There is a cost to the expanding regulatory burden and governmental micro-management of the small businessman. And that cost is unequivocally playing out in Europe today. Entrepreneurship is virtually dead in many countries there. Yet the present US government increasingly seems to be emulating this moribund European model. It is economic madness.
My eye was caught by a short article on Bloomberg.com of August 23, 2013. It reported on a small Italian company called Firem. Firem has sales of $4 million/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 Poland. ’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.’” (Bloomberg Businessweek, September 19, 2013)
Leaving Italy was the last thing Pedroni wanted to do. But he could no longer survive under the rigid government strictures of Italy, particularly it’s stifling labor rules. 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 University 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 Italian firms, like Fiat, are also abandoning Italy.)
And Italy is not alone with its failing anti-entrepreneurial command 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—finally resulting in a vertiginous economic descent for these countries of old Europe. (The US is taking a turn in this same direction. Note Boeing‘s forced shutdown of it’s partial move to South Carolina last year by the NLRB.)
Furthermore, the countries that have embraced America’s traditional capitalist animal spirits and processes (like Poland, Singapore, Vietnam, and India) are beginning to eat our lunch, as well as old Europe’s, beating us at our own game by nurturing rather than repressing entrepreneurial freedom. American historian Markham Shaw Pyle says, “If the power to tax is the power to destroy, the power to regulate is no less so.”
Italy may well be the canary in the coalmine for the triumphalist over-regulated oligarchic state and a plangent death knell for the robust creative destruction of capitalism by way of a well-meaning, but hubristic, governmental overreach.
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.” Thanks, Lawrence.