Since the earliest days of the American republic, entrepreneurs have been essential to the economic growth and social dynamism of the United States.
From Nathan Appleton, textile merchant and entrepreneur in the late 1700s, to the founding of Apple by Steve Jobs and Steve Wozniak in the 1970s, entrepreneurs and the new companies they create account not only for most new jobs in this country but also a disproportionate share of the innovations that boost human welfare.
Welcome to the Kauffman Foundation's new column on entrepreneurship. The Kauffman Foundation is a private, nonprofit foundation dedicated to promoting entrepreneurship and improving education. Like most other American philanthropists, our founder, Ewing Kauffman, was a successful entrepreneur -- in his case, starting and growing a pharmaceutical company that created thousands of jobs and innovations.
Unlike many other philanthropists, however, Mr. Kauffman chose to dedicate his fortune to helping others to follow their entrepreneurial dream. He spoke of himself as a "common man who did an uncommon thing," but wanted his philanthropic dollars spent in making that phenomenon, entrepreneurship, a more common and achievable prospect. Toward those ends, the Kauffman Foundation funds and performs a wide range of research on entrepreneurship and also operates a number of programs aimed at helping entrepreneurs and better preparing students at all levels for success in an entrepreneurial economy.
In this space over the coming months, you will hear from a variety of Kauffman scholars and researchers about our work on the importance of entrepreneurship. While the link between entrepreneurship and economic growth has been well-established by a number of economists and is well understood by the average citizen, this insight has not yet penetrated the minds of legislators and policymakers. When officials and commentators in Washington and state capitals discuss "business" and "commerce," they almost universally mean big business, companies such as those on the Fortune 500. Make no mistake: big business is highly important to our economic health. But such companies are not the source of the innovations that make our economy grow.
Economists often boil the mechanics of economic growth down to sterile-sounding categories such as capital, labor, and "the residual" -- essentially, technological change.
But if you think about economic growth in a common-sense manner, what does it mean? It doesn't just involve more products and services, more "stuff." It also means better and cheaper products and services and an overall improved quality of life. Consider pharmaceuticals: economists attribute the lion's share of the increase in life expectancy over the past forty years not to public programs but to new drug discoveries. And, increasingly, large, established companies find it difficult to introduce new pharmaceuticals.
The key point is that behind these innovations are entrepreneurs who start new companies -- that, as Northwestern scholar Dan Spulber has found, is the essential function of entrepreneurs. They found new companies as the vehicles for propagating innovations. If successful, those companies will grow and, accordingly, so will the overall economy. When firms grow, the economy grows -- and entrepreneurs are the drivers of firm growth.
Only a tiny fraction of new and young companies, of course, will successfully create jobs and grow into larger firms. (An enduring dilemma for any economy is that once entrepreneurial companies successfully turn into larger firms, they often become the enemies of innovation and the next generation of firms. This is a problem that economists and policymakers and corporate leaders have wrestled with for a century with no resolution, and will be the subject of the some of the columns in this series.)
What legislators and policymakers must remember is that the messy process of firms starting, competing, failing, and growing (and, potentially, shrinking) is absolutely essential to achieving economic growth. This is what we call "messy capitalism" -- economic growth and dynamism do not emerge from a neat process nor are they borne, like Athena from Zeus' head, fully-formed in the shape of successful firms out of university laboratories.
Scale and growth, and their underlying corollaries of failure and shrinkage, can only be achieved through this messy process. Our institutions -- government, large corporations, universities, and others -- need to be willing to let this process proceed and accept that it cannot be dictated or controlled. It can be supported and promoted, of course, and in forthcoming columns you will read about the efforts of the Kauffman Foundation and others to do exactly that: make messy capitalism even messier.
What makes a great entrepreneur?
No economy can grow without embracing innovation-based entrepreneurship...that's well enough proven. But we persist in using the wrong processes to try to stimulate entrepreneurship. Unlike training accountants, entrepreneur development is not done in classrooms, or through tidy, structured programs; it's done building businesses, many of which will fail. We should be stimulating the messy, wasteful business-starting process which has been proven to work for over a hundred years. We can't make messy capitalism tidy, but we can stimulate the creation of more mess... and then we'll get more innovative startups.
I work with both startups and investors. I don't blame the investors for seeking unreasonable returns. The stats show they're not getting them! I do blame them when, after investing, they kill the innovation they've just invested in. They often show little respect for the messy, two-steps-forward one-step-back process required to build a new company.
