What a Difference a Statistic Can Make

Posted by: Jonathan Ortmans on June 06, 2011

Economic historians looking back at this period will be hard pressed to avoid commenting on the influence of at least one data point: from 1980–2005, firms less than five years old accounted for all net job growth in the United States. The notion that what policymakers should focus on is “young” firms not just “small” firms has awakened Democrats and Republicans alike and provided a new strategy for all Americans seeking to create jobs and restore what many Americans perceive as lost U.S. economic competitiveness.

While most early interest from this Administration in the vital role of young firms in the economy was more talk than action, the Obama Administration acknowledged new firm formation with actionable commitment at the White House launch of Startup America last January. In turn, within weeks, Speaker Boehner led his own “job creation” events welcoming in Kauffman Foundation president Carl Schramm once more to carry the message to Americans that it is the risk-takers and entrepreneurs that will make more American jobs and restore our economic strength.

Most recently, another Washington institution, known for a bias toward big business capitalism tipped its hat to the importance of the startup. The U.S. Chamber of Commerce, not a place that typically touts the relationship between new starts and GDP growth, decided it needed to better value new entrepreneurs and set about launching a Center for Entrepreneurship as the “voice for entrepreneurship in the nation’s capital.”

Recently, I joined one of the inaugural meetings of the Advisory Council to this effort which took place as part of America's Small Business Summit 2011(ASBS).  Organized by the Campaign for Free Enterprise within the U.S. Chamber of Commerce, the ASBS brought together business owners and local and state chamber executives in the nation´s capital to rally for economic opportunity, entrepreneurship, and pro-growth policies.

Washington is full of players trying to help America understand its entrepreneurial engine. The Chamber’s engagement however is significant. The U.S. Chamber brings people who are very experienced in educating busy Capitol Hill offices. Their interest in issues important to nascent entrepreneurs and new or young firms is an important development for entrepreneurs. This week we take a look at the issues they plan to discuss on Capitol Hill.

First is the support for the StartUp Visa Act of 2011 (S. 565 / H.R. 1114). As we have discussed often here, startup visas would help create American jobs by enabling nascent entrepreneurs often educated at our best universities to start businesses here rather than overseas. Data shows clearly that foreign-born residents made up just 12.5% of the American population in 2008, while nearly 40% of technology companies and 52% of Silicon Valley companies have founders who are foreign-born. The Center for Entrepreneurship’s legislative agenda aims to turn around immigration policies that force potential new job creators out of the country. In his last State of the Union address, President Obama supported this concept. However, because high skilled immigration issues are wrapped up in the politics of general debate on “illegal immigration” taking action is turning out to be difficult for the President.  In fact, the House Judiciary Committee, fearful of fraud, is only considering at best opening up 2,500 visas which, while a step in the right direction, is an inadequate number to have any meaningful impact on new private sector jobs.

Second, the Chamber takes a look at our innovation pipeline. A long troubled area here, the Chamber should be applauded for addressing the bottleneck in our patent system. Recognizing that innovation is the lifeblood for many entrepreneurial ventures, the Center is supporting a more efficient U.S. Patent and Trademark Office (USPTO) to improve patent quality while reducing the delay in patent processing times (currently there is a backlog of more than 700,000 applications). However, the Center says little concerning any push for broader legislative measures to decongest the commercialization of university-developed technology, another major source of delays in moving technology from lab to market.

A third legislative priority of the new center is to encourage investment in R&D through the simplification and improvement of the R&D tax credit by increasing the alternative simplified credit from 14% to 20% and making the credit permanent—measures embodied in the American Research and Competitiveness Act of 2011 (H.R. 942). The Chamber of Commerce estimates that an expansion of the tax credit will lead to an additional $90 billion in annual GDP, along with a significant increase in patents. Whether we can be optimistic for results in this fiscal climate is another matter.

Finally, the center will support rules that facilitate capital formation. In this regard, the Center for Entrepreneurship will, for example, monitor and advocate that the new Consumer Financial Protection Bureau be sensitive to credit sources that are essential to the survival and expansion of entrepreneurial ventures.

The U.S. Chamber is obviously well experienced in advocating for business on Capitol Hill. Their new foray into the vastly underestimated importance of young firms could well encourage more powerful institutions in American public policy to examine the economic potency of new firm formation. Just as important though could be how one piece of data communicated this part of the American narrative to its policymakers. If it signals a swing toward more evidence-based policymaking, the winners will be more than America’s entrepreneurs and job creators. The winners are the American public at large.