Wiens: Entrepreneurship can give the recovery a second wind

Editor’s note: This post was republished with permission from the Ewing Marion Kauffman Foundation’s Policy Dialogue blog.

By all accounts, the 2016 presidential campaign has thus far been anything but ordinary. An unconventional candidate with no record of public service has built broad support and a “Democratic socialist” who advocates higher taxes, free college tuition, and more and better paying jobs is giving the presumptive Democratic Party nominee a run for her money.

Many political observers have offered explanations:

  • Angry voters are looking for someone who shares their displeasure,
  • The electorate has changed and doesn’t look like those of the past, and
  • The sheer number of one party’s candidates.

Some combination of these and other explanations is likely. But underneath them all is a deeply felt current of economic stagnancy and uncertainty about the future.

Yes; the economy has seen positive job growth for a record 64 straight months.

True; unemployment sits at 4.9 percent, an almost 8-year low.

But many Americans feel like they are still treading water, at best. The recovery has not been felt evenly and the fruits of the recovery have not been widely distributed.

Americans are unsure that their wages will not be reduced and concerned about economic inequality. Fears are also bubbling up about whether the rise of automation and robotics will mean fewer chances for people to support themselves with a decent job.

Economics tell us that when demand for labor grows, wages should also rise. Yet, declining unemployment has not produced robust wage growth. At the end of 2010, after the recession officially ended, nominal year over year wage growth had fallen to 1.7 percent, from a 2007 prerecession rate of over 4 percent. Since 2010, nominal wage growth has slowly inched upward, with the year over year growth rate in December 2015 at 2.6 percent.

Along with wages, household income, another measure of financial security, is depressingly weak. From a pre-recession high of $57,357, real median household income sat at $53,567 in 2014—7 percent less than before the recession. Families are having to stretch budgets and get by with less.

If this is the new normal, large segments of the American population are unwilling to accept it. Nor should they.

Disrupting the Status Quo

Thankfully, smart public policy focused on entrepreneurship can again create broad-based, inclusive economic growth.

Support Investment in New Ideas

Investments in new ideas and innovations are the building blocks of tomorrow’s successful companies. Government can support investment in research and development directly, by funding agencies like the National Institutes of Health and the National Science Foundation.

It can also indirectly support innovation through the tax code. At the end of 2015, Congress passed and the President signed into law an enhancement in the federal R&D tax credit that will now allow startups without income tax liability to benefit.

The challenge is finding room in a budget increasingly crowded out by mandatory spending and debt payments to fund these innovation-producing investments. Here, Congress and the newly elected President must address the long-term issues eating away at the federal budget.

Welcome Immigrants

A second way in which government action can spur growth happily has no cost: welcome skilled, talented, and entrepreneurial immigrants.

Immigrants to the United States are nearly twice as likely as native-born Americans to start companies. Yet, the United States offers no visa by which a foreign national with entrepreneurial ambitions can come to our country and build a business that will provide jobs for Americans.

Moreover, the thousands upon thousands of foreign students studying at American universities face daunting challenges if they want to stay in the United States and help American businesses grow. To our economic disadvantage, many of these American educated graduates return home to compete with U.S. firms.

Remove Barriers

Finally, government should identify and remove barriers to entrepreneurial entry.

Excessive regulation can overwhelm startups. Some laws function to protect and enrich existing businesses, creating an unfair playing field that disadvantages young companies. Other laws, like occupational licenses, shield insiders from entrepreneurial competition. And the federal tax code, with all of its credits, deductions, and depreciation allowances benefits existing businesses but doesn’t always aid young, not-yet-profitable startups.

Entrepreneurs will always pursue their dreams. Government just needs to make sure it isn’t making an already difficult and risky pursuit more challenging.

With the support of good public policy, entrepreneurs can lead the way to a recovery that will be felt by all.

Chris Jackson, research assistant at the Kauffman Foundation and regular blogger at Growthology, contributed to this post.

Jason Wiens | Courtesy of the Kauffman Foundation
Jason Wiens

Jason Wiens is the lead policy engagement manager in Research and Policy for the Ewing Marion Kauffman Foundation. His responsibilities include making federal, state, and local policymakers aware of the work done by the Kauffman Foundation in addition to writing policy briefs and developing policy engagement strategies.

Find Wiens on Twitter: @JWIENZ.



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