April 9, 2014
Youth unemployment is a generalized problem in the EU and a main theme with all EU institutions and leaders. At a pan EU-28 level of 22.9 % in February 2014 and an overall cost of €153 billion per year in benefits and foregone earnings and taxes, it is clearly evident that unless tackled this issue will only increase in weight, to the disadvantage of all of us. Furthermore this level of insecurity for young people across the Union is bound to lead to social unrest and lasting effects on the EU economy, which will not provide us with the added value we need to consolidate our rise out of the economic crisis.
In a statement delivered in July 2013 after a Round Table on Youth Employment in Europe, EC President Jose Manuel Barroso stated that the EC should act as a catalyst to help the MSs deal with the issue, and pointed out five areas of EC added value:
• Ensure implementation of the Country Specific Recommendations where urgent steps have been identified, including concrete structural reforms of labour markets, to combat youth unemployment;
• Support Member States in their efforts to implement the Youth Guarantee schemes and by frontloading the Youth Employment Initiative. Dedicated Youth Employment Action Teams will directly assist the Member States upon their request;
• Accelerate work with Member States on the Partnership Agreements, so that the European Social Fund, can provide extensive support to human capital;
• Promote cross-border mobility among young people;
• Ease transition from education to work: for example the European Alliance for Apprenticeships was launched yesterday, and we will move fast with implementation of “ERASMUS +”.
While the 1st, 4th and 5th points are beyond question, my doubts lie on the 2nd and 3rd. To make things easier I’ll focus on the Youth Employment Initiative, a program worth some €6 billion for 2014-2020.
First things first – Youth Guarantee scheme
Designed to provide citizens under 25 with a chance to employment, by guaranteeing a job/ traineeship/ apprenticeship or continued education offer within 4 months of leaving formal education or becoming unemployed, the Youth Guarantee is basically a form of social protection. While it might not be a bad idea, although I for one managed to be employed one way or another from as early as 17 on my own, it is still curious that this scheme provides little in terms actual steps and moves more to give a rounded shape, and an overall EU umbrella to measures that are common-sense – carrier guidance, alternative career paths, vocational training, access to information to and fro youth and labour market, etc. – all of which are already covered in some way by MSs through national legislation. The only valid points I find to the whole Youth Guarantee scheme are the ones relating to using subsidies to stimulate the labour market to create new jobs for young citizens, to making more start-up support services available and to ensuring support for young citizens who drop out from activation schemes and no longer access benefits. The rest of the recommendation is or at least should be a matter of MSs policy that to me is clearly self evident and just adds ruckus to the whole document.
But let’s keep in mind that one of the recommendations was to make more start-up support services available.
Youth Employment Initiative
This initiative is directed at supporting young citizens not employed or in education / training enter the labour market. A €3 billion funding line has been set forth specifically for it with an additional €3 billion from the European Social Fund. The money however is supposed to be used to “reinforce and accelerate measures” outlined within the Youth Employment Package spanning out of the Youth Guarantee. All these “youth” preceded measures therefore seem a tad circular, emanating from each other and circulating funds, ultimately, to the same beneficiary – the MSs governments. And here’s the kicker – if you want to help young citizens why would you pour money into the same administration that failed them in the first place?
Wouldn’t it be safer or better or more logical to move financing from the national administrations to SME’s or start-ups? To take the money directly where they could actually make a difference? Because as Commissioner Máire Geoghegan-Quinn pointed out that is where jobs are created! I’ve always found it an issue that the EU continues to return funds to MSs instead of directing them to the private sector, where, let’s face it, jobs and growth actually happen.
And returning to my previous point, why don’t the €6 billion go straight up into a start-up scheme?
