As we witness so many hotly contested races for president, governor, Congress and other offices, one proposition attracts near-universal agreement: Regardless of party or level of government, virtually everyone running for office this year believes we aren’t creating enough new businesses.
They are correct. According to data from the U.S. Bureau of Labor Statistics, entrepreneurial activity has only recently recovered from the tumble that occurred during the Great Recession of 2007-09. By one BLS measure — the number of jobs created by businesses less than a year old — the U.S. economy is still performing far below pre-recession levels, although at least the trend line slopes upward.
Adjusting for population changes, researchers at the Ewing Marion Kauffman Foundation in Kansas City, Mo. have used BLS data to construct an Index of Startup Activity. For America as a whole, the index fell not just during the early stages of the recession, but through 2014. Last year, the index finally saw a large upswing. Whether that upswing will continue is unclear.
North Carolina is doing better than most states on this measure. We rank eighth in the country on the Kauffman Index, which measures business-creation rates by state. In the Southeast, only Florida fares better. But beating unimpressive national and regional averages is not an adequate response to this challenge. By historical standards, North Carolina still isn’t creating enough new enterprises to meet escalating demand for good jobs that pay good wages.
While politicians and policymakers may agree about the importance of boosting entrepreneurship, they disagree strenuously about which tools are best for the job. The fiscal conservatives in charge in Raleigh believe that reducing taxes, particularly on investment and job creation, and removing regulatory obstacles will help. There is a lot of evidence to support their belief. A 2013 study in the Journal of Entrepreneurship and Public Policy, for example, found that state tax cuts promoted more business starts. Other studies show that lower regulatory burdens correlate with higher rates of self-employment, income growth and sustained business growth.
But fiscal and regulatory policies aren’t the whole story, not by a long shot. Education levels, infrastructure quality, energy prices and crime rates also affect entrepreneurship — the first two positively, the other two negatively. While levels of government funding are not consistently related to service quality, policymakers interested in fostering new enterprises should devote much of their attention to upgrading the human and physical capital that these new private enterprises will need to form and thrive.
Some policy experiments in this area could be seen as risky. Take unemployment insurance. The program’s current design could discourage jobless workers from making the best long-term decisions, such as moving to other places where their skills are in greater demand or founding their own firms. Perhaps offering lump-sum payments at the beginning of an unemployment spell would be a better approach. Meanwhile, some displaced workers would love to change careers and start their own businesses but are blocked by the state’s occupational licensing laws. We ought to change that, either by the state exiting the regulatory field altogether or offering voluntary certification rather than mandatory licensing for certain occupations.
Public policy is hardly the only means of addressing the problem. Entrepreneurship is a practice and a calling. If we want more of it, we need to encourage more young people to embrace business ownership. Companies, trade associations, educational institutions and community groups should all do their part to make this happen.
The John William Pope Foundation has long held entrepreneurship as a founding principle. Now we are making it one of our giving priorities. We support entrepreneurship education programs through Junior Achievement and North Carolina’s 4-H clubs. In September, we co-hosted in Raleigh the first of what we hope will become annual events in many cities across our state. The Raleigh Children’s Business Fair offered dozens of young people the opportunity to display and sell their wares, learn from other young entrepreneurs and compete for cash prizes in such categories as presentation, customer service, original idea and business potential. We will also continue to support research that explores the causes and benefits of entrepreneurship.
There are innovative partnerships and programs across North Carolina and beyond that pursue the same goal: to expose young people to the idea and practice of entrepreneurship. If you share my conviction that our economic future depends on the ability and willingness of the next generation to create innovative and disruptive business enterprises, then I would urge you to get personally involved. Invest your time, money and expertise in fostering entrepreneurship. Free enterprise is one of the greatest forces for good ever devised. It is responsible for the greatest improvement in living standards in human history. Let’s have more of it, as soon as possible.
