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The U.S. economy
has enjoyed
remarkable
success during
the past decade.
Annual
productivity
growth has
surged to a
post-World War
II high of
nearly three
percent,
unemployment
hovers near or
below five
percent, and
inflation
remains
strikingly
stable in the
two to three
percent range.
Why? And
how do we keep
it up?
Some
say the secret
is information
technology. But
while
statistically
the IT
revolution does
account for the
acceleration of
U.S.
productivity
growth, it turns
out that
something else
was the true
spark of this
revolution – the
rise of
innovative,
entrepreneurial
companies as
major economic
drivers in the
United States.
From Microsoft,
Intel and Apple
in IT to Home
Depot and
Wal-Mart in
retail and
Genentech and
Amgen in
biotech,
entrepreneurial
firms (whether
large or still
small but with
promise) have
been America’s
primary economic
transformers.
For
years, the Ewing
Marion Kauffman
Foundation has
supported public
policy research
related to
entrepreneurship.
We have found
that the
relatively small
fraction of
entrepreneurs
who bring to
market new or
innovative
products or
services or
means of
producing or
delivering them
deserve special
attention. Now,
for the first
time, we are
bringing
together our
work and that of
our grantees to
develop
tentative
thoughts on
policies that
seem most
conducive for
maintaining, and
ideally
strengthening,
our
entrepreneurial
economy.
First, a little
history:
Beginning more
than a quarter
century ago, a
range of
national policy
changes lowered
obstacles to
innovation,
increased the
potential
rewards of
entrepreneurial
risk taking, and
facilitated and
accelerated the
U.S. shift
toward
entrepreneurship.
These changes
included:
--
Removal of
legal barriers
to entry and
price controls
in a number of
key industries,
in particular
transportation
and
telecommunications,
whose subsequent
declining costs
made it easier
for new firms to
start and grow;
--
Presidential
Executive Orders
requiring
federal agencies
to study costs
and benefits of
proposed
regulations;
--
Tax reforms
that enhanced
rewards for
taking
entrepreneurial
risks,
especially
lowering capital
gains tax rates
and individual
marginal rates;
--
Permitting
pension funds to
invest in
venture-capital
partnerships;
and,
--
Legislation that
accelerated
(however
imperfectly)
commercialization
of university
research.
So
what’s next?
What policies
should America
adopt now to
keep these good
times of rising
productivity,
employment and
income rolling?
To answer this
question, we
asked the
editors of
Inc.
magazine to
assemble a group
of successful
entrepreneurs
with an interest
in public policy
and find out
what specific
challenges to
future
entrepreneurship
they thought
confronted the
United States.
We added to the
formal feedback
we obtained from
about 20 of
these
individuals the
insights we have
gained over the
years through
our extensive
interactions
with
entrepreneurs
and those who
finance them.
Four
topic areas
stand out from
these
discussions.
Here they are,
and the policies
we currently
believe that
best respond to
the concerns in
each:
1.
Ensuring a
Skilled
Workforce:
Successful
entrepreneurs
tell us that the
biggest
constraint on
their growth and
on the formation
and growth of
successful
enterprises in
the future is
finding “talent”
– that is,
skilled
individuals with
an
entrepreneurial
bent. Big
business also
faces the same
challenge.
Meeting it will
require
improvements and
innovation
throughout our
educational
system (K-12 and
higher), as well
as more
enlightened
immigration
policies.
America
especially needs
more highly
skilled foreign
workers who want
to be part of
new businesses
here.
2.
Promoting
Commercialization
of Innovation:
This requires
action on
several fronts:
enhancing
government
funding of
research in
basic science
and engineering
(which have been
relatively
neglected of
late compared to
the large
increases in
funding in the
health
sciences);
shifts in patent
law so that
protections are
not overly broad
and will not
inhibit the
creation of
innovative, new
firms; improving
ways that
university-developed
ideas are
commercialized;
and funding
efforts to
identify and
take advantage
of innovations
developed
abroad, just as
foreign
companies have
been doing with
U.S.-based
innovations for
decades.
