Last week Inc magazine came out with their 16 point plan to jump start job creation through start-up firms. It has been creating a lot of discussion about proper economic policy, which is a good thing these days.
Some of their ideas make sense to me -- at least to some degree. For example Step 1 is to take entrepreneurship out of the business school. At many universities this may be a good idea. Universities, especially large ones, tend to build really tall silos around various disciplines. Since over 50% of college students want to be entrepreneurs, this can limit access to the majority of these students who are not in those business schools. And many larger business schools add other barriers, such as separate admissions processes to get in to their program once you are admitted to the university.
But let's not assume that this is necessary at all schools. It is not an issue here at Belmont. I work with students from across campus. I have done workshops on taking entrepreneurship across campus for many other colleges and universities. They generally do not suffer from the barrier problems that some major schools have.
Several other steps in the Inc plan also have merit Creating more ways to help support bootstrappers would help, such as more incubators, shared workspace, and hatcheries for new ventures, could also help break down barriers. But, please, oh please, keep this out of government hands! And their recommendation to reform immigration laws to encourage entrepreneurs to come here, or in many cases, stay here is something I have argued for a long time.
But, much of the list gets too far into a neo-Keynesian mode. It is as if the authors trust government more than markets.
"Step 6: Cut College Graduates Some Slack." Hey, I make a living these days by teaching entrepreneurial college students, but their idea of modifying the college loan program to have a business start-up category will be a disaster. Remember that the government just did a massive power grab and took over the college loan program. If we do this, we can expect the American Medical Association and any number of other groups lobby for their special breaks. Before you know it, the college loan program could begin to look like the federal tax code or the small business loan programs of the SBA.
"Step 7: Give Angel Investors a Tax Break." There is no evidence that such tax breaks increase investment. Sure, angels will take the tax break if offered. But, there is no evidence that these tax breaks lead to any increase in investments. If taxes are too high, cut them for everyone!
"Step 10: Pass an Energy Bill, Already." Say what??!!??!! The authors argue that uncertainty of this issue is the only problem, so let's just pass it and get it over with. That may work on Wall Street, but not on Main Street. What worries entrepreneurs about this bill is not the uncertainty of it passing or not passing -- it is the impending mountain of new taxes and regulation that they know will choke their businesses.
"Step 11: Revamp the SBIR." Nope. Just scrap it entirely. Investment capital will make its way back into the R&D phase if we just give it time. Right now we have gotten the government so involved in R&D that investors sit back and wait for better returns from later staged deals. (And while you are at it, forget about their Step 14: Fund Big Science" for the same reasons).
I have a simple two step plan that would make all of this more simple and more enduring.
Step One: Stop trying to see what government can do to steer the economy. It can't. Have government less involved, in fact much less involved, and things will start to take care of themselves. It will take time, but sustainable growth can and will return. Cut taxes across the board. Don't cut them selectively. Leave money in the pockets of small business owner, investors and consumers. We don't need government to be the market middle man. Cut regulation and stop trying to use it to fine tune economic growth. And for goodness sake, repair the damage from the Kelo decision and get the heavy hand of eminent domain out off the table when it comes to local economic planning.
Step Two: Repeat Step One....Forever, and ever.
Some of their ideas make sense to me -- at least to some degree. For example Step 1 is to take entrepreneurship out of the business school. At many universities this may be a good idea. Universities, especially large ones, tend to build really tall silos around various disciplines. Since over 50% of college students want to be entrepreneurs, this can limit access to the majority of these students who are not in those business schools. And many larger business schools add other barriers, such as separate admissions processes to get in to their program once you are admitted to the university.
But let's not assume that this is necessary at all schools. It is not an issue here at Belmont. I work with students from across campus. I have done workshops on taking entrepreneurship across campus for many other colleges and universities. They generally do not suffer from the barrier problems that some major schools have.
