A social safety net for entrepreneurs

Just do a basic income and forget about all these complicated schemes -- one for workers, another for students, another for entrepreneurs, another for retirees, another for single mothers, another for disabled people, another for farmers and so forth and so on.

If you insist you can make it means tested (either through income or assets or both), but in any event we shouldn't be wasting time and energy infinitely dicing up people in more and less "deserving" categories. The whole point of a safety net is to catch everyone.

Loans -- NO!

A common thing I see in most of Europe is that everyone assumes that loans can only be good. Few have seen how much they have destroyed people's lives as has been increasingly happening in the US. Add to that, most of Europe blacklists anyone who files for bankruptcy from ever starting a company again.

If anything, follow the example of UK's SEIS program, which requires fully at-risk investments (not loans or any kind of liquidation priority.)

Loans are a terrible idea, a huge step in the wrong direction.

The main problems with this idea is (1) state welfare institutions are not in a good position to judge an entrepreneur's likelihood of success or even gauge if they are an entrepreneur and (2) a welfare's system's priority is to avoid abuse.

Also, I think that the group of people who are willing to live on welfare incomes and the group of people who will start successful companies doesn't overlap very well.

Current welfare systems in Europe sometimes do a good job of promoting self employment by failing. A person on a welfare income is disincentivized from earning officially. They can lose benefits by earning and a lot of the time the fear of these is bigger than the reality. This means that to earn extra they need to work unofficially which is usually some form of self employment. The problem is in allowing the transition from this to larger scale official businesses.

Loans are terrible because they put huge burden on people who didn't succeed (or haven't succeeded) yet. What you want is a loan which is only paid back when you succeed... but wait then you will have many defaulted loans then so you need to collect more on successful ones... but then people who are just barely successful are still under big burden... what to do... I know! We can try a progressive scale: the more successful you are the more you pay, you are well off anyway. This surely looks like it's going to work... let's try such loans in case people got ill as well or if they don't have anything to eat or if they want to acquire education at young age or if they failed for w/e other reason and need a loan like that to have another chance. Sounds great, let's do it...

After many years of implementing our idea we see problems: the people who benefited from our loans don't want to pay them back! They claim they didn't need the loans in the first place (they are so small % of their net worth now.. surely didn't matter much) anyway so they want to cut subsequent loans as well... worse yet they acquired a lot of money and then power and influence so people who need those loans can't do much about it. Worse yet: the people who don't want to pay the loans back want to be the one managing them so they can pressure people who didn't succeed...

You surely don't want that... imagine a country like that.

Social safety nets that are available to EVERYONE allow people to take risks and try things. That and limited liability companies.

I have a saying: "Companies create products. People live lives." If you want to do something, start a company and have it be subject to market discipline. But people should have a safety net to shield them from the market's full discipline. When companies run out of resources, they close. When people do, they often become homeless and hungry or worse.

So in short ... ANY kind of safety net that is available to ALL people (whether it's basic income, or negative tax ala Milton Friedman, or something else) will do this. There doesn't have to be any concept of "wage earner" or "entrepreneur", just how much income you make as a person. (I am ignoring here the repetitive schemes some would use to hide their personal income by making their company purchase things.)

And those of you who are for the free market and think the "poor" would have a moral hazard and wouldn't work if they got free money ... look at the word "free" in free market. Is a person who can't afford the SWITCHING COSTS of educating themselves for another career or starting a business, and forced to do the same sort of job in order to feed their family, really a "free" participant in the labor market choosing from among the available options? Or are they artificially kept locked into a particular industry because they can't afford the costs to switch between their options?

"Imagine a country where anyone could apply for a state loan for 18 months to start their own company."

Imagine a country where anyone could apply for a federal loan to go to college. Imagine a country where anyone could become a homeowner through subprime loans. Isn't this kind of thinking causing us enough problems already?

I would argue that you don't start outright by forming your own business. You gain experience and stability through working for other agencies and companies, in this time you work on your own plans, save your own financing and ease into your own business at a period when self-sufficiency blooms from your and your staffs productivity.

