With the economy still in the doldrums, our political leaders are desperate to find ways to boost economic growth. Innovation and entrepreneurship are among the most obvious pathways to a solution. Both were the subject of a hearing held by the U.S. Senate Committee on Small Business & Entrepreneurship chaired by Sen. Mary Landrieu (D-La.), Wednesday. I was asked to participate in the discussion with other academics, government officials and entrepreneurs.
I left the hearing feeling depressed.
Government leaders — at least some of those present — actually seemed to believe they could, through legislation and spending, increase entrepreneurship and innovation. They asked questions such as: What legislation can we enact to build innovation ecosystems, facilitate mentorship, and teach entrepreneurship? They didn’t seem to understand that these are things entrepreneurs do—not governments.
Governments routinely build science parks, provide subsidies to chosen industries and set up investment funds — all in an effort to spark economic growth. But hardly any of these efforts bear fruit. After the recent financial meltdown, our government also bailed out banks in the hope that the massive subsidies would trickle down to small businesses. But that didn’t happen either.
During the hearing, Landrieu made some insightful comments about the importance of mentorship. When entrepreneurs have good mentors, their odds of success are greatly improved, if only because they can learn from the experiences of others. But she then went on to ask how the government could facilitate mentoring and how it can provide incentives for people to help others, ultimately turning more small businesses into big businesses.
If only things were this simple.
All mentors are not created equal. Entrepreneurs don’t need help from just anyone that comes along. They need to find others that complement their skills, understand their markets and their challenges and are willing to help them. How can the government possibly do this type of matchmaking?
Instead, government should streamline the laws and significantly reduce the red tape which holds small businesses back. They must provide rule of law with clear regulations and the freedom to take risks and innovate. They must create a healthy financial system so that risk financing is available for startups. They need to ensure that the workforce is highly educated, keeps its skills current and that businesses can hire the workers they need.
As Sen. Jerry Moran (R-Kan.) pointed out, there is a global war for talent underway, which the U.S. is at risk of losing. He also mentioned that, with the current tax laws inhibiting the repatriation of money earned abroad, companies are keeping large amounts of cash overseas. These factors, combined, add up to a double loss for the economy.
“It seems to me to be perhaps the most important issue we face in being able to grow our economy,” said Moran of the global talent war. He went on, saying, “We get caught in this immigration…all-encompassing kind of conversation and the politics never seem to allow us to do what, at least I think, the vast majority of policy makers in Washington, D.C. either know we should do or, if told the facts, would easily reach the conclusion that we need to do this.”
Landrieu responded saying, “There’s also an issue of people being educated in the United States themselves — born in the United States, educated in the United States — and giving them an equal opportunity to compete against those born elsewhere.”
Her response left me stunned. Instead of providing unqualified support for skilled immigration, she seemed to hedge, echoing the protectionist sentiments that are preventing a political compromise on skilled immigration. The most effective and least expensive boost our government could give our economy is to fix the problem of skilled immigration and to let foreign entrepreneurs start their businesses in the U.S. If the Senate committee was indeed serious about boosting entrepreneurship and helping American businesses, it would resolve this issue and not dance around it.
In short, government should do what it does best: govern. Let’s have our political leaders spend their energy on fixing the constipated political system, strengthen infrastructure and education, and enact legislation to boost skilled immigration. It should let entrepreneurs build their own networks and teach each other about entrepreneurship. If it does, I have no doubt that the economic recovery we are longing for will follow.