Companies & Industries

Want to Boost the Economy? Help Entrepreneurs


If innovators get the help they need, they'll likely be planting the seeds of the next major growth companies, despite the recession

This may not come as a surprise: The global economy is on course to contract by 2.9% this year, its worst performance since World War II. But here's something a lot of people don't realize: More than half of the names on this year's Fortune list of the 500 largest U.S.-based companies were founded during a recession or bear market, according to the entrepreneurship-focused Kauffman Foundation. This includes Microsoft, FedEx, Starbucks, and Intuit. It's perfectly normal to believe that the worst time to start a business would be right about now, but that's not how entrepreneurs think. They aren't looking for the safe road—the one paved with a steady salary and the "certainty" that comes with a career in a large corporation. They look at a situation in which companies are shedding jobs, abandoning emerging markets, and cutting off long-term projects, and they recognize that market needs are not being met. My company's research shows that more than half the companies that comprise the world's major market indices are replaced every five years. And our survey of leaders of both mature multinationals and entrepreneur-led companies in the last quarter yielded a telling discrepancy: While only 19% of the mature companies said they were focused on pursuing new market opportunities, 67% of entrepreneurs said they were. In that gap, you can find the seeds of the next major growth companies in the global economy. The Government's Role

Despite this optimism among entrepreneurs, the depth of the current crisis poses real challenges for them. Harvard University's Bill George recently wrote in this space about the power of changes to the tax code in stimulating job growth. I agree with him. But there are a number of further steps the U.S. can take to spur innovation and the creation of entrepreneurial companies. For starters, the country needs to stay on the free trade side of the fence. Following the Obama Administration's recent imposition of a new import tariff on Chinese tires, there's been talk of retaliation and escalation. And in times of economic weakness, calls to erect trade barriers typically grow louder. Nothing could be worse for innovation. Today's entrepreneurs depend on global pools of capital, production, customers, and talent. To deny them access stifles economic opportunity, reduces efficiency, and undermines investor confidence. The talent front is vitally important. And current immigration policies are distancing the U.S. from too many talented people. According to the Kauffman Foundation, a quarter of the science and technology startups launched in the U.S. between 1995 and 2005 had a foreign-born founder. These companies employed 450,000 workers and generated $52 billion in revenue in 2006. Right now there are more than a million skilled foreign workers in the U.S. under the H1-B visa program. This type of visa limits them to a maximum of six years in the country. Unless they are able to get a permanent work visa, which is a difficult and time-consuming proposition, they will be forced to go home. In other words, the U.S. sends innovators and entrepreneurs packing, year after year. Harnessing the Strength of Diversity

Much more could be done to enrich the pool of homegrown American talent. Today's entrepreneurs depend more on knowledge and creativity than on capital equipment. Better ideas come from groups that tackle problems and challenges from diverse points of view. By putting a greater focus on helping more students—female and minority students in particular—master math, science, and engineering, along with entrepreneurial mindsets and skills, the U.S. can harness the strength of its diversity. There are also effective ways to smooth the path for the entrepreneurs now ready to start building tomorrow's companies. Unwieldy, duplicative, and complex regulations don't just slow down the creation of companies; they're an added cost, a hurdle that can knock entrants out of the race. The World Bank's Doing Business project, which objectively measures the impact of regulations in 183 nations, ranks the U.S. No. 4 in overall ease of doing business. But it's much further down the list in categories such as "dealing with construction permits," for example. And when small businesses lack the resources to navigate a regulatory maze, it reduces the incentive for large firms to invest in research and development since they face less competitive pressures from startups. An American resurgence without new ideas to power it? It's hard to picture. That's why spurring innovation and entrepreneurship makes nothing but sense—and why having the right ground rules and incentives in place is key for a vibrant, growing economy.

James Turley is chairman and CEO of Ernst Young.

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