A Roadmap for an Entrepreneurial Economy

Rather than debating the problems of U.S. competitiveness, it's time for solutions. A paper from the Kauffman Foundation puts several on the table

There are a wide range of views about what the U.S. can do to keep its edge in today's global economy, but no consensus (see BusinessWeek.com, 1/18/07, "Keeping Research and Leadership at Home").

The Kauffman Foundation, the nation's largest foundation to promote entrepreneurship, recently released a working paper titled "On the Road to an Entrepreneurial Economy," which offers a new take on keeping the U.S. competitive. It's based on input from entrepreneurs and academic researchers on the biggest challenges we face and their assessments of issues tied to U.S. competitiveness.

I was asked for my feedback, and the foundation offered to support the work my team is doing at Duke University after it reviewed our research on skilled immigrant entrepreneurs (see BusinessWeek.com, 1/3/07, "Open the Door Wider to Skilled Immigrants").

The Big Four

Bob Litan, Kauffman's vice-president for research and policy and the lead architect of the roadmap, believes America's future success will be achieved through the efforts of its entrepreneurs and innovative small businesses. Just as technologies that changed the world—the telephone, automobile, airplane, and personal computer—were all introduced by entrepreneurs, it's the current and future crop of entrepreneurs who will create and commercialize the innovations that keep the U.S. competitive. Litan says, "It's time to think big, if we want big results."

Here's a summary of the four top issues the roadmap identified, along with its proposed solutions.

1. Ensure a skilled workforce. One of the biggest constraints for the formation and growth of successful enterprises, large and small, is finding skilled individuals with an entrepreneurial bent. A solid education in math, science, and technology is critical, but these skills must be balanced with reading, understanding history, and appreciating culture. School curricula are failing to foster not just excellence in science and mathematics but also creativity and entrepreneurial mindsets among students.

The roadmap says fixes should include fostering entrepreneurship in the way the education system is run, allowing families to choose which public schools their children attend, nurturing entrepreneurial skills from middle school through college, devoting more federal support to science and engineering, and forging an "entrepreneurial" immigration system.

2. Reform health care. Escalating health-care costs are a major concern for entrepreneurs and U.S. businesses in general. Fear of losing health insurance compounds workers' anxieties about job loss and deters some from leaving their jobs to launch new enterprises.

The roadmap says one solution is to untether health insurance from employment, as recently proposed by President Bush in his State of the Union address (see BusinessWeek.com, 1/23/07, "Text of the State of the Union Address"). This would involve extending tax deductibility of health-care insurance to those who purchase it on their own, and could be funded by a cap on the tax deduction for employer-provided health-care coverage.

3. Promote innovation. Entrepreneurs launching new businesses are responsible for a disproportionate amount of truly radical or transformative innovation—the disruptive products and technologies that affect U.S. competitiveness.

The roadmap suggests three ways to capitalize on innovation and expand it: First, improve university-research commercialization by freeing faculty to negotiate their own deals, and make federal research grants dependent on tangible results. Next, streamline the patent system and limit what can be patented. Finally, provide small businesses the same advantages as big corporations in following research and innovation abroad. The federal government could help by translating international publications and communicating useful knowledge developed abroad to U.S. entrepreneurs.

4. Limit regulation and litigation. Because of their small size, entrepreneurial businesses often bear a disproportionate cost of regulation and liability litigation. Reforms are needed to ensure that major federal and state regulations are implemented only if their estimated benefits exceed costs. Reforms in liability laws are also required.

Kauffman's roadmap presents bold new ideas and solutions. It shows remarkable insights into the issues entrepreneurs face. Yet it demonstrates a surprising lack of understanding in certain areas. For example, one of its recommendations for boosting entrepreneurship is to increase immigration by removing the caps on H1-B visas. Th is proposal misses a key point—skilled immigrants who enter the U.S. on these visas can't start businesses or develop deep roots (see BusinessWeek.com, 2/8/07, "Let's Keep Skilled Immigrants in the U.S.").

Also, in advocating increased graduation and immigration rates for scientists and engineers, the roadmap fails to recognize the negative impact that haphazard increases in supply can have on industry salaries, and how this can discourage Americans from entering these professions (see BusinessWeek.com,7/10/06, "Engineering Gap? Fact and Fiction").

Even though it's a work in progress, the roadmap is a good starting point. Rather than debating the problems of U.S. competitiveness, it's time for us to start debating solutions. Kauffman has added some useful ideas to the conversation.

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