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New Firms & Disruptive Technology

Mark Marich on November 07, 2011 Source: Policy Dialogue on Entrepreneurship

As countries get richer, they become more heavily dependent on home-grown innovation -- as opposed to simply expanding existing activities or borrowing good ideas from abroad -- to maintain their growth. And since new firms play an absolutely vital role in the innovation process, removing barriers to entrepreneurship becomes increasingly important to maintaining economic dynamism and prosperity.

Last week, Brink Lindsey of the Kauffman Foundation delivered that message to the Subcommittee on Technology and Innovation of the House Committee on Science, Space & Technology.

“Economic research bears out the importance of new firms to America's economic dynamism. It turns out that a significant fraction of U.S. productivity growth comes from the entry and exit of firms – what Joseph Schumpeter called creative destruction. Generally speaking, exiting firms are less productive than existing firms, which in turn are less productive than surviving new firms. According to a recent paper written by economist John Haltiwanger and supported by the Kauffman Foundation, net entry of firms has contributed about 30 percent of total productivity growth in the manufacturing sector and virtually all productivity growth in the retail sector.1 New firms are thus the lifeblood of rising productivity, and, consequently, rising living standards.”

Lindsey went on to highlight the major elements necessary to reduce the barriers to entrepreneurship, including:

  • Welcoming job creators to the US
  • Facilitating early-stage financing for new firms
  • Facilitating access to public capital markets
  • Accelerating the formation & commercialization of new ideas
  • Removing regulatory barriers to entrepreneurship

Additional details are available in the full testimony on the Committee website.

Category:  Capitol Hill 

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