Why should governments support startups in the economic downturn?

April 28, 2020

As COVID-19 spreads across the world and countries declare national lockdowns, economies suffer. The COVID-19 outbreak is an unprecedented crisis and its consequences will hit all sectors of the economy. While startups are adaptable, resilient economic actors, they are also inherently smaller and have fewer resources. 

We are happy to see that governments across Europe and beyond are responding to the economic turndown by empowering startups. In the last few weeks, we have seen countries take targeted action to support startups in the economic downturn. For example, the UK government launched the “Future Fund”. It will invest in high growth companies (AKA startups) that have suffered economic losses due to COVID-19. Portugal announced a €25m package to safeguard the country’s growing startup ecosystem. France has been one of the more generous countries, with a €4bn cash injection for its startups.

In this post, we outline 4 reasons why governments should support startups and why that is positive for our economies and societies. 

Startups are job creators.

Startups hire on average 3x more employees than other economic sectors, they are the driving force of economies across the globe. “No one creates more opportunities for employment than startups and other young companies; they provide around 50% of all new jobs”, said Andrus Ansip, former Commission Vice-President for the Digital Single Market.

Startups are small and at times fragile economic actors but they are all big employers, and hence have a vital role in the economic growth of markets. In fact, a study released by Business Dynamics Statistics (BDS) confirms that without startups, there would be no net job growth in the US. 

As governments across the world place their economies in an artificial coma, unemployment skyrockets. As we revive the economy, how about we turn to the biggest job creators? The Progressive Policy Institute 2007 report suggests that the more startup activity in an economy or sector, the higher the job growth. Investing in startup survival is the surefire way to maintain and create new jobs. 

Start-ups are our societies’ innovation labs 

We are determined to see the positives in this crisis. We believe that like any other crisis, the COVID-19 pandemic is an opportunity for innovation. Startups are key actors when looking for solutions to combat and resolve the COVID-19 outbreak as well as when looking at where growth opportunities are coming from after the economic downturn. 

Our immediate priority should be to empower innovation to disrupt this virus. Startup entrepreneurs are best at that. Startups are the most flexible and adaptable economic actors and in crises like this one they bring solutions to the table. Supporting them means giving the innovation economy a better chance to find solutions. 

Startups disrupt, transform and better old ideas and create new ones. By doing so they create new markets and opportunities which in turn create more jobs and improve people’s lives. Beyond finding the solution to COVID-19 pandemic it’s about how the economy regains traction. 

Startups are academies of entrepreneurship

Entrepreneurs grow in startups almost by definition. Founders acquire skills and battle readiness to be the leaders of larger organisations in the future. In other words, startups are the schools where the future leaders grow and develop leadership skills.

Startups are highly sought after by employees because they provide spaces where there are vast opportunities to learn, thrive and be flexible in an unstructured and yet-to-be-defined environment. A lack of a defined structure often provides opportunities to learn about every side of a business. In other words, startups create founders that know how to solve problems. 

Startups are the agents of social mobility 

Andres Solimano describes social mobility as a “critical and dynamic process for promoting equality of opportunity, reducing inequality, and advancing progress up the economic ladder from one generation to the next”. For societies this is an opportunity for those from underprivileged backgrounds to build a better future for themselves. Ultimately, the more entrepreneurial activity, the more chance of social mobility, which prevents our societies from ossifying. 

Conclusion: The economy can stop for a second. Innovation can’t and mustn’t.

The COVID-19 crisis has the potential to wipe out almost an entire startup generation. For that reason, we have been asking governments to support startups both financially as well as through legislation. Broadly, governments can support startups by creating legislative environments that are favourable to innovation and new ideas. In turn, startups will provide solutions and continue to produce economic and societal growth. 

Policy makers: Unshackle economic and social growth by creating nurturing the legislative environment for startups!