How to make the econ­omy grow

The Washington Times Weekly - - Culture, Etc. - Re­viewed by Diana Furcht­gott-roth

BET­TER CAP­I­TAL­ISM: RE­NEW­ING THE EN­TRE­PRE­NEUR­IAL STRENGTH OF THE AMER­I­CAN ECON­OMY By Robert Li­tan and Carl Schramm

Just in time for Pres­i­dent Obama’s sec­ond term, economists Robert Li­tan and Carl Schramm have given pol­i­cy­mak­ers a recipe for spurring eco­nomic growth through en­trepreneur­ship. It should be re­quired read­ing for Wash­ing­ton’s movers and shak­ers, both in the ad­min­is­tra­tion and in Congress.

Republicans and Democrats dis­agree about al­most ev­ery­thing, ex­cept that Amer­ica needs more eco­nomic growth. In “Bet­ter Cap­i­tal­ism: Re­new­ing the En­tre­pre­neur­ial Strength of the Amer­i­can Econ­omy,” Mr. Li­tan and Mr. Schramm have pro­duced a va­ri­ety of rec­om­men­da­tions to ap­peal to both sides of the po­lit­i­cal aisle.

Mr. Schramm and Mr. Li­tan are at least partly re­spon­si­ble for the new pop­u­lar­ity of en­trepreneur­ship and its in­cor­po­ra­tion into univer­sity cur­ric­ula. They spent the past decade at the Kauff­man Foun­da­tion for En­trepreneur­ship, where Mr. Schramm was pres­i­dent and Mr. Li­tan was vice pres­i­dent for re­search and pol­icy. Now Mr. Schramm teaches at Syra­cuse Univer­sity and Mr. Li­tan is di­rec­tor of re­search at Bloomberg Gov­ern­ment in Wash­ing­ton, D.C.

The authors cal­cu­late that the econ­omy cre­ates about 15 com­pa­nies a year that will grow to earn $1 bil­lion in rev­enue — the Googles, the Ap­ples and the Ya­hoos. If this could be in­creased to ap­prox­i­mately 60 com­pa­nies, gross do­mes­tic prod­uct (GDP) growth would rise by 1 per­cent, gen­er­at­ing an­other $150 bil­lion in out­put and re­duc­ing un­em­ploy­ment and deficits.

So the ques­tion is: What stands in the way of the for­ma­tion of these ad­di­tional com­pa­nies? What laws and gov­ern­ment poli­cies are pre­vent­ing the next Mi­crosoft and Ford Mo­tor Co. from get­ting off the ground?

One re­form that would help en­trepreneur­ship would be to re­vise our im­mi­gra­tion laws to ad­mit more highly skilled im­mi­grants, a goal that has been em­braced by Republicans and Democrats.

Highly-skilled im­mi­grants fig­ure promi­nently in suc­cess­ful star­tups, and Amer­ica needs more of both. If it were eas­ier for for­eign-born students and work­ers to ob­tain pro­vi­sional visas to stay and work in Amer­ica, visas that could tran­si­tion into green cards later, Amer­ica would have faster GDP growth and job cre­ation. For­eign grad­u­ates in sci­ence, tech­nol­ogy, engi­neer­ing and math should have green cards sta­pled to their diplo­mas.

An­other idea is to re­form the U.S. cor­po­rate tax sys­tem. Amer­ica should not have the high­est cor­po­rate tax in the world. Fur­ther, the struc­ture of the re­search and de­vel­op­ment tax credit needs to be mod­i­fied, be­cause it is of lit­tle use to startup firms that have yet to make a profit. The authors pro­pose to al­low the credit to be rolled for­ward un­til firms have suf­fi­cient in­come to be able to use it.

The authors ar­gue that lev­els of per­sonal taxes and cap­i­tal gains taxes are less im­por­tant be­cause en­trepreneurs and in­vestors are mo­ti­vated by a pas­sion for their work rather than mone­tary gains. In my view, the authors are too ide­al­is­tic. Yes, it’s true that Ap­ple’s founder, Steve Jobs, said he didn’t care about taxes be­cause he went from hav­ing no money at all to hav­ing more than he knew what to do with. How­ever, in a global econ­omy, taxes above the in­ter­na­tional norm lead en­trepreneurs to set­tle else­where — as is ap­par­ently hap­pen­ing in France, with its new 75 per­cent rate.

One sig­nif­i­cant is­sue for in­no­va­tors is how to get their re­search com­mer­cial­ized. Mr. Li­tan and Mr. Schramm pro­pose that Amer­i­can uni­ver­si­ties copy the “Ex­press Li­cense Agree­ment” plan at the Univer­sity of North Carolina and Univer­sity of Wash­ing­ton. This cuts through much red tape and en­ables univer­sity fac­ulty, who are at the fore­front of re­search, to launch their own star­tups.

Mr. Li­tan and Mr. Schramm make an ex­cel­lent case for the pri­va­ti­za­tion of pub­licly held in­fra­struc­ture, which has been suc­cess­ful out­side the United States.

Less com­pelling are the authors’ pro­pos­als to man­date flex­i­ble fuel or hy­brid ve­hi­cles to re­duce Amer­ica’s de­pen­dence on OPEC. Oil and gas pro­duc­tion are in­creas­ing in North Amer­ica due to hy­drofrac­tur­ing, re­duc­ing our de­pen­dency on OPEC. GM has twice sus­pended pro­duc­tion of the Chevy Volt, and this year bat­tery com­pa­nies A123 and Ener1 de­clared bank­ruptcy. Diana Furcht­gott-Roth, se­nior fel­low at the Man­hat­tan In­sti­tute, is most re­cently the au­thor of “Reg­u­lat­ing to Dis­as­ter: How Green Jobs Poli­cies Are Dam­ag­ing Amer­ica’s Econ­omy”.

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