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A Few Ideas on the Entrepreneurial Way to Faster Economic Growth
I have some problems with “The Entrepreneurial Way to 4% Growth,” a Wall Street Journal op-ed. First, I think the headline overpromises what better policy can achieve over the longer term. (At least if you assume government productivity stats more or less have things correct.)
First, increase economic growth. More businesses start when GDP expands at 4% rather than 2%. Existing businesses look for new markets, often turning to young companies for innovative ideas. … Mr. Trump should also focus less on Silicon Valley, which already receives disproportionate attention from Washington. This sliver of the nation’s entrepreneurs—high-tech companies and the venture-capital investors who fund them—has shaped the narrative of entrepreneurship for too long. … Government must also widen the scope of innovation by stepping back and letting the market find the future. By promoting trendy ideas and subsidizing politically favored companies, government dampens diversity in creative business ideas. … The new president must also make it possible for local banks to get back in the business of financing startups. For 200 years, community lenders were the principal source of capital for startups. … Mr. Trump can also reverse regulatory sprawl and cut government-imposed requirements that add to every entrepreneurs’ costs and risks.
Not that any of that stuff is bad. But nothing here is unexpected. Of course policy ideas don’t need to be novel. Nor does originality necessarily equate with effectiveness. Yet I think some good ideas are missing (although they may be found within more general prescriptions, I guess). Among them: a) boosting (very) high-skill immigration, b) fighting anti-growth housing and building policies in high innovation cities, c) labor market reforms such as limiting non-compete agreements and lessening the burden of occupational licensing.
Also nothing here about patent and copyright reform. This is one my favorite quotes, from Nobel Prize-winning economist Edmund Phelps in his book “Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change”:
But now the economy is clogged with patents. In the high-tech industries, there is such a dark thicket of patents in force that a creator of a new method might well require as many lawyers as engineers to proceed … Copyright has only recently seen controversy. … The passage by Congress in 1998 of the Sonny Bono Act lengthening copyright protection by 20 years — to author’s life plus 70 years — prevents wider use of Walt Disney’s creations and prevent wider use of performances copyrighted by the record companies. The length of the copyright term may be be deterring new innovation that would have had to draw on products at Disney and EMI. Members of Congress have a private interest in lengthening copyright and patent protections since they can expect to share in the big gains of the few without paying for the small costs borne by the rest of society.
I would also suggest “16 ideas from Marc Andreessen for a more dynamic US economy.”
Published in Economics
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At some point in the not too distant past, someone (or some organization) proposed a form of entrepreneur’s tax exemption program. I don’t recall all the details. The general thrust was that if you start a business you can exempt 100% of your profits from income taxes in the first 2 years, 80% in the second 2 years, 60% in the third 2 years and so on reducing the exemption until you reach 10 years, where 100% of the profits were subject to income tax.
The ideas behind this approach were based on analysis addressing the question, “What are the biggest obstacles new firms face at their birth and can we create policies to help ameliorate those problems?” I’m not even sure a program of this type would cost very much. Only 1 or 2 of every 10 small start ups will survive 5 years let alone 10. And I imagine most small businesses struggle for years to generate a profit.
From Wikipedia:
“The economics of innovation literature suggests that patent thickets may have an ambiguous effect on patent transactions. On one hand, dispersion in the ownership of patents increases the number of patent owners with whom bargains have to be struck, and this may reduce the incentives to conduct patent transactions. But there is a second, countervailing effect: the presence of overlapping patent rights may reduce the value at stake in each individual patent licensing negotiation, and this may facilitate licensing deals.”
By “dark thicket of patents” you mean “patents granted to inventors for their inventions as provided for in the Constitution”, right?