The US government has tried trillions of dollars of fiscal and monetary stimulus, and yet our economy remains stuck in low gear. The officially measured unemployment rate hovers around or above 9 percent, but millions more are so discouraged by the poor job market that they have stopped looking for work, while many others want to work longer hours but can't.
Much more conventional stimulus doesn't appear to be in the cards. The Fed has essentially said it has done all it can do, especially given the recent uptick in the inflation numbers. The Obama Administration has floated the idea of extending or even expanding the social security tax cut of 2010 for another year, but in light of the huge federal deficit there doesn't seem to be much enthusiasm for the idea on Capitol Hill. Before he announced he was leaving his post as the President's top economic adviser, Austan Goolsbee said it was now the private sector's turn to boost the economy, implying there is little more that the government could or would do.
Given the continuing turmoil abroad -- in Europe and the Middle East -- and with consumer and business confidence weak, it's hard to be optimistic that private businesses, now sitting on roughly $2 trillion in cash, will suddenly get the urge to begin hiring more workers (although they have been spending a lot on new equipment). Is there any way out of this mess?
The Kauffman Foundation believes there is, and it lies in recognizing the force that propelled the US economy for at least three decades until the financial crisis plunged us (and others) into the Great Recession and the subsequent weak recovery. That force is new firms or startups. Research supported by our Foundation has documented that companies less than five years old accounted for virtually all net new jobs over this thirty year period. Furthermore, new companies have been disproportionately responsible for many of the breakthrough innovations that characterize modern life today -- the automobile, the airplane, computers, air conditioning, Internet search, genetic therapies, to name a few -- that have accounted for enormous improvements in living standards.
The recession has taken a toll, however, on potential high-growth new companies. As a recent Kauffman study has documented, the annual numbers of newly formed companies that hire other workers, which were already falling before the recession, have continued dropping. While sharply lower computer and telecommunications costs, perhaps best illustrated by the rise of "cloud computing," may be reducing the need for workers by many startups, the falling numbers also likely reflect a disturbing slowdown in the formation of potential scale companies.
Simply put, then, if we want both a stronger recovery in the short run and a higher sustained rate of growth in the long run, then the United States must begin to produce more scale startups. By our calculation, if the US economy could somehow consistently generate 30-60 new companies whose annual revenues eventually scale to at least $1 billion, we could enjoy permanently a one percentage point increase in our growth rate.
How can we do this, or even something short of it, especially in the coming environment of budget austerity, at all levels of government? Many ideas have been floated or considered among elected officials and experts from both political parties. It's now time to put them together and enact a targeted, but comprehensive Startup Act to get our economy moving again.
Such a bill should encourage the building of more scale firms, lower the cost of capital for financing them, accelerate the development of new commercially relevant ideas, and remove barriers to expansion for new and existing firms alike. Here are some highlights.
Let's import a lot more skilled workers, beginning with those who want to come here and found companies. Let's change our tax code to facilitate the financing of small business, with a permanent capital gains exemption on investments in startups held for at least five years and a significant cut in corporate tax rates for new companies in the first three years they have taxable income. To make it easier for growing private companies to go public, let's give their shareholders (who can best judge the benefits and costs of financial auditing mandates) and those of other public companies with a market cap of $1 billion or less the choice whether to comply with the onerous requirements of the Sarbanes-Oxley Act.
To get more new ideas into the marketplace faster, let's give the Patent and Trademark Office the tools it needs -- primarily differential fees for faster service, but with special breaks for small business and individual inventors -- to cut down the enormous and growing backlog of patent applications. Furthermore, let's create a competitive market in technology licensing by enabling faculty inventors more freedom to license their federally funded innovations, without having to be hostage to their own universities' licensing offices. And let's finally truly reform federal regulation by sun-setting all major rules after 10 years, requiring all new major rules to pass a benefit-cost test, and by collecting sufficient data on regulation at the state and local level to permit private sector organizations to rate these jurisdictions on their business-friendly climates.
