Sustainable growth through entrepreneurship
1. Introduction
Artificial intelligence (AI), the data economy, digitalisation and green transition are steadily changing the operational methods and revenue generation models of many highly educated entrepreneurs and companies. The changes concern both sole and employer entrepreneurs. There has been a clear increase in the number of sole entrepreneurs since the beginning of the 2000s. In 2022, Statistics Finland reported that there were 194,000 sole entrepreneurs and 78,000 employer entrepreneurs in Finland. The number of employer entrepreneurs declined from 2021, when the corresponding figure was 87,000.
An ever increasing number of highly educated people are opting to work as entrepreneurs despite the change in the revenue generation model for services, or perhaps owing to that. The change, such as the utilisation of digitalisation or the data economy, for example, can be harnessed as an opportunity to give added value to entrepreneurial work. The possibilities for entrepreneurs to enhance their competence in AI, digitalisation and green transition should be supported and their awareness of business development services should be increased. Business subsidies and taxation should encourage companies to pursue research, development and innovation activities and, more broadly, modernisation.
An ever increasing number of highly educated people are opting to work as entrepreneurs.
The current premise for labour legislation and social security is to assure employee rights, sufficient livelihood, protection and security. In addition to utilising regulations to prevent the circumvention of employers’ responsibilities and obligations, there is a need to improve the possibilities for workers to work simultaneously as entrepreneurs and employees.
It is important to nurture the willingness and resources of entrepreneurs to pursue growth and to tolerate the risks posed by their aim for growth. In terms of services for entrepreneurs, more attention must be paid to their effectiveness at the different phases of entrepreneurship. Occupational health care should support the coping and work ability of entrepreneurs. Additionally, the coverage of occupational health services among entrepreneurs should be expanded.
The Programme of Prime Minister Petteri Orpo’s Government for 2023–2027 proposes the drafting of an entrepreneurship strategy. In 2018, the Ministry of Economic Affairs and Employment commissioned the drafting of a proposal for a national strategy programme to advance entrepreneurship. The fundamental proposals concerned growth and competence. We need growth in order to improve the sustainability of public finances and increase the employment rate to 80 per cent by 2031, which is the target set by the Government. Entrepreneurship plays a vital role in terms of creating new jobs and generating growth.
This entrepreneurship programme highlights what Akava considers to be the key proposals intended to advance entrepreneurship and work diversity for Akava members and highly educated entrepreneurs, improve the position of sole entrepreneurs and strengthen growth and high-growth entrepreneurship. The goal is to foster appreciation for entrepreneurship in Finland, facilitate the process of becoming an entrepreneur and make it possible to develop and succeed as an entrepreneur.
2. Highly educated entrepreneurs bring added value
Companies with highly educated owners are typically smaller than companies owned by those with a lower education level, as shown in the register study carried out by Pellervo economic research PTT (Akava Works report 2/2023). One significant reason for this is that sole entrepreneurship is common among those with a higher education. Among small and medium-sized companies (SMEs), however, the turnover and number of employees in companies with highly educated owners are higher, on average, than in companies with less educated owners.
Rapid growth is also more common for SMEs with highly educated owners. The review also found that the labour productivity of SMEs of highly education owners is higher than that of less educated owners.
Throughout the entire past decade, SMEs with less educated owners created relatively more new jobs than SMEs with highly educated owners, but more jobs with higher productivity were created by companies with highly educated owners. Highly educated people bring added value as entrepreneurs and owners.
2.1. Potential of part-time entrepreneurship must be recognised
An increasing number of highly educated people are working as either full-time or part-time entrepreneurs. In addition to the options of being either an employee or entrepreneur, diverse working methods have emerged: employment relationships and entrepreneurship can alternate or exist simultaneously. It must be possible to flexibly combine full-time or part-time entrepreneurship and employment. According to the survey conducted by Kantar on behalf of the KOKO Unemployment Fund for Highly Educated in 2023, altogether 42 per cent of Finns would be interested in working simultaneously as an employee and entrepreneur if it were financially more secure.
Part-time entrepreneurship is especially an opportunity for highly educated professionals who bring intangible added value to work alongside salaried work for additional earnings. Doing additional work through one’s own business generates tax revenue for society and creates a dynamic within the economy. Abundant and diverse business activities enhance the vitality of municipalities, cities and regions and diversify the business structure.
