Building an Entrepreneurial Economy Takes Time

Capitol Ideas Growth and Prosperity Special Edition / April 21, 2011

The age of a business may be more telling than its size in the business’s ability to create jobs.

That’s according to Dane Stangler, director of the Ewing Marion Kauffman Foundation in Kansas City, Mo., using information from the U.S. Census Bureau, who spoke during The Council of State Governments’ Growth and Prosperity Virtual Summit of the States session, “A Culture of Entrepreneurship.”

“Census Bureau researchers have shown that young firms account for most net job creation,” he said. “The reason this is important is not to belittle the importance of small businesses,  … (but to) show that there’s another dimension to talk about job creation than size of businesses.”

That has important policy implications, Stangler said.

The rate at which Americans create businesses, he said, is fairly steady from year to year. But in the last three years, he said, that number has increased.

“We’re at this paradox where the recession has driven many, many people to start businesses, which on one hand is a good thing,” he said. But many of those businesses are one-person shops.

“In terms of jobs, job creation, we’re not getting the same bang from new businesses that we have in the past,” he said.

But that doesn’t mean states and other governments shouldn’t be encouraging entrepreneurship. In fact, said Maryann Feldman, the S.K. Heninger Distinguished Chair in Public Policy at the University of North Carolina, Chapel Hill, states should be encouraging entrepreneurship in a very targeted way.

“Building an entrepreneurial economy is something that does take a while and is predicated on understanding that local context, individual entrepreneurs and their motivations and also the industry the entrepreneur is working in and technology they’re building out,” Feldman said.

Take, for example, the Research Triangle in North Carolina.

The state was cognizant of the needs of industry and adopted policies over time to help that area grow, she said. But the process took about 50 years to reach its current level of success.

Thirty-eight states have quasi-public entities important for economic development, she said. But programs from the federal government are also important in encouraging entrepreneurship in the states, according to Feldman.

She said an entrepreneurial place features a tolerance for experimentation, regional champions who take responsibility for the stewardship of a local industry and local economy and help to build it over time, and dealmakers who have a fiduciary responsibility to the local company.

“As we think about the evolution of regions and places and industries …, entrepreneurial policy needs to be as adaptive,” Feldman said.

And, she said, it’s important for states to not look at programs that promote entrepreneurship when it comes time to make budget cuts.

“As we’re looking for new revenue sources, this would be very easy to kill this goose that could lay a golden egg,” she said.

The process for permitting and other business startup steps should be streamlined, Feldman said, so states don’t unintentionally hurt the future prospect of economic growth.