Business Innovation Group (BIG)
College of Business Administration

The State of the Union and Entrepreneurship

Lee Iacocca who revived Chrysler in the 1980s once said “Why is our free-enterprise system so strong?- Not because it stands still, frozen in the past, but because it has always adapted to changing realities”.  This captured the moment of the 2010 State of the Union.  In the midst of a new political climate following Massachusetts the quote supports the President’s urge for change while focusing it on how free enterprise might create jobs. 

Change, we all know about that – ‘change we can believe in’ or as a recent spoof put it ‘very gradual change we can believe in’.  The focus on free enterprise though came through in a number of measures announced.  These included: $30 billion dollars to help community banks make loans to small businesses; $100 billion dollars of tax credits to help small businesses hire more workers; the removal of capital gains taxes on small business investment; and, further tax incentives for investment.  Also included were measures for research investments and a National Export Initiative to help farmers and small businesses increase exports.  Whether these initiatives will do what they are intended to do or will be implemented effectively is yet to be seen but at least the sentiment is right.  If we don’t help create the conditions for entrepreneurship we will likely miss out on a key area of employment growth.

While the President presented, the Kauffman Foundation CEO Carl Schramm provided a parallel ‘State of Entrepreneurship’ address.  In 2010 this address shows why the above measures are sorely needed.  Schramm notes that “Entrepreneurs are still the primary engine for job creation in the United States… In the last 30 years, literally all net job creation in this country has taken place in firms less than five years old”.  The 2009 survey of entrepreneurship, that he reports, paints a bleak picture.  36% of entrepreneurs have had reductions in headcounts while only 8% added employees.  Nearly two-thirds have seen their sales volume and profitability decrease.  71% do not expect to add new jobs in 2010 and 61% think the economy is on the wrong track.  Schramm suggests alternative measures.  Noting that one quarter of all technology firms are founded by immigrants he suggests reforming immigration policy by allowing foreign students graduating from US universities the opportunity to stay if they start new companies and create jobs.  By revising Sarbanes-Oxley to allow shareholders to choose whether their companies fulfill some of the more onerous reporting requirements.  By providing a temporary payroll tax to companies less than five years old, giving academic entrepreneurs more choice in how their inventions are exploited.  By offering fellowships for doctoral students if they wish to start a business and providing entrepreneurship education for all students from high school to college.

Both sets of policies and ideas move in the right direction by seeking ways to enhance the free enterprise system and not assuming that it will work without creating the right conditions.  Providing funds for community banks may unlock the credit freeze for small business but it is unlikely to be enough.  Tax incentives for small firms to employ seem anti-free enterprise but they may end up helping fast-growing companies with extra cash as they grow.  Removing costs to business investment and innovation will likely enhance innovation.  Schramm’s ideas may also work by encouraging immigrant entrepreneurs to stay, by giving immediate incentives to start-ups via payroll taxes and encouraging all citizens to become more entrepreneurial.  Please, let’s have more of all of the above, we need it.

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