developing a venture capital industry that the U.S. history "did not involve heavy-handed direct government intervention."

"Indeed, U.S. government took a market-enhancing approach, with policies designed mainly to enable private actors to develop new firms, markets and institutions," his paper said. "Most important, the government did not try to influence the specific course of development."

One result is that the average American is wealthier than the average European, and far more likely to have a job. France's socialist government, thanks to its unwillingness to relinquish control of companies like France Telecom and Air France, enjoys a per capita GDP of $27,500. Germany's economy is moribund, with a growth rate of approximately zero and a GDP per capita of $27,600. Thanks to high taxes and weighty labor regulations, Italy's per capita GDP is $26,800.

Compare those figures with a U.S. growth rate of around 4.2 percent, and a per capita GDP of $37,800 last year.

Senate Majority Leader Bill Frist put it well in a floor speech in March when he said: "European economies are buried by public-sector debt; European economies are drained of their vitality by excessive taxation; and European economies are strangled by excessive regulation from bureaucrats sitting in Brussels."

It's important to acknowledge that the U.S. legal and regulatory system has its own set of serious problems. But to attract entrepreneurs and tech startups, it doesn't need to be ideal. It only needs to be better than Europe.

That 25% in Ireland seems a good goal for us.

Posted by Orrin Judd at June 25, 2004 8:02 AM

I thought we were closer to 20%.

Posted by: Robert Schwartz at June 25, 2004 12:05 PM