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Washington Wants to Reorganize to Serve Entrepreneurs

Posted by: Jonathan Ortmans on January 13, 2014 Source: Policy Dialogue on Entrepreneurship

Entrepreneurial pulse

New legislation introduced this month in the Senate could turn what was anticipated to be a sleepy start on Capitol Hill for entrepreneurship advocates into a fresh look at how Washington, DC, helps entrepreneurs and new firms.

Distracted by budget talks, I did not expect Congress to start talking yet about legislation important to entrepreneurs like the Startup Act 3.0. Yet here we are, only days into January, talking about the proposed reform of the U.S. Government’s institutional framework for entrepreneurship.

The bill, introduced by Republican Senators Richard Burr of North Carolina and James Inhofe of Oklahoma, proposes to consolidate the Small Business Administration (SBA) with other federal departments including the Department of Labor and the Department of Commerce. This single federal agency would be called “Department of Commerce and the Workforce.” Its mission: oversee most business-related regulations and resources for the federal government.

Before you cry, “It will never happen!” remember that Washington did have the political momentum to create the Department of Homeland Security in light of a chronic lack of cohesion among immigration, security and other related functions of government. Or if your skepticism rather hails from polarized partisan politics, remember that President Obama also requested lawmakers back in 2012 to grant him the power to merge six agencies with similar responsibilities, including the Commerce Department, the SBA, the Office of the United States Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation and the Trade and Development Agency (see the related White House 2012 factsheet).

President Obama’s vision of “one department where entrepreneurs can go from the day they come up with an idea and need a patent, to the day they start building a product and need financing for a warehouse, to the day they’re ready to export and need help breaking into new markets overseas” sounds logical.

Most everyone can agree that complying with regulations and getting assistance in one single place can save the entrepreneur time and money -- and if it cuts duplication and waste, then all the better. Senator Burr said his proposed legislation would save “staggering amounts of money” by eliminating duplicative programs. And if either proposal actually leads to less bureaucracy and more efficient and relevant policies and programs to help entrepreneurs in the future, of course the change would be welcomed.

However, Washington would have to first decide what success means. Is it about existing programs and how much was lent to new businesses? If passed, presumably this means the government will be much more specific in determining the contributions of each program which will naturally attract opponents to the bill in that it would be harder to save some small-business programs.

Or is it about how many new jobs and how much wealth was created by those beneficiary businesses who survived and grew? An analysis of the 2007 Census data provides a useful benchmark. On average, young firms (those less than five years old) average nearly four new jobs per firm per year. While the Senate bill introduced this month keeps the core functions of the SBA, many are wary that young businesses would be lost in an agency that umbrellas overall business dynamics. The SBA has already been criticized for its focus on the size of a business, rather than firm age, particularly after data revealed that it is a range of business ages, rather than size range, that drives job creation: those in their first five years of existence. Data analysis suggests that from 1980-2005, nearly all of the net job creation in the United States occurred in firms less than five years old. Further studies on data from 2006-2007 then showed that without startups, net job creation for the American economy would be negative in all but a handful of years (Read: Where Will the Jobs Come From?).

Of course, central to all of this is whether you think what the government does has any impact on the ability of entrepreneurs to be inspired and enabled to race their ideas to market in the mission to have them increase productivity and create jobs.

When I first came to Washington as a young Capitol Hill staffer, none of the entrepreneurs building firms, especially on the West Coast, paid any attention to Washington, DC. In fact, if I remember correctly the only new technology firm prior to the 1990s that even had a presence in the nation’s capital was Hewlett Packard.
This has changed a great deal, especially in the past three years. U.S. government science and technology policy efforts to accelerate innovation have always been seen as important but it is new to see the recognition that they go hand-in-hand with the entrepreneurs that birth the new in the marketplace. Whether it was new policy issues (and subsequent Justice Department actions)  raised by the massive introduction of new technologies from high growth startups, or simply initiatives like Startup America and the use of the term “startups” inside the beltway, there is a much greater awareness among entrepreneurs about the role of their government in setting the rules and incentives that help them live or die.

The United States is not unique in taking this new introspective look at how government is helping or hindering entrepreneurs. A network of advisors from governments around the world called Startup Nations (that I will write about later this month) is evidence that there is serious and urgent inquiry underway at the highest level of government across the globe to figure out how government can be smarter from both a policy and program perspective in helping its new entrepreneurs. There is more of a will to partner with startup communities and work together on accelerating new firm formation. In fact, governments are now hiring from startups to try and get this right.

Since early conclusions are that there is a paucity of reliable performance data around their policies and publicly funded programs to fast track aspiring startups, initiatives are cropping up to better equip willing decision makers to target efforts to where entrepreneurs really need them. For example, one initiative announced by Secretary of State John Kerry in October 2013 called the Global Entrepreneurship Research Network (GERN), will see leading research organizations, including the World Bank, the Kauffman Foundation, Rockefeller Foundation and others like Endeavor Insight, develop actionable knowledge for policymakers by conducting experiments and evaluation of entrepreneurship programs. Clearly, the challenge now is to figure out evidence on what works. That major research institutions like the Kauffman Foundation and the World Bank will develop a repository of research and evaluations – and translate those findings and insights into better policies and programs to support entrepreneurs – is a step in the right direction. A global gathering of experts evaluating how to provide government with better data will assemble in Moscow on March 17 of this year. Not a moment too soon.

I am not an expert in government reform and perhaps in the end it is for experienced public administration people to tell us the most efficient way to deliver services. But if these types of proposals signal a new genuine interest in figuring out what works and what does not for government agencies seeking to provide more efficient and user-friendly service to entrepreneurs, we would be wise to help them redesign it. That the Congress (this year) and White House (in 2012) are trying to determine what works and what doesn’t for entrepreneurs is important. However, in the end it is the startup communities outside of the political system that can provide the data about what is needed in the future. If we get that right, then whether we deliver such services in one agency or four probably makes little difference.

Category:  Capitol Hill  Tags:  Washington, SBA, Commerce, Labor, Obama, Richard Burr, James Inhofe, Startup Act 3.0

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