Public Policy, Economics and Entrepreneurship: November 2008 Archives

It is up to us.  It is up to all of us who call ourselves entrepreneurs.

Mountains of money to banks, home builders, auto companies, etc., etc., etc., are not going get this economy moving.  We need to listen to Peter Heslam at Business as Mission Network:

Key to the solution is entrepreneurship. While this requires no state programmes to initiate, governments that do assist aspiring entrepreneurs get good value for money - the average cost of a business start-up is less than the average annual cost of keeping a student at university, a prisoner in jail or a family on welfare.

I ask you, then, to rise up to the challenge again. Education, health care, social security: These domains need your voices, your intellect, your credibility, your time and your money.

In each of these domains, there are some early successes. Edward Fields is breaking through the morass of education problems with his start-up, HotChalk (see "A Technological Fix For Education"). Kirk Loevner is cracking health care with Epocrates. Their experiences offer some insight into alternative business models, marketing models and approaches to problem solving--most notably using advertising dollars to fund resources for teachers, students, doctors and patients.

In education and health care, a tremendous amount of inefficiencies can be tackled with technology. Barack Obama...will need help figuring out how to reform health care and education from within the system without further ballooning the deficit.

It is up to us.  Now is not the time to put fear in the minds of today's youth.  More than ever, we need to prepare them to get the economies of the world growing again, as Lisa Gibbs so clearly argues in her essay at the Miami Herald:

Nurturing the next generation of entrepreneurs is critical to building a regional culture of innovation, which ultimately leads to more, higher-paying jobs.

It is up to us.  We need small business to not only fix our economic mess, but our social problems, as well.  The Chronicle of Philanthropy highlights the important role that entrepreneurs play today in this realm:

Small businesses give generously to charity, with three-quarters of small-business owners in a recent survey saying they donate a percentage of their profits to nonprofit organizations.

On average, small companies contribute 6 percent of their profits to charity, according to the study, which was conducted by American Express.

It is up to us.

Roy at Roysville is correct -- it is time to get your nose out of your books and your plans and get to work. 

Listen to Finer Minds and be ready to be an agile entrepreneur -- ready to create new ventures, new jobs, and real change.

It is not up to Washington or Wall Street.

It is up to us.

If the results of a new survey from Junior Achievement are correct, the youth of today may be losing hope in entrepreneurship as a career path.  From Independent Street:

A poll released yesterday by Junior Achievement USA, a Colorado Springs, Colo., organization that hosts after-school programs for youth, found that fewer teens surveyed were interested in eventually starting their own businesses than just a year earlier. It found 60% of the 712 13- to 18-year-olds surveyed indicated they'd be interested in becoming entrepreneurs, compared with 67% in 2007.

While this percent is still very high historically speaking, the downward trend is alarming.  Entrepreneurship is the hope for our future growth and we need this generation to be ready to lead the way.

Dawn Rivers Baker, the editor and publisher of The MicroEnterprise Journal, has joined her voice to my debate with Professor Shane in her blog The Journal Blogger.

Here is part of what she writes:

But there's something else about Professor Shane's position that bothers me -- something I've said before in this blog.

It may be true that policy makers seek to create jobs and promote growth but it's worth considering why policy makers do that. Isn't the point of jobs and growth supposed to be their ability to allow people to achieve financially sustainable and comfortable lives so that they can live happily?

Is making people happy something to be sneered at?

A great point!  Success for entrepreneurs is almost always so much more than the financial outcomes of the venture.

The Wall Street Journal reports that credit is getting even tighter for small business:

When entrepreneurs can't get conventional loans, they traditionally turn to loans backed by the Small Business Administration. But in recent months -- as many banks turned away businesses and slashed credit lines -- SBA lending also has dried up substantially. The retrenchment has become especially pronounced in the past couple of weeks.

Although some of this is due to decreasing demand, tightening credit and standards seems to also be behind the steep drop in small business lending.

When corporate America is lining up for help we seem to be ready to bail them out no matter how bad their prospects.  But, it seems that at the same time we are turning our backs on small business.

I am baffled by the number of university faculty who seem to be almost hostile to small businesses.  If it is not a high growth, high potential venture, some think it is not worthy of the term entrepreneur. 

I wrote a while back about one such professor, Dr. Scott Shane of Case Western, who argued that entrepreneurship education is misguided as entrepreneurship programs do little to fuel our economy.  Unfortunately, he did not factor small business into his analysis -- looking only at venture capital backed firms.

Well, Professor Shane is at it again.

In an article at CNN Money Shane debates Ken Blanchard about the value of entrepreneurs in our economy. 

Here is what Prof. Shane states:

From a societal point of view, if you have a group of people who do something that makes them happier but less productive (which the data support), and you aggregate that, then entrepreneurship is an economic drain. If the goal of the policymaker is to make everybody in your country happy, then let everybody start businesses.

But most policymakers seek to create jobs and promote growth. If that's your goal, you want to stop all these people from starting marginal businesses that don't go anywhere and devote the resources to encouraging high-growth companies. In terms of tax policy, for example, you could argue that the government should eliminate the home-office tax deduction - which doesn't differentiate between high- and low-performing businesses - and beef up R&D tax credits.

This animosity to small business is nothing new in academia. Part of the reason I left academics in the 1980s was that there was little interest in what I wanted to teach -- entrepreneurship and small business.  I remember having a senior full professor yell at me in the hall one Saturday morning saying something like this: "Hey Cornwall!  What are you trying to do with all of this entrepreneurship stuff around here?  We prepare corporate leaders.  We are not a trade school for merchants!"

Professor Shane is looking at a very narrow set of data with his "evidence."  There are years and years of data that show the real impact of the entrepreneurial ventures that he calls "marginal businesses."  Half of today's GDP is being generated by small business and they have been the only reliable job creation engine for the past twenty years.

What Prof. Shane seems to want is more government directed economic policies toward business formation -- what I call socialized entrepreneurship.  Give me free markets any day!

(Thanks to Andy Tabar for passing along the CNN Money article to me).

October's churning economic activity clearly worried small business owners.  The National Federation of Independent Business Index of Small Business Optimism fell 5.4 points to 87.5 (1986=100), the third lowest reading in the 35-year history of the survey. 

All signs seem to be pointing to a long recession, especially as the engine our economy -- small business -- seems to be increasingly feeling the effects of the slowdown. 

Could James Pethokoukis prediction of a one-term Obama Presidency come true?  Here is his take:

According to the SBA, small businesses have created about 78% of all new jobs in the US over the past twenty years.

For the first time, October's ADP Small Business Report reports a net loss of jobs in the small business sector of our economy: 

• Total small business employment: -25,000
• Goods-producing sector: -36,000 small business jobs
• Service-providing sector: +11,000 small business jobs