Several other steps in the Inc plan also have merit Creating more ways to help support bootstrappers would help, such as more incubators, shared workspace, and hatcheries for new ventures, could also help break down barriers. But, please, oh please, keep this out of government hands! And their recommendation to reform immigration laws to encourage entrepreneurs to come here, or in many cases, stay here is something I have argued for a long time.
But, much of the list gets too far into a neo-Keynesian mode. It is as if the authors trust government more than markets.
"Step 6: Cut College Graduates Some Slack." Hey, I make a living these days by teaching entrepreneurial college students, but their idea of modifying the college loan program to have a business start-up category will be a disaster. Remember that the government just did a massive power grab and took over the college loan program. If we do this, we can expect the American Medical Association and any number of other groups lobby for their special breaks. Before you know it, the college loan program could begin to look like the federal tax code or the small business loan programs of the SBA.
"Step 7: Give Angel Investors a Tax Break." There is no evidence that such tax breaks increase investment. Sure, angels will take the tax break if offered. But, there is no evidence that these tax breaks lead to any increase in investments. If taxes are too high, cut them for everyone!
"Step 10: Pass an Energy Bill, Already." Say what??!!??!! The authors argue that uncertainty of this issue is the only problem, so let's just pass it and get it over with. That may work on Wall Street, but not on Main Street. What worries entrepreneurs about this bill is not the uncertainty of it passing or not passing -- it is the impending mountain of new taxes and regulation that they know will choke their businesses.
"Step 11: Revamp the SBIR." Nope. Just scrap it entirely. Investment capital will make its way back into the R&D phase if we just give it time. Right now we have gotten the government so involved in R&D that investors sit back and wait for better returns from later staged deals. (And while you are at it, forget about their Step 14: Fund Big Science" for the same reasons).
I have a simple two step plan that would make all of this more simple and more enduring.
Step One: Stop trying to see what government can do to steer the economy. It can't. Have government less involved, in fact much less involved, and things will start to take care of themselves. It will take time, but sustainable growth can and will return. Cut taxes across the board. Don't cut them selectively. Leave money in the pockets of small business owner, investors and consumers. We don't need government to be the market middle man. Cut regulation and stop trying to use it to fine tune economic growth. And for goodness sake, repair the damage from the Kelo decision and get the heavy hand of eminent domain out off the table when it comes to local economic planning.
Step Two: Repeat Step One....Forever, and ever.
Professor, I thought we had eight years of "less government".
What we ended up with are:
A winner-take-all economy where a few people made billions through means(less government, less regulation) that nearly brought the entire US Financial system to disaster
Greatest budget deficit in the US history due to significantly increased in military spending (I think that is government) and tax cuts to those that don't need it (I remember Warren buffet saying that his tax rate was lower than the lady that cleans his office--he wasn't bragging).
I have never understood this either/or choice in a complex socio-economic system such as the US. Why do we always try to reduce it to some type of a sound-bite "Cut taxes and stay out"?
Even a smart man like Einstein thought it was important to make things as simple as possible, but no simpler.
I am an entrepreneur and I work with entrepreneurs. I am also a consumer, a father, husband, a son of elderly parents...I do not feel safe "letting the market take care of itself". Just look at China and the products that are sold there and the products that would be sold here if the free market took care of itself.
Not sure what eight years you are talking about. We have had a steady expansion of government for the past century under every president from both parties. Even under Reagan he was only able to slow it down a bit.
Dr. Cornwall,
You will like week's cover story, "Leviathan Inc," from The Economist, if you haven't already seen it. Its subtitle: "Governments seem to have forgotten that picking industrial winners nearly always fails."
While it advises governments that steps to improve the business environment would be more effective than stimulus measures, there is also a concession that infrastructure projects may be called for.
It is also critical of measures that target an industry, e.g., green tech, preferring that governments let winners emerge on their own through incentives and prizes.
What do you think of government-funded innovation prizes? Most private foundations can't afford a proper incentive for big projects; is this a good role for Uncle Sam?
http://www.economist.com/node/16743343?page=2