The Kauffman Foundation on Thursday published a report outlining steps the group says governors and state lawmakers should take to foster entrepreneurship, eliminate common barriers for new businesses, and by extension, spur economic growth in their states.

In his State of Entrepreneurship address, Benno Schmidt said state officials should stop “smokestack chasing” and liberalize occupational licensing rules. (SAM HURD)

“Our scholars’ discussions with entrepreneurs turned up a finding that will be surprising to some of you,” Schmidt said in during his 2012 State of Entrepreneurship Address at the National Press Club. “It’s states regulations that matter to them as much, or more, than federal statutes and regulations do.”

Schmidt pointed out that prior to the recession in 2008, new firms over the past three decades created nearly all new net jobs in the United States. But in the past three years, start-up activity has steadily declined — a pattern he asked state and local government leaders to help him combat using the steps laid out in the Startup Act for States.

Those include reducing the amount of paperwork, time and effort associated with firm formation by creating an online, one-stop shop for business registration and limiting the shutdown and liability costs of closing failed ventures. The group also urged states to allow business owners, managers and their agents to conduct more legally mandated tasks over the Internet, like drafting the bylaws and agreements for a new company.

During his speech, Schmidt called on lawmakers to reverse a decades-long trend toward more occupational licensing requirements, which he said thwarts competition by blocking entrepreneurs who might otherwise offer more affordable professional services using new or improved business models. Giving one example, he called on states to create certificates authorizing paralegals or other non-lawyers to offer routine legal services in areas like estate, divorce and bankruptcy law.

The Kauffman Foundation also urged state and local officials to stop “smokestack chasing” — the practice of luring large companies by offering attractive subsidies and tax breaks. Schmidt pointed out that there’s no “guarantee that companies will stay once their benefits end” and that “a much more beneficial long-term strategy is to create an environment that supports innovation and entrepreneurship, and attracts the individuals who will launch companies that create jobs that remain where they are.”

Some of the initiatives would likely meet resistance, as lawyers would be expected to fight any proposal to liberalize their industry’s licensing requirements. Similarly, state and local policymakers won’t want to be the first to stop offering incentives to large companies, which Delaware Gov. Jack Markell, who spoke at the event, equated to competing for jobs with “one hand tied behind our back.”

But that’s okay, Schmidt said, because every proposal isn’t intended for every state.

“The reforms…are not a one-size-fits-all package,” he said. “Different measures will work for different states, but we’re confident that every state will be able to find ways they can be more supportive of innovation and entrepreneurship while maintaining a level playing field.”

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