Stimulating Entrepreneurship

Jonathan Ortmans, President, Public Forum Institute

Congress is considering the American Recovery and Reinvestment Bill of 2009. This new $825 billion economic stimulus package includes $275 billion in economic recovery tax cuts to individuals and businesses over two years, making it clear that the U.S. is relying heavily on entrepreneurs to jumpstart our economy. And they’re right to do so. According to the Small Business Administration Office of Advocacy, since the mid-1990s, small businesses have created 60 to 80 percent of the net new jobs. Many of these businesses become high growth companies that continuously contribute to our economy.

Entrepreneurship does not disappear during economic downturns. The Kauffman Foundation recently released a preliminary study on entrepreneurship during economic recessions. In Entrepreneurs and Recessions: Do Downturns Matter shows that the likelihood of a company going public (a measure of success) might be unrelated to whether it came from a recessionary or non-recessionary period. Companies whose founding dates trace to recessions include Genentech, Microsoft, Southwest Airlines, Morgan Stanley, Allstate, among others.

The bill under discussion is relevant to entrepreneurship in so many ways from taxes to boosting science and technology, and education.  We should support the investment in all three. The U.S. has been lagging behind for years now on both the R&D and education front which can slow down innovation and the President is right that now is not the time to take away tax incentives that encourage entrepreneurs to try and create new enterprises and jobs. (See our factsheets on these under “policy tools” in the Policy Forum tab).

The proposed legislation also includes areas in which entrepreneurs can actually help more than we frequently realize. Entrepreneurs not only preserve and create jobs, but can also help America overcome its challenges through entrepreneurial innovation. We need to be smarter than ever to test the formula of the dog food before investing scarce dollars in it.  Entrepreneurs understand this iterative process and know how to mitigate risk. They know how to create and innovate with little or no resources. 

The proposed stimulus package deals, for example, with clean energy. The proposal is to invest in renewable energy production to make us more energy efficient, among other measures. But our nation is awash with investment dollars in clean tech.  What we lack is better ideas that make it viable at a time when oil is less than $40 a barrel.  Policymakers need to lean on and encourage entrepreneurs to help ensure a wise use of Federal investment if it is made at a time that private investors are sitting on the sidelines.

Policymakers can and should do more to leverage the role of entrepreneurs in stimulating our economy, but this must be done carefully. Entrepreneurs are risk-takers who respond to incentives, such as taxes, intellectual property rights and regulatory burdens. The task now is to find a smart way to unlock any caution that sets in during recessionary times.

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