Public Policy, Economics and Entrepreneurship: October 2007 Archives

An interesting post from ImmigrationRoad.com:

While immigration reform is going nowhere on Capital Hill, leaving many highly-skilled but frustrated workers wondering whether they've made a mistake by coming to the U.S., the European Union has timely unveiled an ambitious plan to lure millions of skilled professionals to the continent. The EU-wide "Blue Card" program, named after EU's blue flag, is designed to attract the best and the brightest to its member nations by offering a standardized system and many benefits.

Facing an estimated shortfall of 20-million workers in the next 20 years, the European Commission wants to fix it early. One way, obviously, is to invite more immigrants. However, the United States, Canada and Australia have been the top destinations of the world's talent, with Europe falling far behind.

Yes, we need to get control of our borders. But I am afraid that we have taken our eye off of the importance of immigration in this economy. Immigration and entrepreneurial economies have always gone hand-in-hand. In addition to a "blue card" idea from the EU, the US also needs another card (let's color it a "red card" for urgent) to support the flow of legitimate entrepreneurs looking for the freedom this country offers to business owners.

The SBA announced today some updates on small business in the US economy. One of these updates is another indication of the importance of small business as the employment engine of our economy. The updated data shows that the nation had an estimated 26.8 million small businesses, of which 6.1 million were employer firms. Although the total number is steady from their previous report, the number of entrepreneurial firms with employees is up from 5.9 million figure released earlier in the year.

Recent reports from the SBA find that entrepreneurial firms are now over 50% of the GDP, and have created about 78% of all new jobs every single year for the past twenty years.

A new study released by the SBA gives some insight into the role of growing entrepreneurial firms in the economy. Bruce Kirchhoff of the New Jersey Institute of Technology and Brian Headd of the Office of Advocacy of the SBA authored the working paper, entitled Small Business Growth: Searching for Stylized Facts.

Using census and other public data, the study examines how firms started, grew, merged, declined, survived, and closed from 1992 to 2002. The authors' analysis determined that:

- Firm survival four year survival rates were consistently at about 50 percent. This was consistent during the ten year time frame of the study. This is consistent with recent studies using other data bases, and should finally put a stake in the heart of the urban myth that only 10-20% of firms survive. What is sad is how many scholars, business media types, and "experts" still perpetuate the failure rate myth.

- Industries that grew in employment did not necessarily have higher rates of fast growers but industries
with high rates of fast growers tended to have high rates of decliners. About 35 percent of employer (private sector, nonfarm, single-establishment) firms had no employment change from one year to the next, about 11
percent closed each year, about 25 percent shrank in employment each year and about 28 percent grew in
employment each year. This finding reinforces the breath of the entrepreneurial strength in our economy. Rather than depend on a few firms in a few industry sectors, this entrepreneurial economy is very diverse and widely dispersed.

- Fast growing firms (defined as having a 50 percent or more increase in annual employment with at least a five-employee increase) were only 3% of all firms. Given the burn-out rate of fast growing firms, this finding is reassuring to me. My experience is that slow and steady is want leads to long-term survival in business. As fun as things like the Inc 500 can be to watch, these may not be the firms we need to focus on for our long-term economic development.

The Tax Foundation has released its latest ranking of State Tax Climate. Wyoming tops the list this year as the most business tax-friendly state, followed by South Dakota. At the bottom of the list are Rhode Island and New Jersey.

You can read the full report here or see a summary of the state rankings for the past several years here.

Research continues to clearly show that there are three critical areas of public policy that support and foster entrepreneurial economic development:

1- Lower tax rates and a simple tax system

2- Minimal regulatory hurdles for new businesses to start and fewer regulations effecting operating small businesses.

3- Strong protection of private property rights.

All of these factors are part of the The World Bank's annual Doing Business report. The 2008 version finds that the top five countries for ease of doing business are:

1- Singapore
2- New Zealand
3- United States
4- Hong Kong
5- Denmark

In terms of progress from last year, "Eastern Europe and the former Soviet Union have surpassed East Asia in the ease of doing business."

You can read a detailed overview of the report here.

Nathan Giffith begins a scary story at LockeSmith blog courtesy of the Progressives in our midst:

I've decided what I'm going to be for Halloween: a Progressive! I'll scare... well, I probably won't scare anyone. In fact, it would probably help me blend in a great deal more than I usually do.... The point is, Progressives ought to scare us a great deal more than they do.

