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Taxes influence decisions regarding hiring, financing structure, and ownership structure. Taxes also often affect the very decision to launch a business. Given these incentive effects, yet another important task for this Administration should be to question whether our taxes are helping or hindering entrepreneurially-driven economic growth.
The primary goal of tax policy is to raise public revenues, but policy makers also recognize that the structure of taxation shapes incentives and should be crafted to enhance economic growth. Tax policy should foster new business creation and create a supportive climate for innovative firms. The theory of externalities implies taxes should be highest where activity has negative social costs (e.g. pollution) and lowest where the activity has positive social benefits (e.g. innovation). In practice, the tax code is a thicket of anti-entrepreneurial incentives and a source of red tape compliance burden. Taxes influence ownership structure, job creation, financing structure, and often the very decision to start a business. Simply put, incentives matter.
The crown jewel of the U.S. university system – the finest in the world – is the research university, where knowledge creation is the ultimate goal. Recognition of the centrality of knowledge creation to economic growth makes the efficiency of university innovation a top concern to policymakers, especially since the federal government funds two-thirds of the $48 billion of R&D performed in academic institutions. In too many universities, commercialization of research discoveries is not as rapid or as successful as it could be. The solution provided by Technology Transfer Offices (TTO) has been mixed, as too many have been directed to focus on maximizing revenue through patent licensing, leading to a sub-optimal level of technology diffusion. In the face of declining funding of basic science research, venture capital migration to downstream opportunities, and heightened competition from abroad, the optimal commercialization of U.S. university innovations could not be more important.
Universities, particularly research universities, are an important component of an innovation economy. Universities around the world have long been instrumental in developing much of the innovation that benefits our lives. A key question, therefore, is how well universities are prepared to support the transition to a more entrepreneurial economy. The various successful experiences from around the world show that shaping entrepreneurial universities requires commitment to institutional innovation.
The Obama Administration is now coming up on the end of the first 100 days, so it is a good time to revisit its innovation agenda to determine which directions it has taken. Although it is too early to judge any outcomes, we see positive signs that the role of innovation and entrepreneurship is at the core of this Administration’s approach to the economy.
The American Clean Energy and Security Act of 2009 (ACES) or the Waxman-Markey energy bill attempts to reduce carbon emissions from American cars, power plants and factories by 83 percent over the next 40 years. This pending legislation, which passed the House Energy and Commerce Committee last week in a 33-25 vote, embraces several positive concepts. Most promising is its emphasis on increased funding and infrastructure for clean energy innovation and its rapid commercialization. It is worth exploring these provisions in the bill, as well its flaws.
Have you ever thought about the contribution that universities can make to an economy? Here’s a fact: Around 6,900 MIT-alumni companies with worldwide sales of approximately $164 billion are located in Massachusetts, representing 26 percent of the sales of that state’s companies. MIT’s impact extends to the national level with, for example, 4,100 alumni-founded firms based in California generating an estimated $134 billion in worldwide sales.
Last June, President Obama announced in Cairo, Egypt that the U.S. government will host a Summit on Entrepreneurship to identify how we can deepen ties between leaders, foundations, and entrepreneurs in the U.S. and Muslim communities around the world. Throughout April leading up to the April 26th summit, I will comment on the state of entrepreneurship in some of the nations participating which I will be attending in the hope of prompting further observations from readers.
Today, we start the seven day countdown for the Presidential Summit on Entrepreneurship, and I want to take the opportunity to highlight a nation where entrepreneurship is starting to bloom: Malaysia. Although not yet a start-up economy, the desire for entrepreneurship and innovation are there, along with a growing number of public policies to support them-- a good recipe to put the economy on the entrepreneurial path.
When President Obama will deliver his first State of the Union address is still unclear. However, with 80 percent of the population believing that new economic growth and jobs will come from entrepreneurs, discussion around what his address should include in terms of policies that encourage new start-ups is already underway.
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