The U.S. is losing its entrepreneurial edge, according to Robert Litan in Foreign Affairs. “Over the past 30 years,” he writes, the rate of startup formation in the United States has slowed markedly, and the technology industry has come to be dominated by older companies.” What are missing, he writes, are startups with little to lose such as those who invented the telegraph, automobile, airplane, telephone, and computer.
What’s needed to regain an innovative edge, he writes, is the “reform of a wide swath of policies” covering immigration, regulation, healthcare, and education.
Litan, a nonresident senior fellow in the Economic Studies Program at Brookings, and his colleague Ian Hathaway have been tracking startups and shutdowns across the country back to 1977. They found that in 1978, startups (less than one year old) accounted for nearly 15% of U.S. companies; that figure slipped to 8% by 2011. The trend is consistent across all industries and regions.
He notes that this trend persists despite advances in information technology that should make it easier to start and expand a business.
Litan writes that policy should be changed to attract entrepreneurial immigrants who tend to be less risk-averse than the general population. In addition, the Security and Exchange Commission (SEC) should make it easier for people who are not wealthy to invest in startups—perhaps through crowdfunding. He cites favorably Congress’s passage in 2012 of the Jumpstart Our Business Startups Act.
In general, he writes, Congress should streamline and include sunset clauses in all regulation to benefit small businesses that can’t afford a full-time attorney.
He favorably cites the Affordable Care Act, which enables prospective entrepreneurs to leave established firms that provide health coverage and maintain health insurance. He urges that any changes to the ACA should include continuing protection for those with pre-existing conditions.
Outside of what government can do, Litan welcomes the establishment of business accelerators, which can provide seed money, free office space, and access to potential funders.
He expresses concern that even it startups begin to proliferate, they are unlikely to create a lot of jobs—especially for low-skilled people.
He concludes by writing, “Rousing the country from its entrepreneurial slumber will require deep structural change, but the stakes are high. In the balance hangs the welfare of future generations and the global leadership of the United States.”
Read the complete article here. You can read one Foreign Affairs article per month for free.
You can also read Fareed Zakaria’s take on the topic in the Washington Post. He writes, “Litan’s solutions are sensible and bipartisan: Let in more talented immigrants who combine technological prowess with an appetite for risk…. Regularly review and thin out regulations that make it difficult for the average person to start a company. Make it easier for people to raise money for their ideas over the Internet. And maintain near-universal health care so that people can risk leaving an established company without worrying about their family’s health.”
