The
following article is by
Robert E. Litan, vice
president of the Kauffman
Foundation and the primary
author of "On the Road to an
Entrepreneurial Economy: A
Policy and Research Guide."
This article can be found in
the
Wall
Street Journal.
The U.S. in the midst of the
most entrepreneurial era in
its history, with more than
500,000 Americans involved
in launching their own
companies each year and an
estimated 10% to 15% of all
working adults engaged in
some kind of entrepreneurial
activity. And among these
entrepreneurs, it is the
innovators who matter most.
Their enterprises are the
ones which create the jobs
and industries of the future
-- as they have lifted the
economy's productivity in
the past. The automobile,
the airplane, the telephone,
air conditioning, the
personal computer and its
software, and Internet
search engines -- all were
launched by innovative
entrepreneurs rather than
large companies.
So how do we foster more of
these innovators? Experience
has shown us some of the
public policies over the
past several decades that
have reduced obstacles to
innovation and increased the
potential rewards of
entrepreneurial risk taking.
The removal of legal
barriers to entry -- and the
lifting of price controls --
in the transportation and
telecommunications
industries has lowered costs
and barriers to entry for
new firms throughout the
economy. Reforms that
permitted pension funds to
invest in venture-capital
partnerships helped unleash
the growth of a new form of
entrepreneurial finance. The
1980 Bayh-Dole Act, which
allowed universities to
commercialize technologies
developed with federal
funds, has promoted
university-based innovation.
What next? Recently, the
Kauffman Foundation, with
the assistance of Inc.
magazine, asked some of the
nation's most successful
entrepreneurs what they
needed to grow. They cited
four challenges, and
academic research has helped
to pinpoint the policies
that best respond to each of
them.
Ensuring a skilled work
force. Entrepreneurs say
that the biggest constraint
on growth is finding
"talent" -- highly skilled,
entrepreneurial workers.
Thus we will need major
improvements in K-12
education, which are
unlikely to come about
without more charter
schools: parents and
students being able to
choose their schools, and
principals and teachers with
more freedom, and
accountability.
We also can use as many
skilled immigrants as are
willing to come here. Recent
surveys indicate that
immigrants have been
essential in forming a
quarter of our rapidly
growing high-tech companies.
We ought to be encouraging,
not limiting, the entry of
such people. How about
giving permanent residency
to any foreign student who
obtains a math or science
degree at one of our
universities -- since these
skills are key to the
formation and growth of
high-growth companies of the
future?
Reforming health care.
Escalating health-care costs
rank high on entrepreneurs'
lists of concerns. They're
not alone. Workers are
anxious about losing their
own health insurance,
especially if they take the
risk to leave their stable
jobs to form their own
businesses.
The obvious answer to both
challenges: Phase out
current tax linking
employment with health care,
using the revenue to
subsidize the purchase of
health insurance by those of
limited means. President
Bush has offered one
approach, surely there are
others. Whatever is done,
prohibit insurers from
discriminating or refusing
to insure based on an
individual's pre-existing
health conditions (as we do
for genetic conditions).
Promoting innovation. We
already do a great job
innovating and
commercializing. But we can
do better, by enhancing
government funding of
research in basic science
and engineering; reforming
patent law so that
protections are not so
overly broad that they
inhibit the creation of
innovative, new firms;
improving ways for
university-developed ideas
to be commercialized; and
funding efforts to identify
and take advantage of
innovations developed
abroad, just as foreign
companies have been doing
with U.S.-based innovations
for decades.
Limiting costly regulation
and liability litigation.
Because of their small size,
entrepreneurial firms are
especially vulnerable to
excessive regulation and
liability litigation.
Accordingly, entrepreneurs
have the most to gain from
sensible reforms requiring
all major federal (and
state) regulations to be
implemented only if
estimated benefits exceed
costs, and by adopting
further liability law
reforms (without reducing
incentives for all companies
to make safe products). Two
reforms would help curb
frivolous litigation:
adopting the "English
rule" -- loser pays -- on
attorneys' fees for
litigation with commercial
parties on both sides; and
limiting the award of
punitive damages where
defendants have complied
with prevailing regulatory
standards.
These proposals are quite
different from the ones
policy makers in Washington
and elsewhere traditionally
discuss when trying to
promote entrepreneurship --
such as increasing the
budget of the Small Business
Administration, or reserving
a certain percentage of
federal contracts for small
business. Entrepreneurship
Week USA begins this
weekend. What better time to
begin a serious debate on
these larger issues so vital
to our economic future?