State Leadership In Boosting Startups
Last week, I shared how we should be encouraged by recent developments to ramp up efforts in support of America’s new and young job creators—including legislation put forth by President Obama at the end of January. While there still remains a small window to get something done, Washington’s old timers emailed me afterwards to remind me that tackling the challenges of passing reforms during an election year is very hard and patience is in order. But as Bob Litan, vice president of Research and Policy at the Kauffman Foundation succinctly put it in an op-ed last week, the political climate at the federal level “doesn’t mean we’re out of ammunition.”
States have made great policy moves to inject entrepreneurial dynamism to our economy before and can do so again. The Kauffman Foundation’s State of Entrepreneurship Address delivered last Thursday offered several examples of policies states can implement to spur more entrepreneurship. Based on a collaborative study with the National Governors Association, the Kauffman Foundation issued A Startup Act for the States to guide policymakers at the state level. I share the main insights with you here.
Streamline business registration procedures
Entrepreneurship could be better facilitated by consolidating the physical space for in-person registrations, along with creating an easy-to-use, “one-stop” place for online business registration. While it might seem obvious given the years we have already been enjoying digital convenience for most market transactions, this has only just begun to happen and only in a few states, like Vermont, which in 2011 adopted the digital incorporation law. Because not all businesses succeed, states should also avoid adding to the costs of shutdown and liability. New firm formation is an organic team sport which requires the constant recycling of business initiatives. We need to make it easy for founders to close flawed approaches, form again with others and create more jobs in new ventures.
If the federal government passes the Startup Act introduced last December, it will help in this regard because the Act would create a domestic Doing Business ranking (like the World Bank one at a global level), which would stimulate a race to the top in streamlining such procedures. It never ceases to amaze me, but comparing ourselves to others must be part of human nature. Rankings always seem to incentivize action.
Re-evaluate occupational licensing
A change in U.S. regulation that has affected business creation without much notice to policymakers is the proliferation of occupational licensing. In the 1950s, 5 percent of American workers needed a license before they could provide a service. Today, it affects 20 percent of workers. For example, paralegal service providers, can handle routine legal problems at a lower cost and with no quality sacrifice for consumers. The same applies to nurse practitioners, who could be starting up service businesses that offer quality and value. States could spur business creation by removing this barrier to entry when the health and safety benefits derived from licensing are unclear. At the State of Entrepreneurship address panel, Morris Kleiner from the University of Minnesota, did an excellent job in walking us through how this works.
Entrepreneurship mentorship at colleges and universities
States should ensure that their universities and community colleges are helping interested students embark on the entrepreneurial path. By way of example, I have showcased in the past the University of Miami, whose LaunchPad program offers an alternative to students who want to search to start a business. I will also write next week about how a Canadian university has taken this to new levels.
Help push commercialization of university-developed innovations
I have worked in several states where governors, anxious about regional economic growth, have put pressure on their universities to deliver more jobs and economic value for public dollars invested. However, few have been specific enough to encourage or require their universities to give greater freedom to their innovative faculty to license their inventions without having to go through the traditional bureaucratic channel embodied in technology transfer offices. This does not mean that universities will lose their rightful share of royalties, but rather open an often clogged pipeline of lab innovations waiting to reach markets. Combine this greater freedom of path to the market with commercialization education for faculty and students, and you will have a powerful source of economic power.
The study at the root of these recommendations is not based on a beggar-thy-neighbor framework of tax breaks and subsidies that might only “chase” firms from other states only to see them vanish. For a fuller analysis, you can access the study, “A License to Grow: Ending State, Local,and Some Federal Barriers to Innovation and Growth in Key Sectors of the U.S. Economy.”
With fewer new startups and fewer jobs created by those who do start firms, America’s entrepreneurial engine is in much need of getting the fundamentals right. While entrepreneurial development is complex, good state policymaking can ensure that a state or city doesn´t just survive the crisis, but thrives. Further, it was evident to me at the Kauffman lunch last Thursday that the National Governors Association (NGA) chairman, Governor Jack Markell (D-Delaware), and its vice-chair, Governor Dave Heineman (R-Nebraska), clearly enjoy an excellent working relationship. Maybe the states can shame Washington into some similar common sense, non-partisan policymaking.