Part-time entrepreneurs and self-employed persons facilitate the spread of innovations from company networks to workplaces, which is essential for productivity growth and, additionally, benefits employers and society at large.
2.2. Social security must take diverse entrepreneurship into account
The changes and diversity in work require the development of the unemployment security system. The outdated system does not encourage, for example, self-employment utilising platform economy, nor does it facilitate the flexible transition from entrepreneur to employee or vice versa.
A combination insurance covering work done as an employee and entrepreneur must be taken into use as unemployment security in order to improve the social security of part-time entrepreneurs. This could be realised by enabling a person to simultaneously insure work done as an employee and as an entrepreneur, for example, through membership in two separate unemployment funds. According to the survey conducted by AKY and Akava Works in 2023, a total of 40 per cent of entrepreneurs would insure themselves as both an employee and entrepreneur if it were made possible.
A combination insurance would improve the social security of part-time entrepreneurs and self-employd persons.
It is important to also clarify the possibility to give entrepreneurs and self-employed persons the right to unemployment benefits as the result of a significant reduction in temporary income without the need for their business activities to end.
YEL insuring under the Self-Employed Persons’ Pensions Act must be developed into a more flexible system. It must take better account of the monthly fluctuations in income and of self-employed persons doing short-term work or odd jobs.
Entrepreneurs’ trust in the YEL system must be strengthened. The form of the one’s work must not constitute an obstacle to pension security; all workers must be guaranteed the possibility for pension insurance coverage. The possibility for funding should continue to be further explored. The possibility for underinsuring must be eliminated so that insurance for self-employment will be at the same level as that for paid employment.
2.3. Entrepreneurship is possible at any age
Starting a company and undertaking entrepreneurship should be seen as an opportunity at any phase of the work career. Often, highly educated entrepreneurship begins after gaining extensive expertise and competence accumulated through different phases and tasks within the work career. For some, the path to entrepreneurship opens through their hobbies or other leisure activities. Entrepreneurship always involves risk-taking and risk tolerance. It is essential to moderate the consequences of unsuccessful entrepreneurship.
Entrepreneurship education and coaching must be viewed as an integral part of continuous learning. Entrepreneurship should be encouraged and enabled at different stages of the education path, so that it is seen as an alternative way to earn or supplement earned income. Information on various forms of entrepreneurship, such as the use of cooperatives as a form of enterprise, must be increased. Entrepreneurs must be taken into account when developing opportunities for continuous learning.
Entrepreneurship education and coaching must be viewed as an integral part of continuous learning.
It should be easy to start one’s own company as well as a viable option also for those with a foreign background. One obstacle to the work-based immigration of highly educated people is uncertainty about the possibility for their spouses to find employment. As work-based immigration increases, this calls for an expansion of integration services to consider the needs of the entire family.
Entrepreneurs with an immigrant background should be supported by providing more multilingual and easy-to-read Finnish guidance and materials related to changes of ownership and by facilitating bank transactions and the opening of a business account. Enterprise Agencies must also offer sufficient services in English as well.
It is important for Finland to identify good European practices concerning the granting of residence permits to foreign entrepreneurs. In the Netherlands, for example, immigrant entrepreneurs are granted a residence permit that is valid for a maximum of one year. That gives the entrepreneur the possibility to build a profitable business and to get mentoring. This is carried out through collaboration between public administration and the chambers of commerce.
The process for entrepreneurs to get residence permits in Finland must be streamlined. Residence permit applicants are required, already prior to application, to have an innovative business plan and possibly rental agreements and customer contracts. The processing times for residence permits vary between 9–15 months. In order to promote entrepreneurship, every form of our residence permit should automatically include the right to work and practice in Finland. This would prevent the need to apply for a new residence permit if one’s life situation changes.
The process for entrepreneurs to get residence permits in Finland must be streamlined.
Akava’s proposals
- The YEL system shall be developed and the underinsuring of entrepreneurs prevented as a means of improving their social security.
- A combined insurance for unemployment security shall be taken into use.
- The definitions of entrepreneur in the Unemployment Security Act and Self-Employed Persons’ Pensions Act shall be harmonised.
- The competence of entrepreneurs in the acquisition of occupational health care, support for work ability and occupational safety shall be improved to facilitate an entrepreneur’s ability to cope and take care of their employer obligations.
