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The Next Chapter for America’s Entrepreneurial Growth Agenda

Jonathan Ortmans

With the economy finally gaining steam after four years of a stop-and-start recovery, the Kauffman Foundation kicked off its “America's New Entrepreneurial Growth Initiative” at the fifth annual State of Entrepreneurship Address. The main output will be a New Entrepreneurial Growth Agenda by early 2016.

With all the dreary news recently about a weak jobs report, it is easy to be less bullish on the future of the American economy. Over the past few years at the annual State of Entrepreneurship event in Washington DC, the Kauffman Foundation has presented specific actionable ideas such as suggestions for a startup act in Washington and startup acts for the U.S. states and kept us focused and forward leaning. This month’s address remained true to that tradition.

As Kauffman’s CEO Tom McDonnell outlined, over the past century and a half, the pain of economic downturns has typically been a forge of future entrepreneurs. In fact, research has shown that over half of the companies on the Fortune 500 were founded during recessions or bear markets.

But successful startups do not overshadow the fact that economic indicators, at least in the United States, have been pointing in directions that threaten to erode high-growth entrepreneurial dynamics in the long run. New business formation, which had been flat or falling for a number of years prior to the Great Recession, fell steeply during the recession and has not yet recovered. The Kauffman address offered the following recommendations for immediate action to lessen the risk of eroding America’s entrepreneurial impetus:

  • Allow capital formation by letting crowdfunding develop. This mainly calls on the Securities and Exchange Commission (SEC) to proceed carefully with the implementation of Title III of the JOBS Act to ensure that equity crowdfunding is played out in the market, as opposed to in regulations currently being finalized.
  • Design entrepreneur-friendly policies when implementing the Affordable Care Act (ACA) at the state and federal levels.
    • The ACA stakeholders must consider the tendency for employer-secured health insurance to inhibit potential new business creation.
    • Reduce the barriers in health care entrepreneurship. Currently, for instance, high-tech health care entrepreneurs often run into barriers in the form of federal regulations or hospital purchasing rules.
  • Allow data collection to stay contemporary to provide stronger bases for policymaking by:
    • Fully funding and expanding the Survey of Business Owners (SBO) conducted by the Census Bureau.
    • Enabling innovative practices in state- and local-level data provision and seek ways to synchronize those. Current disclosure rules in many states preclude the kind of basic mapping recently performed by the Governor’s Office of Colorado that included very informative maps of high-tech startups over time.
  • Keep institutions current. The shift in the language used by policymakers away from small business and toward new, young, and growing businesses is still underway. It is important that the Small Business Administration (SBA) continues with this shift so that it can effectively manage new responsibilities that bring entrepreneurship more fully under its purview. The Kauffman report calls for:
    • A broader reconsideration of the SBA mission and scope, with a focus on disaggregating program goals and moving toward better industrial- and entrepreneurship-focused support programs.
    • Ensuring that the SBA loan assistance and guarantee programs are directed toward and widely available to entrepreneurial companies.
  • Work to enact a Startup Visa that will attract immigrant researchers and entrepreneurs. Think of Whatsapp, founded by a Ukrainian immigrant to the U.S. and bought by Facebook last week for $19 billion, or the award-winning EyeVerify, a Kansas City startup that commercialized a technology originally developed by an Iranian immigrant professor at the University of Missouri-Kansas City. This is an issue that Senator Jerry Moran of Kansas has been pushing on Capitol Hill with his proposed Startup Act. However, despite the overwhelming evidence calling for new pathways for immigrant entrepreneurs, the debate continues. The Kauffman Foundation recommends:
    • Reconsidering the financial requirements for Startup Visa eligibility.
    • Increasing the number of visas created by the Startup Visa provision.
    • Clarifying the administrative rules regarding foreign-born student entrepreneurs.

 

Can we be optimistic that Washington might get anything done? While it may take some time to work our way through the whims of the daily political dynamics, I am more optimistic than most for a few reasons.

First, since the Kauffman Foundation first presented the idea for a Startup Act, Washington has done a better than average job compared to earlier periods at trying to get things done that smooth the path of new firm formation. That a JOBS Act was passed in a fiercely fought presidential election year suggests that entrepreneurship can be one of those rare policy arenas where politicians can—if they want to—find common ground.

Secondly, the field has matured in large part due to the steady drumbeat of institutions like the Kauffman Foundation that have put data analysis in the limelight of the policy debate. While there is a great deal we still do not know, we have a lot more real research and emerging longitudinal data sets to work with in helping policymakers be smarter about helping more entrepreneurial Americans succeed in generating jobs and economic growth.

Finally, the field has expanded. Most institutions and think tanks are giving this some attention and the entrepreneurs are no longer considered the side ring at the circus. Kauffman’s multi-year initiative announced this month will include conferences, seminars and collaborative research with considerably more scholars and leaders than before, all gathering our smartest thinkers and doers to identifying more ways the United States can attain an even stronger entrepreneurial economy.

We are also getting better at how we have the conversation. Rather than simply hosting a panel discussion following a speech, last week’s State of Entrepreneurship event featured “Washington Wonks” pitching their best policy ideas for entrepreneurial growth to prestigious and pragmatic “Policy Pundits.”

For example, Donald Marron, director of Economic Policy Initiatives at the Urban Institute raised the issue of a potential selection problem resulting from high demand for the Startup Visa. In response, Bo Cutter, senior fellow and director of the Next American Economy Project at the Roosevelt Institute proposed making a market by selling tradable rights in Startup Visas to venture firms.

Will Marshall, founder and president of the Progressive Policy Institute, in turn raised awareness of the unexamined buildup of regulations and proposed a Regulatory Improvement Commission, an independent panel that would periodically review regulations and propose reforms to Congress for an up or down vote.

So do sit back and enjoy the webcast of this lively exchange of ideas at www.kauffman.org/SOE2014. But I encourage you to do more than that. Thought leaders and policymakers are generally better informed on the data supporting the important role of new formation in economic growth and such a favorable climate offers an opportunity to get things done. The challenge from Kauffman is to develop a New Entrepreneurial Growth Agenda by early 2016 as a means of providing a next generation, evidence-based roadmap for helping entrepreneurs innovate America onto a more solid future economy. Comments welcome as always.

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