It used to be that innovative entrepreneurs and small businesses could compete, but the local grocer, dress shop and hardware store have been replaced with big box chains. Politically connected corporations get unfair tax breaks and zoning decisions and other favors that put the little guy at an extreme disadvantage, even without their added challenge of getting financing. With a few exceptions (e.g. Facebook), if a little guy does get successful and becomes a competitive threat, they are acquired.
The problem is directly related to a political process that has been corrupted by wealthy special interests -- corporations and the US Chamber of Commerce, which represents them.
Our view of capitalism reminds me of a world where people have decided that the game of American football could be more exciting and profitable if we just dispense with the rules....all of them. No more pads, helmets, sidelines, end zones, clocks, or rules curbing violent hitting and tackling. What one is left with is a field of dead and dying players. No more players, no more game.
To be blunt, to be a truly useful entrepreneur FOR America, you need to create jobs for American workers, not foreign ones. Otherwise, I have to ask why should my tax dollars be used to help you get started in the first place, and why should I refrain from asking my legislator to make it harder for companies to move jobs offshore, esp. new ones?
Why Capitalism Condemns the Many to Hand to Mouth Existence & the Few a Luxurious Existence
So, I look forward to more of these articles, and I agree that many of the sources of capital have stagnated the recovery by refusing to accept that small & new-business investment is risky, ugly, messy, and down-right challenging - but the rewards are multifarious.
As for your funding woes, here is an article out just today. The market is changing, for sure, but there is still a market: http://www.fastcompany.com/magazine/152/rise-of-the-super-angels.html?partner=homepage_newsletter
Entrepreneurship can indeed be supported and promoted. It must also be protected. History amply demonstrates that without protection of a competitive business environment, well established interests can become predatory and successfully suppress both competition and innovation. The Internet is one example of a fertile environment in which entrepreneurs have flourished, but even now, there are those who seek to control it.
for the cost of the Patent process. The cost is prohibitive to low and middle income persons who have good ideas but are not able to protect their visions. Even in good economic times, the first question from any potential lender is " DO YOU HAVE A PATENT " A voucher program through the SBA to certify an individual to protect their ideas I am certain, will be cost vs results positive. The Patent process must also be cut from 2-3 years to 6-9 months.
Though the news media has yet to talk about it - National Hiring Day is coming. This is a day that corporations are encouraged to hire new employees. The day suggested is Wednesday JANUARY 19, 2011. Corporations are called on to put patriotism ahead of excess profits and help their country in hard times. Those corporations that cannot hire, are asked to stop firing for that month.
There has never been a time In American History where it is less difficult for Corporations to hire, and more helpful to all Americans if they did.
This may help us all. HuntingPost are you hiring for National Hiring Day?
Green Light, at: www.aesopinstitute.org opens a new approach to much more rapidly replacing fossil fuels. According to NASA, the little known threat of long-term power failures in cities, worldwide, as a result of solar emissions, can impact 130 million Americans.
Minimizing the impact of the new 11year sunspot cycle can accelerate developmenÂÂÂÂt of cost-compeÂÂÂÂtitive, decentraliÂÂÂÂzed, renewable energy systems.
A few revolutionÂÂÂÂary examples are in the birth canal. With sufficient support they might be born this year. A wise initiative could create several new small companies and millions of jobs.
A Human Investment Tax Credit program (HITC) can generate up to 6 million jobs and assist 4 million entrepreneÂÂÂÂurs. A weak version of the suggested incentives were tried in the Jobs Tax Credits of 1977 and created 2 million jobs the following year.
A bold program to minimize the impact of massive power failures could boost the economy enough to make such tax credits viable.
Now is the time for the U.S. to lead the way to widespread economic health.
Minimizing the risk for financing new ventures, in order to attract truly adequate capital, is truly the task that remains undone.
Your Foundation might rise to the challenge.
Now, if the government would begin making direct (reasonable-interest) loans to entrepreneurs, and circumvent the banks, we could quickly reduce the unemployment level in this country. This would also increase consumer demand and reduce the number of defaults and foreclosures, thus breathing even more life back into the economy. I believe that the EDC's and SBDC's could be instrumental in vetting the entrepreneurs, and helping to prevent waste in the program. But with the current composition of congress, I suspect this will never be more than a fantasy.
With this question in mind, I encourage you to read the following blog entry at NoLabels.com, as well as the accompanying comments:
http://nolabels.org/blog/bipartisan-corporate-tax-extremism-killing-job-growth/