- The possibilities for a sole entrepreneur to purchase occupational health and wellbeing services shall be strengthened and the possibility to tailor service packages increased.
- The right of self-employed persons to tax deductions shall be developed to include sports and culture benefits and the pay for nursing care provided to a sick child.
- The process of setting up a bank account and enabling electronic identification shall be facilitated for foreign entrepreneurs.
- Young people shall be encouraged to take over existing companies, for example, by creating an “Entrepreneurship through acquisition” training programme, as well as by increasing so-called business succession schools and guidance within educational institutions.
- The Tax Administration shall offer the possibility to have an advance discussion concerning a change of ownership, for all company forms.
- Data from the Incomes Register shall be utilised more expansively than it is now.
- The process for entrepreneurs to acquire residence permits and open a business account shall be simplified.
3. Company growth
3.1. Services and financing channels support entrepreneurship
Functional financial markets play a key role in facilitating company growth. The stringent terms and conditions for bank loans are particularly hindering for the SME sector. EU financial instruments are not utilised sufficiently by Finnish SME companies. The operational environment in Finland should be developed so that it might create a foundation from which to expand Finnish venture capital funds.
Finnish SME companies can utilise EU financial instruments more efficiently.
A functional infrastructure must be assured to support the operating conditions of companies. Functional data connections everywhere in the country, as well as the condition of roadways and railways are key accessibility factors for companies, regions and the availability of skilled labour.
In terms of supporting companies and developing financing possibilities, better attention should be paid to companies of different sizes and forms. Although financing is readily available now for company start-ups, financing channels are also necessary for the growth phase. If financing cannot be found in Finland, many companies with growth potential will easily be sold abroad.
It is important to develop and diversify the venture capital and risk finance investment field for the development of the entrepreneurial ecosystem. The motivation to channel private funds into growth companies should be increased by making such investments more attractive. Furthermore, the opportunity for private individuals to participate in venture capital activities should be increased, for example, through funds.
Willingness to grow and commitment to growth should be supported. Business subsidies should be reformed. They should support companies’ skills investments and renewal, new business opportunities, internationalisation and growth, as well as innovations and carbon neutrality. The effectiveness of the subsidies is essential. Product, service, marketing and organisational innovations must be more strongly integrated into innovation activities supported by the public business subsidy system.
The effectiveness of the business subsidies is essential.
The significance of research, development and innovation (RDI) activities to growth and employment is pivotal. Big social problems are solved through RDI activities. Finland will succeed only through innovation and novel creations. Prime Minister Petteri Orpo’s Government Programme has set a target to increase public and private research and development investments to four per cent of the GDP by 2030. All parliamentary groups have committed to this target through the Parliamentary Working Group on Research, Development and Innovation. The goal should be, in particular, to increase and encourage RDI activities within companies. One important tool for this is to provide a wide-reaching and permanent RDI tax incentive. The use of the tax deduction for R&D activities should be monitored, especially amongst SMEs.
The investments of micro-enterprises and SMEs in RDI activities must be increased with consideration, in particular, for green transition and digitalisation. Business Finland’s leading projects create innovation ecosystems that provide small companies with the opportunity to be part of activities that target international markets. Funding for leading projects should be solidified so that companies’ outlooks on the related financing options would be sufficiently stable and far-reaching. Support for expansive collaborative projects promotes the spread of information and radical innovations. The aim of Business Finland’s financial tool for universities of applied sciences currently in preparation is to increase co-operation between SMEs and higher education institutions. This instrument should not increase the administrative burden to an unreasonable extent.
Internationalisation significantly increases customer potential and is, therefore, an essential aspect of company growth. The share of Finnish export activities represented by SMEs should be increased by, among other methods, ensuring sufficient export promotion services, also specifically for SMEs. The role of the Ministry for Foreign Affairs’ missions in promoting State exports and the internationalisation of businesses must be strengthened.
3.2. Skilled talent is a requirement for company growth
Skilled talent creates innovations. The lack of highly educated experts cannot be allowed to create a bottleneck for RDI activities. Entrepreneurship studies and skills must be further strengthened in a cross-cutting fashion in basic education, upper secondary education and higher education.
