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Investing in Startups for America's Sake

March 12, 2012 3 minute Read by Robert E. Litan

In my last blog, I wrote about the potential good news of possible legislation moving through the Congress to reduce the costs of capital for new and growing companies. Last week, the House passed, by an overwhelming bipartisan margin, the JOBS (Jumpstarting our Business Startups) Act, introduced by Majority Leader Eric Cantor and supported broadly by the Administration. The financing provisions of the JOBS Act are only one element, however, of another group of more comprehensive bills, so far introduced only in the Senate, to rev America’s startup engine. Included among the backers of various bills are Senators Coons, Landrieu, Moran, Rubio, Snowe, and Warner. A substantial body of research shows that startups — companies less than five years old — are critical for growth: in jobs and in living standards (much of this research can be found on the website of the Kauffman Foundation, www.kauffman.org). Some journalists and scholars, however, mistake the importance (or lack of it) of business size for business age. It is new businesses that are important drivers of the economy, and we’re going to need a lot more successful ones to achieve sustained higher rates of GDP and jobs in the future. Again, Kauffman research (drawing on government statistics) shows that new business formation has dropped, the numbers of new jobs created per new business have been falling, and the survival rate of new businesses has dipped (see here). This is what well-designed startup legislation must be designed to reverse. Ideas in the mix include tax incentives for investing in startups, regulatory reform and streamlining, and immigration reform that will help America retain the foreign university students we educate (especially those earning degrees in science, technology, engineering, and mathematics) and attract foreign entrepreneurs who want to start businesses in the United States and hire American workers. Separately, some or all of these ideas are moderately to strongly controversial, but when packaged and understood as ways to boost new firms, the people they employ and the new ideas they introduce into the economy, these proposals should be much more politically attractive. If Congress can’t act on them during this election year, then all of them are ripe for action going into 2013. For America’s sake, let’s hope that turns out to be true, regardless of who wins the Presidency and controls the Congress after the 2012 elections.


Author

Robert E. Litan

2012 Economic Growth Fellow

Robert E. Litan is Director of Research of B-Gov, a subsidiary of Bloomberg LLP. Previously Litan was Vice President for Research and Policy at the Kauffman Foundation and a Senior Fellow in Economic Studies at the Brookings Institution. He has authored or co-authored more than 20 books, edited another 14, and authored or co-authored more than 200 articles in journals, magazines, and newspapers. He has served in several capacities in the federal government. From 1995 to 1996, he was associate director of the Office of Management and Budget, and from 1993 to 1995 he was Deputy Assistant Attorney General. He received his B.S. in economics (summa cum laude) from the Wharton School of Finance at the University of Pennsylvania; his J.D. from Yale Law School; and both his M. Phil. and Ph.D. in economics from Yale University.

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