Economics, Pethokoukis

Missing in action: Obama’s entrepreneurship agenda


Where does President Obama think economic growth and job creation come from? In his State of the Union speech, he said “the true engine of America’s economic growth” was  “a rising, thriving middle class.” But that’s political rhetoric substituting for economic analysis. Ask most economists, even those working in the Obama White House, and they’ll tell you that innovation-driven productivity is the true engine of prosperity and rising living standards.

And where does Obama think innovation-driven productivity comes from? Judging from his speech, Obama apparently sees government at the prime catalyst and planner – whether its government creating manufacturing hubs or government mandating new rules to spur more energy efficiency or government offering tax credits to spur investment in favored sectors.

And the free enterprise system? Well, entrepreneurs only got a couple of brief shoutouts, once in relation to high-skill immigration. Here’s the other: “Now these initiatives in manufacturing, energy, infrastructure, housing, all these things will help entrepreneurs and small-business owners expand and create new jobs.”

Certainly entrepreneurs could use some help. Consider:

1. Had small business come out of the recession maintaining just the rate of start-ups generated in 2007, according to McKinsey, the US economy would today have almost 2.5 million more jobs than it does.

2. There were fewer new firms formed in 2010 and 2011 than during the Great Recession.

3. The rate of startup jobs during 2010 and 2011, years that were technically in full recovery, were the lowest on record, according to economist Tim Kane of the Hudson Institute.

But Obama only mentioned government as an entrepreneurship enabler, never an obstacle. What would a true pro-entrepreneur agenda look like? The Kaufman Foundation offers several ideas worth considering in its Startup Act for accelerating the growth of startups and young businesses:


– Providing new firms with better access to early-stage financing, creating capital gains tax exemptions for long-held startup investments, providing tax incentives for startup operating capital, facilitating access to public markets, and allowing shareholders of companies with market cap below $1 billion to opt-in under the Sarbanes-Oxley Act.

– Accelerating the formation and commercialization of new ideas by creating differential patent fees to reduce the patent backlog and providing licensing freedom for academic innovators.

– Removing barriers to the formation and growth of businesses through the introduction of automatic ten-year sunsets for all major rules, establishing common-sense and cost-effective standards for regulations, and making assessments of state and local startup and business policies.

But none of that stuff a) really helps Obama argue for the value of government taking a larger role in American life or nor b) seems to directly address Obama’s favored issues of inequality and fairness. To him, it’s all kind of beside the point. Entrepreneurship is off message.

But it really isn’t. As MIT’s Erik Brynjolfsson and Andrew McAfee explain in their book Race Against the Machine, we need entrepreneurs to keep inventing new ways to combine technology and people to create new industries and innovations. And they will be needed even more in coming years as the economy undergoes faster creative destruction. Sometimes government can aid the process — and sometimes government can hinder it. America needs an economic agenda and a president that understands both realities.



19 thoughts on “Missing in action: Obama’s entrepreneurship agenda

  1. I have been involved in Angel and venture capital investments in the midwest. At a recent meeting of a startup fund, when discussing the recently passed JOBS act, the professional advisers in the room all said that trying to raise money from unaccredited investors was still dangerous. As the law stands right now, Lindsay Lohan is accredited and can solicited but my banker neighbor, who is well off but not accredited cannot be approached. The SEC bureaucracy still has not done its job in writing rules for the JOBS act, so anyone trying to put together a fund to pitch startups and early stage companies has very high regulatory risk factors.

    Raising money for promising startups is just as difficult as it always was, and this is not made any easier by the change in capital gains taxation. The people who are writing the laws and proposing the rules are clueless about where jobs and wealth really comes from, nor about the real damage they inflict on our economy.

    • What drives early stage investment is expected after tax returns. Those returns have been falling over the last dozen years. Threatening to increase taxes on capital gains further reduces the expected return. The people who are writing the laws and proposing the rules may be clueless about where jobs and wealth really come from, but they’re not clueless as to how to leverage resentment.

  2. Why don’t you update your graph? The data is here.

    There has been a slight uptick in 2011 and 2012. Job creation bottomed in 2010 at 2.46 million and were 2.71 million in 2012.

    It looks like a secular decline to me since the 2000 peak being a combination of lower firm formation and fewer jobs per firm exacerbated by the Great Recession.

    • Yeah, 2.7 millions is AWESOME. Only 2 million more and you’d be at 1996-2000 rates.

      p.s. lower firm foundation? lower jobs per firm? I wonder what would cause that? I don’t supposed taxes, uncertainty would do it. And it cannot be lower demand – the Stimulus took care of that.

      I also cannot wait for your explanation for all of the 49 person firms that will exist soon. Must have been bad luck or exacerbation of something or something.

