Institutionalising the fear of failure

I was shocked when I saw this table in the Economist on Friday. In general I think that a little fear failure is healthy, without that entrepreneurs wouldn’t think through their chances of success properly, but that too many people use it as an excuse for not starting businesses, or as a cheap explanation for why our startup ecosystem lags the US (I wrote about this in more detail in 2007, and my views haven’t changed much).

Failure is a multi-headed beast, and bankruptcy is one of many things that would-be entrepreneurs have to worry about, but it sets the tone for how a nation thinks about business failure is easy for governments to change.

What leaps out from this chart is the difference between France and Germany on the one hand and the UK on the other. The sad truth is that bankruptcy laws give entrepreneurs in two of Europe’s largest economies good reason to fear failure. Nine years is much too long a time to be stuck with debts if you go bankrupt. There is, of course, a balance to be struck between encouraging people to start companies and protecting creditors, but I think we have that about right in the UK. I hear occasional stories about unscrupulous entrepreneurs here who get credit from other startups, don’t pay, and then use the bankruptcy laws as a shield as they go about their business seemingly unencumbered by the fact that they owe somebody else money, but they aren’t too frequent and I don’t believe that the prospect of bankruptcy inhibits many people in the UK from starting companies.

I doubt the same is true in Germany and France.