What's Missing from the Stimulus Talks

Growth! Our economy has to grow again. How do we do it? By starting with entrepreneurial friendly policies that allow entrepreneurs freedom to hire people, tap markets, finance their companies, staff their teams, etc.

Don't take it from me. Here's Carl Schramm from the Kauffman Foundation:

We should be asking President Obama, his economic team, and Congressional leaders a basic question: How do you propose to help ensure that the United States maintains a long-term annual growth rate of 4 percent (or higher)?

We at the Kauffman Foundation have our own proposals, all of them centered on the core fact - borne out by our research - that entrepreneurship and innovation are the key growth drivers in our economy. Highly entrepreneurial companies like Google, eBay, Amazon create more than half the nation's new jobs.

Action in several areas can make America's economic ecosystem more conducive to entrepreneurial growth and should therefore be central to the country's growth agenda.

• Building a skilled workforce. Finding and attracting highly skilled, entrepreneurial workers is one of the more important challenges facing the U.S. economy. Major, entrepreneurially driven improvements are necessary throughout our educational system to help prepare skilled workers, especially in math, science, technology, and engineering - the fields that will be most relevant to generating future innovative breakthroughs.

• Welcoming high-skilled legal immigrants. One quarter of the science and technology start-ups launched in the United States between 1995 and 2005 had a foreign-born founder. These companies employed 450,000 workers and generated $52 billion in revenue in 2006. Our economy needs more, not less, of such highly motivated entrepreneurs. One way to keep them is to grant a permanent work visa to any immigrant earns a degree in science, engineering or math.

• A lower-cost health care system that encourages entrepreneurship. Continued escalation of health care costs and uncertainties about future trends rank high on virtually every American's list of concerns. In addition, the fear of losing health care deters some employees from leaving their current jobs to launch new enterprises. Health care needs to be made both less expensive and more portable.

• Keeping U.S. capital markets competitive through appropriate regulation. Sarbanes-Oxley has turned out to be substantially more costly than was expected at the time. In addition, the SOX requirements may be discouraging successful entrepreneurial firms from going public and instead to sell to larger companies, an "exit" path that may reduce the entrepreneurial energy that drove the success of these firms in the first place. In its current form, SOX is a job killer in desperate need of reform. And, this current crisis, we should heed the lesson of SOX. Let's not ram a complex new regulatory scheme through Congress in a matter of days - only find out later that it has worsened the very problem it was intended to fix.

• Strengthening trade and global markets. Companies like Intel, Microsoft, eBay, and Google would not be the giants they are today without access to global markets in which to sell their products. In addition, firms of all sizes benefit from being able to purchase supplies and services from anywhere they can be competitively sourced. Free trade has a taken a political beating in recent years. It's time for our candidates to show some courage and stand up for this vital principle.

www.realclearpolitics.com/articles/2009/02/whats_missing_from_the_economi.html

New Growth Theory and Entrepreneurship

Interesting theory... how would entrepreneurship play into this:

New Growth Theory emphasizes that economic growth results from the increasing returns associated with new knowledge. Knowledge has different properties than other economic goods (being non-rival, and partly excludable). The ability to grow the economy by increasing knowledge rather than labor or capital creates opportunities for nearly boundless growth.

Markets fail to produce enough knowledge because innovators cannot capture all of the gains associated with creating new knowledge. And because knowledge can be infinitely reused at zero marginal cost, firms who use knowledge in production can earn quasi-monopoly profits. All forms of knowledge, from big science to better ways to sew a shirt exhibit these properties and contribute to growth. Economies with widespread increasing returns are unlikely to develop along a unique equilibrium path. Development may be a process of creative destruction, with a succession of monopolistically competitive technologies and firms. Markets alone may not converge on a single most efficient solution, and technological and regional development will tend to exhibit path dependence.

History, institutions and geography all shape the development of knowledge-based economies. History matters because increasing returns generate positive feedbacks that tend to cause economies to “lock in” to particular technologies and locations. Development is in part chaotic because small events at critical times can have persistent, long term impacts on patterns of economic activity. Institutions matter because they shape the environment for the production and employment of new knowledge. Societies that generate and tolerate new ideas, and that continuously adapt to changing economic and technological circumstances are a precondition to sustained economic growth. Geography matters because knowledge doesn’t move frictionlessly among economic actors. Important parts of knowledge are tacit, and embedded in the routines of individuals and organizations in different places.

New Growth Theory, and the increasing returns associated with knowledge have many implications for economic development policy. New Growth Theory underscores the importance of investing in new knowledge creation to sustain growth. Policy makers will need to pay careful attention to all of the factors that provide incentives for knowledge creation (research and development, the education system, entrepreneurship and the tolerance for diversity, macroeconomic expectations, openness to trade). Because it undermines the notion of a single, optimal general equilibrium, New Growth Theory implies that economics will be less capable of predicting future outcomes. (emphasis added)

Excerpted from New Growth Theory, Technology and Learning: A Practitioner’s Guide. By Joseph CortrightImpresa, Inc