I'm currently at this phase, I wouldn't quit my job and request state handouts because there's no saying that my idea for a business would work and it would be forcing other tax payers to accept the risk. So in other words, the inherent risks which come with entrepreneurship would be placed on the tax payer.

This would also mean people would take more careless business risks. This is similar to why bank bailout made banks less accountable, I think there needs to be a greater separation between state and economy ultimately.

Government subsidies also distort the true market value of services, for example in the U.S. if you invest in a government lobbied program, you can see in the region of 200%+ profit returns, whereas the most wealthiest returns for non-state backed industries are more like 7-10% profit returns. This leads to bubbles, inflation and would automatically mean a higher tax burden for tax payers.

You're definitely correct that something needs to happen to make it easier for start-ups, I would argue though perhaps a tax relief for start-ups once they are up and running, or a reduction in regulation to make it easier to get going. I'm thinking of starting my own business here in the UK and the government forms alone are putting me off and this is before I get slammed with small business rates etc!

Loans to start businesses is the basic premise of microfinance: http://en.wikipedia.org/wiki/Microfinance. It can work well in certain contexts, though it would probably be politically impossible to impose in developed countries the kinds of screening requirements that have proven successful in developing countries (e.g. only making loans to women).

As for "entrepreneur" the concept might seem more practical if you think less of B2B software startup and more of: http://www.ted.com/talks/ron_finley_a_guerilla_gardener_in_s....

I would love to see something like this applied in decaying urban neighborhoods. These neighborhoods survive because of the welfare system, but its mere survival. Welfare doesn't provide capital, which means no grocery stores, no restaurants, no shops, none of the basic infrastructure around which neighborhood social structure can coalesce.

Germany has several safety networks:

- Arbeitslosengeld is an unemployment insurance money paying 60% (alone) to 66% (families) of former income for one or two years. But you have to pay into insurance first. Payment is deducted automatically by payroll tax.

- Hartz IV offers Euro350+housing per month, if you are available for the job market.

Now for entrepreneurs Germany offers a Gruendungszuschuss. Thats 60% of the former income + Euro300 for half a year longer then Arbeitslosengeld. Unlike Arbeitslosengeld its completely tax free, and nearly without requirement.

Health, unemployment, and retirement insurance for self employed are voluntary. Most self employed take health insurance, and omit the the other two.

Last not least its possible to go to Hartz IV as a self employment. This is a pain in the ass, as one has to show them your books every month, to get the difference between income an Hartz IV money.

Now the drawbacks. Health insurance for self employed assumes that you at least earn Euro2000, and charges 15% = Euro300 per month minimum. They will charge more, if you earn more, but wont cache back, if you earned less.

Most entrepreneurs don't have retirement insurance, because its to expensive when you start your business, and once you lack retirement insurance by being unemployed or self employed, the payout is less then Hartz IV. Retirement insurance worked fine for my parents, who had been employed for more then 40 years. But I'm 47 now, worked only 3 years as a slave, and would get less then Euro100 for retirement.

There is an infamous politician, called von der Leyen, who came up with the internet Stopp sign, and who is proposing forcing self employed into retirement insurance. I hope she fails here again, as forcing retirement insurance would force many small self employed to close business and to go unemployed again.

In Sweden the same social safety net applies to everyone, even entrepreneurs (gasp!). There is basically no more risk in starting a company than in being employed.

Living in the U.S. and having gone through the effort of attempting to create a startup, programs, money, mentorships, etc. are out there, but you have to have a real drive and be able to brush off rejection. I don't think the process should be free of negative consequence and adversity. Both help weed out the people who won't be able to handle the more important challenges.

I did get a startup allowance for 6 months, and I live in Amsterdam, the same city this article is about.

Here's how it worked: My old employer went bankrupt, and as a result, I could get unemployment benefits based on my last salary quite easily. Anyone in unemployment can start a company while keeping the unemployment income for 6 months. You do have to write a business plan which needs to get approved.

And the money you get is technically still for unemployment, so if it turns out you weren't unemployed, you have to pay it back. It's based on the money you make during the first year as an enterprise. Above a certain threshold, you have to repay the entire loan, below it, you have to repay proportionally.

Still a good deal, because it gives you a lot of security, though it'd be nice if it was a bit more than 6 months.

