national policies must encourage and even celebrate entrepreneurship and innovation.
But tragically, business leaders in this country are all too often demonized by politicians and the media, who also proclaim that the government can create jobs. This mind-set, along with government actions inconsistent with business creation, are hurting our entrepreneurial lead in the world.
This isn’t just my opinion. In September 2010, the Small Business Association (SBA) published a major study that examined thirty-one factors affecting entrepreneurship in seventy-one countries around the globe. 23 It found that the U.S. ranked third highest (behind Denmark and Canada). Although the SBA said that America’s performance remained “strong,” it issued a warning:
The United States’ apparent weakness in the tech sector and its lack of cultural support for entrepreneurship, coupled with lack of high-growth business, can be traced to a number of sources. Chief among these are the changing political environment and international volatility, the bursting of the tech sector bubble of the 1990s, the recent recession, and the improving performance of other countries.
Most alarmingly, the SBA found that the reality of America’s place “as a land of opportunity and as the Mecca for individuals wanting to do something new and different seems to be somewhat challenged by the facts.” In particular, the report found:
Cultural support for entrepreneurship and the American youth’s perception of entrepreneurship as a viable career choice seem to be limited. Firms’ performance in terms of growth and employment generation is not as strong, and the tech sector—the beacon of recent U.S. entrepreneurial success—is seen to have a lower score than the sample averages.
Similarly, a new book examining the Israeli economic miracle found that it has the world’s highest density of technology-driven start-ups. Further, Israeli start-ups captured more venture capital investment per capita than any other country: “2.5 times the U.S., 30 times Europe, 80 times India, and 300 times China.” 24 The authors specifically attribute this performance to an Israeli culture that fosters entrepreneurship and innovation.
INNOVATION-FRIENDLY NATIONAL POLICIES
Earlier, in chapter 3 , I expressed my firm belief that the factors responsible for American exceptionalism are the reason that the U.S. has been the world leader in innovation. It follows that our national policies should seek to preserve and strengthen those factors, and many specific policies would necessarily follow from such a strategy. My personal preferred guidelines for specific policies include the following:
Stop penalizing investments in start-ups. Some twenty years ago, virtually all private venture capital funding was directed into U.S.-based companies, but now more than half of such funding flows to foreign firms. What changed? Our federal government enacted policies making it less favorable for investment, while other countries encouraged investments. Our corporate tax rates became the second highest among developed countries, diminishing the returns to investors. The Sarbanes-Oxley law imposed new costs on business. Exiting investments became more difficult as going public became less desirable. Sarbanes-Oxley imposes relatively large costs on small public companies. More, public companies are catnip for plaintiffs’ lawyers seeing quick and lucrative returns after any sudden change in share price. To encourage new investment, we need to modify Sarbanes-Oxley, restore integrity and rationality in our legal system, and lower corporate tax rates.
Direct any public funding of start-ups by private investors, not by government bureaucrats. Government employees generally are not at all qualified to make risky business investment decisions. Moreover, as shown in the failed 2009 stimulus package, government decisions invariably direct spending based on political impact criteria. I do not
But tragically, business leaders in this country are all too often demonized by politicians and the media, who also proclaim that the government can create jobs. This mind-set, along with government actions inconsistent with business creation, are hurting our entrepreneurial lead in the world.
This isn’t just my opinion. In September 2010, the Small Business Association (SBA) published a major study that examined thirty-one factors affecting entrepreneurship in seventy-one countries around the globe. 23 It found that the U.S. ranked third highest (behind Denmark and Canada). Although the SBA said that America’s performance remained “strong,” it issued a warning:
The United States’ apparent weakness in the tech sector and its lack of cultural support for entrepreneurship, coupled with lack of high-growth business, can be traced to a number of sources. Chief among these are the changing political environment and international volatility, the bursting of the tech sector bubble of the 1990s, the recent recession, and the improving performance of other countries.
Most alarmingly, the SBA found that the reality of America’s place “as a land of opportunity and as the Mecca for individuals wanting to do something new and different seems to be somewhat challenged by the facts.” In particular, the report found:
Cultural support for entrepreneurship and the American youth’s perception of entrepreneurship as a viable career choice seem to be limited. Firms’ performance in terms of growth and employment generation is not as strong, and the tech sector—the beacon of recent U.S. entrepreneurial success—is seen to have a lower score than the sample averages.
Similarly, a new book examining the Israeli economic miracle found that it has the world’s highest density of technology-driven start-ups. Further, Israeli start-ups captured more venture capital investment per capita than any other country: “2.5 times the U.S., 30 times Europe, 80 times India, and 300 times China.” 24 The authors specifically attribute this performance to an Israeli culture that fosters entrepreneurship and innovation.
INNOVATION-FRIENDLY NATIONAL POLICIES
Earlier, in chapter 3 , I expressed my firm belief that the factors responsible for American exceptionalism are the reason that the U.S. has been the world leader in innovation. It follows that our national policies should seek to preserve and strengthen those factors, and many specific policies would necessarily follow from such a strategy. My personal preferred guidelines for specific policies include the following:
Stop penalizing investments in start-ups. Some twenty years ago, virtually all private venture capital funding was directed into U.S.-based companies, but now more than half of such funding flows to foreign firms. What changed? Our federal government enacted policies making it less favorable for investment, while other countries encouraged investments. Our corporate tax rates became the second highest among developed countries, diminishing the returns to investors. The Sarbanes-Oxley law imposed new costs on business. Exiting investments became more difficult as going public became less desirable. Sarbanes-Oxley imposes relatively large costs on small public companies. More, public companies are catnip for plaintiffs’ lawyers seeing quick and lucrative returns after any sudden change in share price. To encourage new investment, we need to modify Sarbanes-Oxley, restore integrity and rationality in our legal system, and lower corporate tax rates.
Direct any public funding of start-ups by private investors, not by government bureaucrats. Government employees generally are not at all qualified to make risky business investment decisions. Moreover, as shown in the failed 2009 stimulus package, government decisions invariably direct spending based on political impact criteria. I do not
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