Kauffman Foundation: The Rules For Growth

Robert E. Litan – Vice President of Research & Policy, Kauffman FoundationPosted:

February 9, 2011 09:35 AM

The U.S. economy is struggling to emerge from a recession that led to the destruction of eight million jobs. At the same time, the federal budget deficit remains stuck above $1 trillion. Having already allocated more than $1.6 trillion toward economic stimulus (the 2009 stimulus package and the December 2010 tax cut agreement), both parties in Washington should be looking for ways to boost growth without spending even more money, directly or through even more tax cuts.

We know one thing for sure: New jobs will come from a healthy and growing private sector. Furthermore, the businesses that are most likely to create jobs are new businesses. In fact, between 1980 and 2005 nearly all net job creation in the United States took place in firms less than five years old.

Keep in mind, new businesses aren’t necessarily small businesses. The key to a new business isn’t its size, but rather its entrepreneurial mindset. New businesses aren’t afraid to upset old ways of doing things. They uncover new markets and new business opportunities. They don’t just exploit existing demand; they create new demand (think Apple). And the most successful grow rapidly — from 10 to 100 to 1,000 employees and more in a few years’ time.

Getting America out of its economic doldrums requires more of these new, high-energy firms. Policymakers should focus their efforts on creating the conditions that allow these companies to be born and flourish.

Last summer, the Kauffman Foundation pulled together leading experts in business, law, and regulatory policy to think creatively about how to reframe America’s legal system to promote innovation and long-term growth in incomes and jobs. They came back with a series of recommendations we call the Rules for Growth, which is also the title of a new book on the subject. Perhaps most importantly, these “rules” have zero or negligible budgetary costs but could dramatically improve the climate for entrepreneurs and job creation.

To fuel entrepreneurial activity, we need more entrepreneurs. Where do entrepreneurs come from? Frequently they come from abroad, and more often than not, they study at our universities. Research shows that educated immigrants are disproportionately likely to start a business.