A government loan is not a good idea. A government loan should only be given if it serves the public good or serves the government's own interests. Otherwise, people will scam this thing and bankrupt a country. Think dotcom boom/bust - a lot of people lost money.

The government should allow people to take loans against your own retirement funds (like a 401k loan but with looser terms). This way there is fear and validation of an idea goes through a more vigorous process.

Also, they government should provide free resources to people and companies to help get started. Like office hours for starting a business, managing money, employees, etc. Incubation programs in empty buildings, libraries, and universities is an interesting idea too.

This is not really a safety net Vincent, but you are really talking investments. How would a state judge your capabilities in this.

I think the basic support is in place besides some counterproductive conditions that go with it, eg (as you said) the obligatory job applications.

So essentially anyone with entrepreneurial spirit can start kicking it. A safety net seems very unsafe method to foster/filter entrepreneurs.

Best method in my opinion is to support growth and activity as much as you can as a government and provide low thresholds for startup needs.

In short, i am a Brad Feld schooled adept ;) Entrepreneurs are the leaders, others, like government are feeders and should not sit on the leader chair in any way.

I think the general point is very relevant. Don't all founders start because they think they'll be successful? Otherwise they wouldn't in the first place. Alas, markets may beg to differ and your product/service even if it appears useful is not in demand. Even Apple was down at some point...;-)). If this happens during a recession try finding a job - good luck. A safety net of sorts is useful and the now EU wide initiative to at least have a discussion about a guaranteed minimum income is a starting point. Maybe it could also be an attractive proposition for a social impact entrepreneur to come up with a solution.

I assume that we're talking about starting companies here? Because once you become larger you have the same benefits as everyone by being employed by your own company. With that in mind I think unemployment benefits or similar is the wrong way of thinking about it. You aren't really unoccupied, you just currently aren't getting paid enough for what you do. This is a lot more similar to being a student. So student benefits is probably a better match. For instance if you could take the student loan from you masters degree "quota".

In general I think low cost of living is the best safety net there is for entrepreneurs.

Hi guys. I smiled at the "no shit sherlock" rejoinder. I want to say that some people thrive in hardship and don't desire a safety net. Maybe we are in the minority. I like redundancy in the things I make--to make sure they work even if one part fails. (NASA loves redundancy) But I don't like it for my own self. I think a social safety net would be restraining and antithetical to the whole idea of being groundbreaking.

"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."

Isn't that what angel investing basically is? Well, except for the loan part - often it's not required to be paid back.

If you're not capable of convincing a few people to invest a minimal amount in your idea, you probably won't be able to sell it to those you need to (customers, or at least other sales people).

"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. "

Well... the 'job' as it were actually exists - the 'value' of the 'entrepreneur' in this case is still unproven, otherwise there'd be revenue for him to live off of and hire other people.

Possibly too, the idea of 'entrepreneur' gets blown up in the media to mean 'mark zuckerburg' and 'google', and certainly many large companies the press lauds tend to have a habit of avoiding taxes which help pay for social programs like what this one might be.

Also, encouraging someone to go in to debt doesn't seem a good way of life. How many "entrepreneurs" now have 6 figure credit card debt after chasing the dream because they watched "the social network"? Not trying to trivialize it, but I know far more failed entrepreneurs with moderately large debt issues than I do successful ones (and I know both). Someone trying to start a business which now has extra debt burdened on it (which might not be dischargeable in bankruptcy - see student loans in the US) might just adding on problems. Certainly, for many people, trying to cope with looming debt while they try to work on a business is a heavy burden that contributes to the business failure itself.

Why does it need to be regulated on the national level? Why can't local governments have their own systems and compete for entrepreneurs?

one has to make sure that market prices do not rise enough to negate the effect of basic income. this may seem obvious but ideas like basic income and other socially important programs don't really look into the possible reactions society and culture will have.

I was hovering over that pretty "kudos" button, and I accidentally kudo'd.

Wasnt it so that in France you can get unemployed benefit while starting your business?

Off course this only goes for governments that operate a welfare system

Providing such a safety net would remove the risk from starting a company. Sometimes taking on that risk is what pushes an entrepreneur to get a product out in three months rather than 18.