It's time to re-start America by jump-starting our startup engines of growth. We have no time to waste.
Carl Schramm is President of the Kauffman Foundation, where Robert Litan is Vice President for Research and Policy.
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A much more potent idea would be to LIMIT any capital gains preferences to profits from purchase of newly-issued equity from companies that have 80% of its employees living in the US. Right now, we are all subsidizing, through the low cost of capital the cap gains tax preferences provide, companies that hire workers overseas. We also should abolish FICA and Medicare taxes, and replace the revenue with a national sales tax on goods AND services, exempting food, rent, clothing, medicines, doctor's visits (those items on which the least wealthy spend most of their money) from that tax. That would put foreign-made goods and services and those made in the US on a more equal footing, rather than having US mfg carry all the burden for social security and medicare.
Every time you hear someone complaining about "regulations," if you dig a little deeper, what they really want is the "freedom" to produce shoddy goods at low cost and high markup. They lamely argue that "the market" will take care of those who poison their customers or cripple them with unsafe products.
But we all know that old theory is wrong. Even when the market did work perfectly to keep bad products out, the buying public must first experience harm before shunning the supplier that harmed them.
But now think of industries and companies in which the average revenue per employee is in the hundreds of thousands of dollars (or even millions, as in the case of Google). In those cases, hiring another employee makes good sense.
And of course, if you provided health care in the first place, you wouldn't have to pay any fees at all. See, that's the thing. You have to provide health care. So maybe the wife doesn't get a mink coat this year.
US stimulus equivalent to Chinese stimulus would be approx. 2400 Billion.
Chinese growth rate: China expanded 9.50 percent in the second quarter of 2011
http://articles.sfgate.com/2008-11-13/opinion/17128559_1_chinese-government-china-s-gdp-savings-rate
http://www.tradingeconomics.com/china/gdp-growth
Oh right, rather than educate Americans to do these jobs.
LOL
It is about ideas, Skill.
When will the American people ,our government and our business leaders come to the understanding that any real strengthening of the economy will come when we employ low skilled to moderately skilled people in this country manufacturing products for American consumers.
I want you to look at Apple's latest figures and tell me they couldn't produce every iPhone and iPad they make in the United States and still make a huge profit rather then the enormous profits they make using slave labor in China. This "China First" "Foreigner First" economy may be good for shareholders but it is destroying the economic fabric of the American people.
The government need to SERIOUSLY revamp or create the funding that SMEs need. I, for one, will pledge that I will hire only american workers if I get funding for my project in the U.S.
That's really big of you. You PLEDGE. How about we treat you like every other borrower, and get an ironclad SECURITY interest, AFTER we're satisfied that you're sincere, and not just another entitled crybaby?
Like you would even know an American worker if one bit you.
Here's a clue, pal. Not every American worker looks or thinks or cries like you.
Government was designed to FOSTER business, wealth creation and freedom. It is now the enemy of these things.
"Let's import a lot more skilled workers"? Bad idea! First of all, since the jobs are going overseas, where are you going to employ them here? Secondly, why doesn't American industry make investments in their workers and train home grown Americans instead? They use to! Bringing workers from overseas doesn't resolve the economic issues at home.
The cost of capital? Banks are sitting on trillions that they are getting from the Fed at no interest.
Its talking about starting companies.
unless you are trying to say - why cant we let our own people start companies. ! lol
It's not so much a question of 'big' government vs 'small' government, it's a matter of devolving responsibility to levels of Govt that are more in touch, responsive and accountable than the bone-headed, corrupt paralysis that is typical of the US Federal Govt. The national Govt should focus on national priorities such as defense (aka wars) and diplomacy. Despite their own conceit to the contrary, national Govts are the least capable of creating decent legislation that does more good than harm.
Read about it here->http://www.huffingtonpost.com/warren-mosler/mercy-cant-they-get-anyth_b_903742.html