The latest survey of small business owners from the NFIB reveals that small business owners are still cautious about the economy. The optimism index is still below the historic average, although it did improve a bit from last month.

On the employment front, small business owners tried to fill jobs in September, but with little success. Thirteen percent of those responding to the monthly NFIB Small-Business Economic Trends survey increased employment an average of 3.7 workers per firm, but 14 percent had reductions of 3 workers. Three-fourths of the reported payroll jobs were in medical care, education and government, industries not dominated by small firms, where hiring was weak.

Many are still reporting difficulty in attracting qualified workers. A seasonally adjusted 25 percent reported unfilled job openings, unchanged from August, keeping the unemployment rate low.

Eighteen percent of firms plan to create new jobs over the next three months, up a point over August numbers, while 9 percent plan reductions, up a point. This produced a seasonally adjusted net 14 percent of owners who plan to create new jobs, down a point from August but very solid. Fifty-seven percent said they hired or tried to hire new workers, up four points from August, but 84 percent of those trying to hire reported few or no qualified applicants.

Nathan Griffith ponders about "markets" at our LockeSmith blog:

We've all heard about "the market" doing this to people, doing that to people…But I labor under the impression that most folk don't have a good conception of the fact that "the market" is shorthand for a much more complicated idea. For example, most people think the market rewards those with money. In fact, the market defines what a good decision is, and then rewards those who make good decisions.

The young people now entering the workforce have been called Generation Y. Many of us call them the Entrepreneurial Generation or the "E" Generation due their high rates of business start-up right out of, or even while in school. An article from the Boston Globe argues that the "E" stands for Entitlement just as much as it stands for Entrepreneurial.

They are...the upstarts at the office who put their feet on their desks, voice their opinions frequently and loudly at meetings, and always volunteer -- nay, expect -- to take charge of the most interesting projects. They are smart, brash, even arrogant, and endowed with a commanding sense of entitlement.

Perhaps their entitled attitudes are part of what is making them so entrepreneurial as seen from this quote from that same article.

"They have been groomed, they've been told that they are the best, and they've seen people from this same generation make millions of dollars just before them. They think, 'I want to be the next Google, Amazon, or eBay. After all, these companies were founded by young people. Now it's my turn.'"

A recent article in the Wall Street Journal examines how employers are changing benefits and perks to meet this new generation of workers.

And family-friendly companies are looking very different today than they did a few years ago. The waning of boomers with their uptight ways, and the rise of the we-want-it-all millennials, are spurring major shifts in employer programs.

Whether they are entrepreneurial, entitled or both, they sure are keeping those of us who teach entrepreneurship busy!

(Thanks to Steve King who writes Small Biz Labs for passing the Globe along).

Read my colleague Mark Schenkel's thoughts on the "fat tax" (not a typo) at our blog LockeSmith:

Let me be clear, I am not advocating that politicians seek ways to increase taxes, whether through the creation of new tax code or the revision of old code. I'm just suggesting that the use of a simple tax that encourages all those who are inclined to pursue the creation economic value equally is likely to generate more overall value at the end of the day.

The entrepreneurial economic wave that is sweeping around the globe is even getting our neighbors to the north feeling a little adventuresome.

A new study finds that one in eight Canadians (13%) plan to start a business in the next five years, and of those over a quarter plan to do so within the next twelve months. And many of these aspiring entrepreneurs are not among the usual suspects of experienced managers looking for a path to riches. Just as we see in other economies, entrepreneurship is fast becoming a career path for people ranging from the economically disadvantaged looking for true independence and empowerment to blue collar workers no longer willing to put their livelihoods in the hands of large corporations and unions.

From Ipsos News Center:

Notably, it appears that the past experiences of would-be entrepreneurs differ slightly from those who are already running their own businesses. For example, while nearly one quarter (21%) of existing entrepreneurs claim to have come from an executive or managerial role prior to starting their own business, just 15% of aspiring entrepreneurs state that they come from that same background. Further, while one in eleven (9%) existing entrepreneurs cite previous experience in blue collar or labourer work, a larger proportion (13%) of aspiring entrepreneurs are emerging from blue-collar backgrounds. In fact, with just 15% of aspiring entrepreneurs coming from a managerial background, this suggests that most Canadians believe that this type of experience is not necessary in order to be able to manage one's own business.

Thanks to Ben Cunningham for passing this study along.