  3. well geeze Marmico, if that was done, it would screw up the entire “Obama is opposed to entrepreneurship” narrative.

    it would ruin a perfectly good anti-Obama post!

    • Sorry, but 2.7 million is not good either.

      I don’t get why under Obama suddenly every trend is “secular” and we cannot aim higher.

      Its all weather, bad luck, or “unexpected.”

      • To the contrary, if Bubba’s BBQ opens four locations in Akron, O, and hires 120 people, he may or may not be creating jobs. If spending on food away from home has increased in Akron proportional to Bubba’s receipts, the answer is yes. If not, then Bubba took those jobs from Wendy and Ronald et al, and the next question is whether Bubba’s employees are better off or worse off than the workers they displaced. If the answer is ‘no,’ then Bubba is hurting the Akron economy. (i.e. even fewer consumers have discretionary income.)

        The bottom lines: The entrepreneurs who can conjure up products you never realized you must have are as rare as Steve Jobs. And as Henry Ford demonstrated, making an affordable car is only half the battle. The other half is giving workers the means to buy one.

        • Mayhaps,

          But creating manufacturing jobs in US that outcompete China by technological process improvement (and hiring skilled educated and well compensated employees) will have the uplift economic effect. This also is innovation, but the bankers, government apparatchiks and ‘smart money’ crowd remain stuck-on-stupid.

          • Today’s manufacturing startup that reclaims jobs from China by necessity will be heavily automated, and is unlikely to budge the ratio of factory workers to McDonalds cooks. Meanwhile, the only part of consumer spending that grows is healthcare. If only the Rs weren’t too stupid to look at the world as it is.

        • I get your point, but they do still “create” the jobs – those jobs didn’t exist before because the company didn’t exist before. Sure, some of those jobs may come at the expense of some of their competitor’s jobs (i.e., different jobs), but new jobs are created as old ones (may) go away. I understand that you’re interpreting “created jobs” to mean “net new jobs in the competitive field in which the new company conducts its business,” but I don’t think they mean the same thing.

          • I repeat, if the jobs at Bubbas BBQ came at the expense of McDonalds and Wendys then the Akron economy has gained nothing, and in aggregate, neither has the US economy. If the aggregate doesn’t matter, then publish the jobless rates in Williston, ND, declare victory and go home.
            Not only does the aggregate matter, but so does money in circulation. If Bubba is stingy with his workers and his own money, the broad economy is worse off for his success.

      • I can see the temptation to call it job creation, but I find it misleading.

        The chart shows a snapshot of employment as of a certain date by one-year old firms. If one wants to interpret that as job creation, I think one is either (a) introducing several implicit assumptions about things happening (or not happening) elsewhere in the economy, or (b) creating a definition of job creation (i.e., job creation among 1-year old firms) that is so narrow it is essentially meaningless by itself.


        • To determine net jobs created in a given field of business, you have to do the following math:

          jobs created – jobs lost = net jobs created

          So, the jobs created number is important itself. You cannot possibly have a large “net jobs created” value without a large “jobs created” value.

          • But we are looking at a small slice of industry employment — startups. In many years in the airline industry shakeout, for example, startups showed big growth while the industry contracted, (by virtue of lower costs and more amenable labor.) The jobs created by JetBlue did not offset those lost by US Airways. You could argue that lower fares meant more traffic, but the reality is that the soon-to-be Big Three now have fewer planes and flights, fewer employees and higher profits.

            Then there is the problem of cause and effect. It’s not easy to find an underserved market when GDP growth is anemic. It’s harder yet to convince a banker that you can meet this need. Yes, pieces of this are secular. Opportunities are scarcer in a mature economy.


          • Sure sure, but I’m just making a simpler, more editorial point.

            Namely, as labeled, there is no way to know precisely what data the chart shows. Even the source note is vague. Until a commenter provided a link to the underlying source, I didn’t know what the chart shows, so I don’t see how anybody else could have known.

            “Jobs created” is a term open to much interpretation so it requires definition. As you point out, there is the question of gross or net. Other questions about the definition come to mind as well.

            The chart would be clearer if it said “Employment” (and specified the underlying data series). Then we could begin thinking about what it tells us about job creation.

            I suppose it might work to entitle the chart “net jobs created by 1-year old firms (i.e., gross jobs created by 1-year old firms minus jobs lost at other 1-year old firms).” But that’d be rather wordy. :)


        • Amen. The reason there are fewer jobs created at firms less than year old is that business formation remains sluggish. And business formation is weak because of the credit crunch and soft consumer demand, and not some mythical prejudice by Obama against business. Banks are not lending despite the trillions in freshly printed dollars the Fed is thrusting into their hands Exactly what it is that Obama isn’t doing for small biz?

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