In 2002, Margaret Thatcher wrote prophetically about the future of the European Union. She said in her book Statecraft, “…that such an unnecessary and irrational project as building a European superstate was ever embarked upon will seem in future years to be perhaps the greatest folly of the modern era.” Fourteen years later the British electorate seems to agree.
In the midst of the post-Brexit cacophony–both apocalyptically gloomy and euphorically joyful–I do not see how the decision of Britain to depart the EU can be anything but positive for our moribund European entrepreneurial brethren. The one foundational essential for healthy entrepreneurship is freedom. This is what Britain is attempting to reclaim through Brexit.
Britain has chosen to reject the sclerotic rigidity of the arrogant bureaucrats in Brussels. It is saying “No” to the suffocating pillow of micromanagement that has mandated rules and one-size-fits-all standards for all European products and services–from teapots to toasters to the fat content of cheese. It marks the end of power, at least in the UK, to the tyranny of over 40,000 overpaid, unaccountable oligarchs and four unelected “Presidents” over all aspects of British business life. It is a full-scale rebellion against the creeping, faceless totalitarianism of what the Hunger Games movies call “The Capitol.” It gives European entrepreneurship hope.
There has been a cost to the expanding regulatory burden and governmental micro-management of small business in Europe. And that cost continues playing out. Entrepreneurship is virtually dead in many EU countries.
This week my eye was caught by a short pre-Brexit article in a file I had printed out from Bloomberg.com. It was about a small Italian company called Firem. Firem has sales of $4 million per year and a work force of 40, but hasn’t posted a profit since 2008. Here’s what happened.
“Early in August, Fabrizio Pedroni wished his employees a happy summer holiday and told them to return to work in three weeks. That night he began dismantling his electrical component factory in northern Italy and packing its machinery off to greener pastures. “Had I told them earlier about any plans to shift the production abroad, they would have occupied my factory and seized all my stuff,’ says Pedroni, owner of his family company Firem. “The plain truth is that I wanted my business to survive, and there weren’t the right conditions for me to operate in Italy any longer.”
Leaving Italy was the last thing Pedroni wanted to do. But he could no longer survive under the rigid EU strictures in Italy. He was forced to make a clandestined escape in lieu of the freedom to run a nimble, creative small business in his own country.
Carlo Alberto Carnevale Maffe, professor of business strategy at Milan’s Bocconi Uiversity says, “Pedroni, like many entrepreneurs before him…abandoned the ship called Italy because it was the only way to survive. In Italy most businesses like Firem have been posting losses for at least five years.” From 2001 to 2011, about 27,000 Italian companies, each with annual sales more than $3 million, moved abroad, with a concomitant accompanying loss of revenue and employment for Italy. (Much bigger firms, like Fiat, are also abandoning Italy.)
Italy is not alone in Europe with it’s failing anti-entrepreneurial economy. Spain, France, Portugal, and Greece face very similar issues. In none of these countries can you easily adjust to the rapidly evolving world economy. You can’t move, you can’t downsize, you cannot fire or reduce workforce, you cannot change–finally resulting in a vertiginous economic descent for these countries of old Europe.
Furthermore, the countries that have embraced America’s traditional capitalist freedoms and processes (like Poland, Singapore, Vietnam, and India) are beginning to eat even America’s lunch as well as old Europe’s, beating us at our own game by nurturing rather than repressing entrepreneurial animal spirits. American historian Markham Shaw Pyle says, “If the power to tax is the power to destroy, the power to regulate is no less so.”
Brexit may well be the canary in the coal mine for the triumphalist, over regulated, oligarchic state and a plangent death knell for the EU. Brexit is saying that hubristic, statist government overreach just doesn’t work to create a salubrious business climate.
So Britain has made the first move to reject the regulatory snake oil and closet totalitarianism of Brussels. Can Frexit, Spexit, Grexit, et. al. be far behind? I, for one, hope not.
Lawrence Lessig, in Free Culture: The Nature and Future of Creativity says, “Free culture depends upon vibrant competition. Yet the effect of the law today is to stifle just this kind of competition. The effect is to produce an over-regulated culture, just as the effect of too much control in the market is to produce an over-regulated-regulated market.” Thank you, Lawrence.