The lack of skilled labour and skill mismatching cannot be allowed to hinder company growth. Finland’s attractiveness must be enhanced and, as part of the approach, the settling-in process of not only the talent but also their families must be taken into consideration.
When transferring labour and business services to municipalities, operating models must be ensured to support companies’ opportunities and courage to recruit from abroad, for example, through various joint recruitment campaigns. Further streamlining of the permit processes that are required in international recruitment is necessary and the settling-in services should be combined into a one-stop model.
Opportunities for entrepreneurs to develop their own competence in public procurement, AI, digitalisation and green transition must be assured. Utilisation of business guidance and development services at the different phases of business activities must be increased. The continuous learning system and possibilities should be further developed with consideration also for entrepreneurs.
Public procurement can help to reinforce entrepreneurship. Public procurement legislation and the competence of the relevant parties to the procurement must be further developed to take sustainability and responsibility obligations into account and to facilitate smaller procurement opportunities that would enable micro-enterprises and SMEs to participate in service provision in the public sector.
3.3. From sole entrepreneur to employer
The number of employer companies in Finland is decreasing. A goal must be set to increase the number of hiring employers in the future. As part of this, better prerequisites and conditions should be created to strengthen Finland’s entrepreneurial startup and growth ecosystem. In OECD’s statistical data, Finland currently ranks eleventh in the statistics indicating the number of enterprise entries. Attention should be paid to the predictability and stability of the business operating environment.
Becoming an employer calls for competence and the availability of sufficient support systems to help manage the related responsibilities. The hiring of the first employee should be facilitated by increasing available guidance on an employer’s responsibilities and obligations. If the recruitment support experiment proves that wage subsidies lower the threshold to become an employer, this support for the recruitment of the first employee must become an established system. The competence of entrepreneurs with employees in matters of diversity, equality and inclusion should be increased. This is a competitive advantage for businesses when it comes to recruiting skilled employees and expanding the business.
Through their subcontracting chains, medium-sized businesses and those who employ fewer than 500 employees play a vital role in supporting and upholding the business ecosystem. In terms of the national economy, it is effective to support the growth of medium-sized businesses. Efforts must be made to reduce the administrative burden on businesses.
Changes of ownership represent one way for highly educated persons to make the transition to entrepreneurs. It is not logical to drive profitable business activities down just because a successor cannot be found to replace, for example, a retiring owner.
Over the next ten years, approximately 5,000 businesses per year will face this change of ownership situation. That is why it is vital to improve the process and increase the attractiveness of ownership changes. In order to boost growth, ownership skills must be widely increased within society. It is also important to facilitate the matching of buyers and sellers and to encourage changes of ownership through taxation and possibilities for financing.
Akava’s proposals
- Invest in Finland’s resources shall be increased.
- The role of companies in integration must be renewed, for example, by granting companies a low-threshold wage subsidy to employ their first immigrant and/or to support the immigrant’s Finnish or Swedish language studies.
- Resources shall be assured and the digital Virtual Finland service platform implemented to facilitate immigration.
- A strategy to encourage international talent to remain in Finland shall be drafted.
- The skills mismatch problem shall be solved through the creation of a national skills platform that will facilitate the matching of available talent and recruiting businesses.
- The maximum entrepreneur loan of 100,000 euro, as offered by Finnvera, shall be increased significantly.
- The possibility for private persons to participate in venture capital activities with small sums shall be enabled.
- Better use shall be made of EU private equity financing.
- The possibility to enact the use of a service voucher for financial advice shall be clarified. The voucher could help a company to determine the available financing resources that are essential for renewal and sustainable growth.
- The administrative burdens on businesses shall be reduced, however, in such a way that avoids obscuring the responsibilities and obligations of employers.
- Business subsidies shall be reformed so as to support growth and renewal.
- Companies’ immaterial investments shall be increased.
- Permit processes shall be streamlined and the availability of skilled labour for businesses shall be assured in order to encourage investing.
- Changes of ownership and the transition from sole entrepreneur to employer shall be streamlined and related guidance increased.
- A plan for the long-term development of the tax policy shall be drawn up to support the predictability of the business environment.
- The threshold for VAT relief for entrepreneurs shall be raised to EUR 30,000.
- The right of self-employed persons to a tax deduction that includes sports and culture benefits shall be made possible.
- The public procurement legislation shall be developed and procurement competence increased.
