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.