Committee for a Responsible Federal Budget

Milstein Symposium: Can Startups Save the American Dream?

Jan 14, 2015 | Economics

Stronger economic growth is one possible way to reduce deficits, but it is often difficult to identify which policies produce the strongest growth because advocates for any policy will contend that their approach is best. However, one way to encourage economic growth is by supporting policies that encourage the formation of startup companies. The University of Virginia's Miller Center released a report today with ideas to do just that, entitled Can Startups Save the American Dream?. The report was the product of the Milstein Commission on Entrepreneurship and Middle-Class Jobs, a part of the five-year Milstein Symposium initiative to advance innovative, nonpartisan, action-oriented ideas to help rebuild the American Dream. CRFB President Maya MacGuineas is a member of the Commission.

The report described how small businesses have traditionally been a large driver of economic growth, noting that "65% of new jobs created since 1995 have come from small enterprises." However, growth among startups has slowed, which could represent a troubling trend for the U.S. economy if not reversed. As the report authors say:

It is for this reason that we find the recent “startup slowdown” so troubling. The phenomenon has existed for over a decade, and was only exacerbated by the recent recession. Between 2007 and 2012, small businesses accounted for a staggering 60% of U.S. net job losses. Job creation among startups was lower in 2009 than at any time since 1980. Further, according to the Kauffman Foundation, this may not change. Firms founded in 2009 are projected to create 1 million fewer jobs in their first five to ten years relative to historical averages. For an economy predicated on a strong middle class, these are ominous figures.

The Commission, co-chaired by AOL co-founder Steve Case and former Hewlett-Packard CEO Carly Fiorina, identified five ideas to restart American entrepreneurship and generate middle-class jobs:

  • Unlock Capital for Main Street Entrepreneurs - Enhance community-based lending with specific proposals to improve access to capital in low- and middle-income communities.
  • Accelerate Impact Investing through PRIs - Impact investing is a new type of investment model supporting organizations that want to create social or environmental impact while generating a financial return. The report suggests revisions of federal regulations to enhance one type of impact investing: program-related investments (PRIs).
  • Build a Regulatory Roadmap - Create a "Roadmap" website that catalogs data on federal, state, and local regulations, translating them into more accessible language for entrepreneurs to understand.
  • Empower the Next Generation of Entrepreneurial Leaders - By introducing entrepreneurship as a viable career path at the K-12 level, a new generation of startup leaders could be educated. The report encourages the creation of an annual national entrepreneurship competition for different grade levels.
  • Equip Civic Leaders to Build Entrepreneurial Ecosystems - The report proposes creating an “Ecosystem-in-a-Box” toolbox to provide civic leaders with playbooks to build their own vibrant entrepreneurial clusters using the latest research.

Given the importance that small business play in the U.S. economy, and the importance of economic growth to reduce future deficits and improve the national standard of living, policymakers at the all levels of government should consider these ideas and others to encourage startups and boost economic growth.

 

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