4. Joint European regulation brings clarity to business
4.1. The European internal market and regulation support equal competition for businesses
A competitive market upholds overall productivity. There are indications that when companies compete in a market with collective wage agreements, those companies that have succeeded in increasing productivity are the ones that will primarily remain in the market. Creative destruction partly contributes to the overall productivity of the national economy.
On the European level, equality between business subsidies within State aid rules is decisively important in terms of preventing the distortion of competition. Exceptions in times of crisis as a result of the energy and economic situation in Europe are not a permanent business support model.
Green transition and detachment from dependence on fossil fuels make it possible for Finland to get record high investments in sustainable energy and technology solutions in which Finland can stand out as a forerunner. Additionally, businesses, households and the public sector must make large investments in the green transition. This is the only way we can achieve our goals regarding climate change mitigation, the loss of biodiversity and the transition to circular economy.
The prerequisite for all this is a predictable operational environment for businesses that encourages investments and stable financial markets in Finland and Europe. The majority of the financing is provided by the private sector. The steering of investments should be advanced in a cost-effective and systematic manner.
Sustainable Finnish products and technological solutions create a foundation for new growth. Their financing criteria should be clear to companies and not add an unreasonable administrative burden, particularly for SMEs.
Sustainable Finnish products and technological solutions create a foundation for new growth.
In recent years, the EU has prepared new legislation in the form of a common Corporate Sustainability Reporting Directive. Regulation on the European level would guarantee an equal competition environment for companies within the internal market. A special due diligence obligation would be imposed on large companies to identify, prevent, mitigate and remedy adverse human rights and environmental impacts, as well as to monitor the measures taken throughout the value chain.
A key aspect of the regulation is to ensure that legal liability is realised and violations are met with sanctions. Regulation is necessary to safeguard consumers’ rights, protect employees and assure proper working conditions. Companies should be provided with sufficient guidance and advice on the implementation, responsibilities and obligations of the new legislation.
Rational regulation supports growth and innovations. It is important for the European Union to establish new trade agreements that promote entrepreneurship within the Member States by creating new business opportunities.
4.2. Platform economy provides work but calls for regulation
The opportunities offered by the platform economy increase the diversity of working methods, just as work done through invoicing services has increased part-time entrepreneurship. The possibilities to find work and earn additional income interest highly educated workers. A digital platform provides flexibility and the desired freedom and independence, but it also brings insecurity concerning one’s livelihood.
The expanding platform economy calls for joint measures and regulation on the EU level. It is not just a question of platform workers, but also of self-employed sole entrepreneurs and their position and working conditions. The goal is equal treatment for people within the labour market, the facilitation of entry into the labour market, fair employment terms and conditions as well as sufficient social security for employees.
The expanding platform economy calls for joint measures and regulation on the EU level.
The cross-border nature of platform work has been recognised on the EU level. Country-specific and significant differences in employment conditions generate distortion in competition within the common internal and labour market. Equal possibilities for people and companies to act and compete in the market must be guaranteed.
The European Commission has proposed a Platform Work Directive aimed at improving the working conditions of platform workers. The Directive would introduce common framework rules for platform work in the internal market. The Directive states that the content and criteria for the presumption of an employment relationship that is applicable and rebuttable with regard to self-employed persons would be defined at the national level. This presumption means that work being carried out through a digital platform would, in principle, be regarded as an employment relationship. The presumption of employment relationship would be based on EU legal praxis. It should be determined at the national level which factors indicating control and direction would trigger the application of the presumption of an employment relationship.
If the digital labour platform seeks to rebut the legal presumption, it must demonstrate that the contractual relationship in question is not an employment relationship as defined in the valid laws, collective agreements or practices in the Member States.
In Finland, the legal nature of a work relationship is determined through the assessment of the specific aspects of an employment relationship. All the criteria set out in the Employment Contracts Act must be met within an employment relationship. Ultimately, the form of the legal relationship is determined through an overall assessment. Such an assessment is often necessary, particularly when evaluating whether the element of direction and supervision has been met. Akava emphasises that when assessing the nature of one’s work, it is important to consider whether the individual doing the work has a genuine possibility to influence their own work and whether they are in a dependent position with regard to the party commissioning the work.