3.
Limiting Overly
Burdensome
Regulation and
Liability
Litigation:
Because of their
size,
entrepreneurial
firms often bear
a
disproportionate
cost of
excessive
regulation and
liability
litigation.
Accordingly,
entrepreneurs
have the most to
gain from
sensible reforms
requiring all
major federal
(and state)
regulations to
be implemented
only if
estimated
benefits exceed
costs, and by
adoption of
further
liability law
reforms (without
reducing
incentives for
all companies to
make safe
products).
Three liability
reforms are
illustrative:
adopting a
federal product
liability law to
bring uniformity
to and thus less
uncertainty
surrounding
liability
standards;
limiting or
prohibiting the
award of
punitive damages
where defendants
have complied
with prevailing
regulatory
standards; and
adoption of the
“English rule”
on attorneys’
fees (loser
pays) for
litigations
involving
commercial
interests (to
better
discourage
frivolous
litigation).
4.
Reforming Health
care:
Escalating
health care
costs and
uncertainties
about future
trends rank high
on
entrepreneurs’
lists of
concerns. Big
business is
concerned as
well, having to
face global
competitors from
countries where
health care
costs are picked
up by the
government.
Meanwhile, the
fear of losing
health insurance
compounds
workers’
anxieties about
job loss itself
and deters too
many from
leaving their
current jobs to
launch new
enterprises.
The
underlying
source of all
these concerns
is that the
overwhelming
majority of
Americans obtain
their health
insurance
through their
employers,
rather than
buying it on
their own, as
they do with
insurance on
their cars,
homes and
personal
liability. This
happened quite
by accident –
dating from
attempts by
firms during
World War II to
avoid wage
controls by
adding such
benefits as
health insurance
to pay packages,
and a ruling at
that time by the
Internal Revenue
Service that
employers could
deduct health
insurance costs
for income tax
purposes. Since
then,
employer-provided
health insurance
has exploded,
and so has the
cost of this tax
exclusion to the
federal Treasury
– over $125
billion, and
counting.
If
the central
problem is the
linkage between
employment and
health
insurance, then
the solution is
equally clear:
policy makers
must find a way
of breaking this
connection. The
President
offered one way
of doing this in
his State of the
Union address:
extending tax
deductibility to
individuals who
buy health
insurance on
their own, and
financing it
with a cap on
employer
provided health
care.
Conventional
wisdom has it
that this idea
is “dead on
arrival” with
Democrats now in
control of
Congress. But
the concept is a
bold one, and
putting aside
the details of
the President’s
proposal, it
clearly moves in
the right
direction from
an
entrepreneurial
perspective. It
also would help
address worker
and big business
concerns as
well.
Readers will
notice that
these topics and
the policies
they seem to
imply reach far
beyond the
traditional
subjects that
policymakers in
Washington and
elsewhere
discuss when
thinking about
how to promote
entrepreneurship:
increasing the
budget of the
Small Business
Administration,
or reserving a
certain
percentage of
federal
contracts for
small business.
Indeed, the
policies that
are likely to be
most conducive
to truly
innovative
entrepreneurship
– and thus to
enhancing our
rate of growth –
are the broader
policies that
are or should be
of concern to
all Americans.
It
is time for
policy makers
and citizens to
recognize that
what is best for
innovative
entrepreneurship
is likely to be
best for the
economy as a
whole.
RF
Carl Schramm and
Robert Litan are
CEO and vice
president,
respectively, of
the Ewing Marion
Kauffman
Foundation in
Kansas City,
Mo., the
nation’s largest
foundation
devoted to
promoting
entrepreneurial
success. This
essay is
excerpted from a
new paper, “On
the Road to an
Entrepreneurial
Economy: A
Policy and
Research Guide,”
which can be
downloaded from
www.kauffman.org
starting
February 26. |
