A social safety net for entrepreneurs
I recently co-wrote a manifesto for the Amsterdam startup ecosystem. In the manifesto, we summed up some important areas of improvement for the local community. At the time of writing I thought it was quite complete. I’m now thinking though that we might have forgotten one important area for improvement. Probably an area that could be key to entrepreneurial growth in many modern Welfare states:
A social safety net for entrepreneurs.
Why is there no social safety net for entrepreneurs? I believe there is something fundamentally wrong here. Let’s take the situation in the Netherlands for example. When you’re incapable of working or unable to find a job, there is a social safety net. This makes sure that you have enough income to stay alive during the period that you’re unemployed. When you’ve found a new job, you start paying a premium again on top of your salary, which validates your use of community funds during unemployment.
If you want to start your own company though, it’s entirely different. The only safety net you qualify for is the one that requires you to apply for a job. There are some municipalities (including Amsterdam), where one can apply for an allowance as an entrepreneur, but it’s not regulated on a national level. In addition, the basic requirement to get an entrepreneurial allowance from the is usually that the founder of the company is “unlikely to succeed”. Which is of course completely ridiculous. I’d personally rather fund the most promising entrepreneurs out there.
Besides these varying local allowances, there is no standardized government legislation other than subsidies for sustainable do-gooders (a.k.a. “the green wave”). Why is this? Why is filling a job position rewarded while creating one is not? Do employees add more value to the economy than entrepreneurs? I doubt it. Even when accounting for failure rates, I believe value added is at least similar and probably in favor of the entrepreneur.
Imagine a country where anyone could apply for a state loan for 18 months to start their own company. Then after these 18 months, the loan becomes either an allowance or remains a loan, based on company performance. How awesome would that be? What would that mean for the startup ecosystem in such a country? I believe that the impact would be huge.
I can hear you thinking now: How do we make sure that people don’t take advantage of such a system? Isn’t it very difficult to trace whether someone is truly dedicated to starting a business?
Of course it is. But is tracking entrepreneurial commitment so much more difficult than tracking whether an unemployed person is committed to finding a new job? I don’t think so. In addition, to make the system more resilient to fraud, you could require entrepreneurs to apply and qualify for the state loan. There are third parties like accelerators or VC firms that have the knowledge to determine which ideas are loan-worthy and which aren’t. By letting them do the judging, the loan-eligible entrepreneurs would automatically be on their radar.
I believe that governments should stop sponsoring vague subsidy schemes, startup competitions or incubators. Rather, they should fund entrepreneurship straight at the source. By providing a safety net for promising entrepreneurs, any Welfare state could give their local startup ecosystem a boost beyond their wildest imagination.