There are today 63,000 businesses in Great Britain and France started by people who one year ago were unemployed. This remarkable outpouring of entrepreneurial energy took place because of legislative changes related to the unemployment insurance system of both countries -- changes that allowed people to use their income-maintenance benefits as investments in new companies.
The British and French programs are cost efficient. More important, they reflect a basic shift in attitude about the unemployed: Instead of treating them as social liabilities, these programs recognize people without jobs as potentially productive economic assets.
The schemes depart from what has been the conventional thinking in Western industrialized nations since the Great Depression, because they integrate social goals and economic goals that are usually viewed as separate. For 50 years, for example, public policy in the United States has operated on two tracks: macroeconomic stimulation for the mainstream economy, and social programs to support those unable to provide for themselves The limits of this bifurcated policy today are clear Macroeconomic policy cannot produce full employment, so dependent populations and social-program costs rise. An outraged public periodically reacts by turning against the income-maintenance system and the people it serves But blaming the income-maintenance system for the failures of the mainstream economy is like blaming the life preserver for the sinking of the ship.
The basic problem is a lack of good jobs But our policies exacerbate that problem by trapping potentially creative and productive people in the welfare system, where they lose benefits if they seek training or self-employment.
The French and British systems suggest an alternative. In those countries income-maintenance funds are actually being used to attack the root causes of unemployment -- not just mitigating its effects -- by being invested in job creation. We should try it here, too.
France introduced its "Unemployed Entrepreneur" pilot program in 1979, and it became law in December 1980. Under it, any French citizen entitled to unemployment compensation can opt to collect six months of benefits in a lump sum to invest in a business. The initial results are encouraging As of March 1983, some 74,727 people had taken advantage of the program. Although most of the new companies are quite small, somewhere between 60% and 80% have survived at least three years -- and this with limited business or managerial assistance. Half of the entrepreneurs report that they would not have created a biasiness without the financial aid.
Great Britain launched its "Enterprise Allowance" scheme as five pilot projects in 1982 They proved so successful, and the idea behind them so popular, that in 1983 the allowance was made available nationwide to the first 25,000 qualified applicants Under the scheme, an unemployed person meeting certain criteria can choose to receive an allowance of about $60 a week for a year in exchange for working at least 36 hours a week to establish a business. Participants must invest the equivalent of at least $1,500, from any source, in the business. Religious or political ventures are banned, but otherwise there is no governmental screening. As one official commented, "We learned from our experience with De Lorean Motors that we should not trust public officials to assess business propositions."
If only 25% of the ventures spawned by the program are in fact new and don't displace existing businesses, the British government figures it will come out ahead. The experience thus far bears out this calculation. Each business started by the 1983 Enterprise Allowance claimants created an average of three jobs. The ceiling has been lifted to 35,000 participants this year, and British officials believe the demand is substantially greater than that.
What relevance does this European experience have for the United States?
First, it suggests that we, too, ought to modify our attitude toward the unemployed and poor. Too often we blame them for their unemployment and poverty. We assume they lack motivation, skills, or good work habits, so we respond with workfare requirements, training, and work experience programs. But the best evidence we have suggests that there are simply not enough good jobs to go around. A recent Massachusetts Institute of Technology study found that, at most, one job exists for every 10 job seekers. If the mainstream economy cannot supply jobs for everyone who wants one, the very least we owe the unemployed is a reasonable chance to create their own. The British and French experience suggests that, among the unemployed, many are entrepreneurially inclined.
The French and British schemes also provide useful models for plugging financing gaps that prevent entrepreneurs from taking their ideas to the marketplace. We know thatin the United States, seed money for new businesses comes overwhelmingly from personal savings or from friends and family. This works well for the wealthy, spottily for those of middle income, and not at all for the poor Allowing transfer payments to he used as seed money or working capital could certainly help.
Nor is the idea unprecedented in the United States Thousands of Americans already have used transfer payments to start businesses. Take, for example, the entrepreneur who started his public relations firm while surviving on unemployment benefits, or the welfare mothers who started a beauty salon, ran a temporary personnel agency, or had a solar heater manufacturing business while surviving on Aid to Families with Dependent Children (AFDC) Technically, such activities are illegal -- classic cases of "welfare cheating." But what is too often called evidence of moral decay is in fact common sense and American ingenuity. Does anyone -- beneficiary, government, taxpayer, or consumer -- gain by impeding progress toward self-sufficiency?
Some states have attempted to legalize this activity. In 1982, New York State amended its social services law to permit the state to pay up to six months of Home Relief benefits to an employer who hired someone otherwise entitled to benefits. Maine is taking advantage of flexibility in the AFDC legislation to provide benefits to new companies that hire AFDC recipients. Supported work programs in New York, California, and other states allow AFDC benefits to be used to subsidize the wages of employees who are eligible beneficiaries. But these projects are isolated, and often bog down in complex and counterproductive federal, state, and local regulations.
Only five years ago, the concept of financing job creation with transfer payments was in its infancy. Today it is national policy in Canada and Ireland as well as in Britain and France. It is an idea about which Conservative Margaret Thatcher and Socialist Francois Mitterand are similarly enthusiastic. And it is the forerunner of a new set of public policies that integrate social and economic goals into a single developmental policy aimed at expanding people's opportunity to produce.
Of course, there are uncertainties and questions to be asked about how the program would work here, but Britain and France have already created at least 63,000 persuasive answers.