Low-threshold legal remedies are necessary to clarify the nature of the legal relationship governing the work. In addition to slow and costly court proceedings, there is a need for a more rapid and inexpensive means to verify the legal nature of a work relationship.
The Directive also proposes regulation regarding the use of algorithms. They should be non-discriminatory and open, dismissal of an employee or self-employed person should not be based on AI algorithms and the impact of algorithms on working conditions, for example, should be assessed. Algorithms can be used by management to perform routine tasks. However, the use of algorithms by management should not lead to the surveillance of employees. In the development of algorithmic management, transparency and security dimensions must be taken into account, as well as data protection laws and ethical standards.
In autumn 2022, the European Commission adopted guidelines that allow freelancers and sole entrepreneurs to collectively negotiate for better working conditions and remuneration under certain circumstances without breaching EU competition rules. Trade unions would, thus, also be able to represent self-employed persons in negotiations. In Finland, the Finnish Competition and Consumer Authority (FCCA) has also called for compliance with the guidelines. This will clarify the situation and harmonise country-specific interpretations of the competition law. If necessary, the implementation of collective supervision of interests must be strengthened through specification of the legislation.
Akava’s proposals
- Equal possibilities for people and companies to act and compete in the internal market and platform economy shall be guaranteed.
- The European Union must support new technological research, development and innovations that create possibilities for growth entrepreneurship.
- The position of sole entrepreneurs shall be improved, for example, in platform economy by advancing legislation and ensuring the realisation of the right to collective bargaining.
- Low-threshold legal remedies shall be developed to clarify the nature of the legal relationship governing the work.
- Corporate sustainability legislation shall be developed in accordance with EU legislation. The implementation shall ensure that the supervisory authority is provided with sufficient resources to guide and advice companies.
5. Entrepreneurship as part of social and health care services
Private service providers are an important component of the overall social and health service system. The availability of social and health care services shall be improved by promoting the conditions for multiple providers and entrepreneurship within the field throughout Finland.
The labour shortage can partially be resolved by enabling micro-enterprises to operate with a low threshold. Unless changes are made to the health and social services reform that entered into force at the start of 2023, the business activities of SMEs within the social and health care sector may well become unprofitable. This would weaken competition, the service range and customers’ freedom of choice as well as increasing treatment queues.
Public procurement procedures should facilitate a multiple producer model better since, at its best, this is the most cost-effective way to ensure the quality of the service that a customer receives. The value of service vouchers should be set at a level that would facilitate profitable business activities.
Public procurement procedures should facilitate a multiple producer model better.
Subcontracting restrictions on service procurement decrease the opportunities for micro-enterprises, in particular, to participate in the social and health care service system. Any possible conflicts of interest arising from entrepreneurial work should be resolved in some way other than by excluding wellbeing services county employees working as entrepreneurs from public procurements. This need is emphasised in situations in which the wellbeing services county does not have the possibility to offer permanent full-time work to all social and health care professionals. Other procurement criteria must also take into account to ensure that they do not unduly restrict micro-enterprises from participating in competitive tendering (for example, through levels of liability insurance).
The administrative burden of self-monitoring and other bureaucracy related to the Act on Organising Healthcare and Social Welfare Services must be amended to a reasonable level that takes into account the size of the business and the related risk.
Kela reimbursements are useful to help eliminate the accrued service debt. When reforming the Kela reimbursement model, the reimbursements should be reviewed as a whole. Continuous, impactful and multi-professional care and treatment are key elements. In the reform, the focus must be on ensuring that Kela’s reimbursement for mental and oral health services and services supporting functional and work ability is at the appropriate level and effective. The development of social and health care sector businesses must be supported by improving access to financing.
Akava’s proposals
- The obstacles preventing the possibility for multiple producers of social and health care services shall be eliminated.
- The costs of services provided by wellbeing services counties should be transparent and the monitoring thereof needs developing.
- The availability of mental and oral health services and services supporting functional and work ability shall be reinforced through the development of the Kela reimbursement system.
- The use of service vouchers shall be increased and the adequacy of their value assured.
- It shall be ensured through legislation that sole entrepreneurs have the possibility to act as service providers without being hindered by regulation governing subcontracting. Furthermore, it shall be ensured that the negotiating position and contractual terms and conditions between self-employed persons and companies providing health services are in proper balance.
- Entrepreneurship shall be strengthened through public procurement.