Kickstarting youth entrepreneurship
Over the past 5 years the world has become more and more preoccupied with innovation and start-ups as measures of a healthy growing economy. In this globalized world the need for new and exciting ideas as development engines is even more powerful, because now, ultimately, we all compete for the same consumers – it’s painfully obvious if you look at the digital market. Within a system such as the EU, the first thing that should come to mind is that there is no longer a geographically captive consumer base to support the rise of a new business – if there a service I need and I don’t like it in Romania, I can, for most cases, go elsewhere in the EU and look for it. In terms of innovation driven growth that calls for as many opportunities to increase the number of providers to accelerate competition and ultimately improve services and products. A recent presentation by Jason Best I attended at the US Embassy in Bucharest on crowd funding made me realize that there is an immense value in the principle itself (leaving aside the whole financing part), outlined by Mr. Best by saying that crowd funding is primarily an opportunity to figure out if there are enough consumers out there to make a business viable – number of supporters indicate number of potential clients.
KickStarter is one of the most famous crowd-funding platforms out there. The idea behind it is extremely simple – you have an idea, you create a project, submit it online and if people like it they pledge funds to make it happen. The kicker is that you have to grow support for you cause yourself – you are in charge of communicating with the people, o creating a support network. And this is an excellent example of integration between social media, offline networks and the ability to market a service/product to gain financial backing for it. Since its beginning in 2009 Kickstarter helped raise $1 billion in funding from 5.9 million donors for 59000 projects. Which by all accounts is huge.
The Youth Employment Initiative boasts €6 billion in funds – a rough calculation means that for a base level of €10 000 you could support 600 000 startups! And all those money go straight up into the economy. 600k startups mean at least 600k self-employed people becoming active, and if they go up to let’s say 2/3 employees those figures grow. And fast too! If you increase the base level to a more substantial sum, say €100 000 for example, you might get less business picking up but they would employ more people. And if some projects require less than €10 000 than the number of potential startups emanating from this could well increase past the 1 000 000 marker from direct funding only.
A EU sponsored validation platform
Coming back to what Jason Best explained in his presentation, that a crowd funding platform is primarily a means to verify the viability of a business, the EU could in turn create and maintain a platform to decide which startups get funding. It’s enough to establish a timeline for each project, based on let’s say funding demanded, and establish a goal at the end of said timeline. If goal is met funding is then moved along, i goal is not met then the startup does not receive funding. This way the EU could bypass national administrations and fund young entrepreneurs directly.
The advantage is that promoting the idea falls as with any crowd founding project with the entrepreneur. He has to do the work to get his project / idea visible and powerful enough to reach funding status. Which takes a lot of the administrative process of the EU’s hands. Moreover the type of validation employes, with real people, can be both intra-comunitary but also extra-comunitary. Maybe the idea or product would be less interesting in the EU and more interesting in the US, or in ECC states that are not within the EU, or in Brazil. It would increase visibility for EU products and finally create more added value by becoming an exportable product / service.
How the actual validation by consumers is done can also be different – for smaller sums it could be a mere pledge to support a certain project, while with larger sums it could also involve financial commitment from the backers of the project, and then EU funds could come and match or complete the needed funds. Or way not, create a strategy that says “if you can raise €5 000 from ordinary citizens we will award you with €50 000”. Or any other strategy possible – it is about innovation and it is innovation in itself.
Since the US has passed legislation on crowd funding investment and the FCC is working to provide regulations on this type of entrepreneurial construct, the EU can and should take things forward and provide European innovators with such a funding scheme to boost local innovation. And where ever you turn I don’t think anybody is going to say no to jobs and supporting small entrepreneurs, as they are the backbone of the economy.
Move funding to those who need them
To round this up, I think this would be a far better use of EU money, and applying cash inflow directly to the economy, while also supporting innovation and enlarging the range of products /service available on the market, both the common market and outside it. If we truly want to dedicate ourselves to pushing the EU’s young citizens into an active productive business life, then support should go directly to them, not as social protection measures and public programs that have managed to fail so far around the Union, but as a kick to become entrepreneurial, to build something from the ground up! Every business that comes out a scheme like this and becomes viable economically is an investment in one unemployed citizen that brings about jobs for many more unemployed citizens. Talk about added value to investment.Horatiu Ferchiu