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In Pursuit of Growth: Where Next?

Jonathan Ortmans, President, Public Forum Institute

Jonathan OrtmansIn his 2011 State of the Union Address a couple of weeks ago, President Obama talked about the importance of innovation to create the jobs and industries of the future. A few days later, the White House released a new innovation strategy as part of the President’s plan to “win” that future. This strategy said: “America’s future economic growth and international competitiveness depend on our capacity to innovate. We can create the jobs and industries of the future by doing what America does best – investing in the creativity and imagination of our people. To win the future, we must out-innovate, out-educate, and out-build the rest of the world.” A few days later the White House, in partnership with the Kauffman Foundation and Case Foundation, launched a Startup America initiative aimed at doing just this.

Here today at the National Press Club, Carl Schramm, president and CEO of the Kauffman Foundation, followed up with the Foundation´s own State of Entrepreneurship Address offering specific actionable ideas for America as we continue our relentless pursuit of new jobs and economic growth.

In 2010, one of the missing pieces of the country’s economic policy puzzle was identified – namely that all net new jobs in the U.S. come from startups in their first year of existence. In 2011 Schramm promises more evidence and ideas in a soon to be released book - “Rules for Growth” which will outline several policy rules or “musts,” from antitrust policy to changes in our intellectual property system.

In essence, since entrepreneurial ventures are the key source of long-term growth and job creation, Schramm suggests that in order to keep entrepreneurship “embedded permanently in the fabric of America,” the nation should:

  • Reform U.S. immigration laws such that more high-skilled immigrants can launch job-creating businesses in the United States, especially now that the world’s budding entrepreneurs have more options when choosing a home (e.g., India, China, Brazil). Why? Kauffman research shows that immigrants are disproportionately likely to start a business.
  • Improve university technology licensing practices so that university-generated innovation (funded in its majority by the federal government) more quickly reaches the market. This involves changing overly centralized and bureaucratic processes that currently delay or hamper commercialization of innovations that can stimulate the creation of high-growth companies.
  • Reform our tax system, moving away from income taxes that penalize risk-taking, innovation, and employment, and aiming more for a consumption-based tax system that encourages savings that fund investment. Also, improve and make the research tax credit permanent.

In addition to providing a useful policy roadmap, the address shared an important, yet many times forgotten notion about entrepreneurial innovation. While entrepreneurship is commonly associated with new breakthrough technologies and industries, it also drives the incorporation of new ideas and practices into improving old industries. Schramm offered an impressive example with Dallas-based energy retailer Ambit Energy, the fastest-growing company on the 2010 Inc. 5,000 list. Although in 2009 it recorded revenues of $325 million, don’t be surprised if you have never heard of them. Ambit was only conceived in 2006 during a discussion at a Potbelly’s sandwich shop!

This example may not be very common, but it highlights a core concept central to Schramm’s thesis. Policymakers should focus on young, growing businesses. As Schramm mentioned, firms with fewer than 100 employees account for less than one-third of American jobs. We need to put greater emphasis on the new firms that refuel job creation and economic growth for the long term. Recent research by economist Bob Litan, Vice President for Research and Policy at the Kauffman Foundation, found that if the number of billion-dollar companies rose from the current average of 15 to somewhere between 45 and 75, America would permanently increase the economy’s growth rate by one full percentage point, which would in turn double GDP in 18 years instead of 24. This doubling of GDP translates into rising incomes, competitiveness and standards of living through goods and services that improve health care, energy efficiency, work standards, and many other aspects of daily life. Perhaps we might offer a metric to the President’s “Sputnik” moment to win the future—triple the number of billion-dollar companies.

It is common in Washington, DC for both parties to call for a more supportive environment for entrepreneurs and smaller businesses. What is new is a fresh focus on young businesses and a clarity about no-cost, evidence-based policies to stimulate new, high-growth American firms to accelerate the rate of job and wealth creation in America.

Our nation was built on our pioneering spirit which remains the envy of the world. If the events of the past four weeks in Washington, DC, are anything to go by, the state of our Union may indeed depend on the state of entrepreneurship in America. If Schramm’s message resonates, we just might see a new cadre of Democratic and Republican policymakers alongside risk-takers and entrepreneurs in mentoring and supporting more Americans—helping them to take that leap and usher in a new era of prosperity and sound fiscal health.

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Jonathan Ortmans is president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues. In this capacity, he leads the Policy Dialogue on Entrepreneurship, focused on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as a senior fellow at the Kauffman Foundation.

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