Posted by: dstieglitz | March 30, 2012

Unleash the Entrepreneurs

     My wife and I just returned from a 16-day vacation in Hong Kong, Vietnam, Laos and Cambodia. Besides enjoying delightful people, varied cultures, and beautiful sights, I was impressed by the economic vitality of the people. During the taxi ride from the airport to our hotel, my wife asked the driver about the religions of Hong Kong. His response: “Hong Kong’s religion is making money” – and they do it well! According to the International Monetary Fund (IMF), Hong Kong’s per-capita income in 2010 was $49,342 compared to $48,147 in the U.S.  Effective economic policies were obvious everywhere: a new International Commerce Center, no sales tax (a Value-Added Tax (VAT) is included in retail items),and waiting lines outside luxury stores like Channel and Louis Vuitton.

     Grass Roots Education. I expected a vibrant economy in Hong Kong, but the furious economic activity in Vietnam was surprising. Vietnam doesn’t have unemployment – they help the unemployed find jobs rather than giving cash hand-outs. For example, we participated in a cooking class at a Hanoi vocational school for orphans, the handicapped, and indigenous and unemployed youth. In addition to cooking, the government-supported school taught hospitality management, tailoring and sewing, and personal service skills. 60% of the students attend tuition-free – there was a waiting list of students willing to pay to enroll since virtually everyone finds a job when they graduate.

     Economics of a Swamp. The Mekong Delta was the biggest surprise of all. Basically, it is fertile swampland that has been inhabited by subsistence farmers for centuries. Recently, the government built a network of six-foot wide concrete pathways so farmers could transport rice and other products to a river quickly – via motorized carts rather than carrying it on their heads in baskets. The cart paths transformed subsistence-level one and two-acre homesteads into an economic beehive. In the 1970s, Vietnam was among the poorest countries with per-capita income under $100. Today, the per capita income has risen to $3,354 according to the IMF. To be sure, the Vietnamese are a long way from competing with the U.S. or Hong Kong – but given their entrepreneurial spirit and government policies that stimulate growth at the rice-paddy level, it will only be a few decades.

     Meanwhile, the U.S. Economy Stagnates. It seems incredulous to say the largest economy in the world is at risk of falling behind. Where else could Facebook grow from a student’s hobby to a $100 billion company? In the 1960s and 1970s people said the U.S. was falling behind Japan – and it came roaring back. But today is different. Emerging economies are growing rapidly and the U.S. share of world exports has dropped to 8.5%. But the real concerns are that private-sector job growth in the U.S. has slowed to a trickle and average annual income is essentially flat. In my opinion it’s because the gridlocked federal government’s regulations and policies make the U.S. a less attractive place to invest for both Americans and foreigners.

     Entrepreneurial Energy. From 1980 to 2008, new jobs in the U.S. were mostly created in companies that were five years old or less. The entrepreneurial energy that produced Microsoft, Google, Apple and Amazon (among others) still exists. That energy must be unleashed to create a gaggle of new businesses. Not just high-techs like Facebook and Groupon, but grass-roots firms like landscapers, restaurants, service companies, construction companies, engineering firms, and the like. Each year about a half million new companies begin operations. Venture capitalists and angel investors fund a few of them, mostly in high-tech. The rest are financed by the entrepreneur, family and friends. Because of the Great Recession, those people have less to invest today. Furthermore, tax policies and complex regulations discourage startups and inhibit job creation.

     Policies Create Jobs – or Not. Bailouts, unemployment insurance, and tax cuts don’t create jobs. New jobs come from startups. Startups are built by creative entrepreneurs. And entrepreneurs – encouraged by favorable policies – are either home-grown in our educational system or imported under immigration policies that attract the best and brightest. Congress is guilty of political malpractice – it isn’t providing effective policy in either area. Special interests compound the problem by lobbying to redistribute the economic pie instead of making it bigger for everyone. We need a combination of spending cuts; tax reform; and investments in education, infrastructure, energy and R&D. The question isn’t whether this one or that one is the highest priority – the country needs all of them.

     The Government’s Role. Technology continues to widen the economic chasm between the swift and the slow. Average incomes will continue to stagnate and unemployment will remain high until growth accelerates – it is Congress’ job to fix that. There are specific policies and programs Congress can enact to get everyone participating in the economy – like rice-growers in Vietnam. Consider the following Congressional actions that would create jobs and keep the U.S. ahead of the rest of the world:

  • Invest in educating the youth and unemployed. Increasing the quantity and quality of skilled labor is a double win: it boosts growth and reduces income inequality.
  • Teach entrepreneurship as a skill not just in business schools but in high schools and community colleges. Train a new middle class of low-tech entrepreneurs in the fundamentals of business.
  • Attract entrepreneurs and skilled workers in the U.S. through immigration. Allow more H-1B visas and give green cards to foreign students who earn an advanced degree in the U.S.
  • Upgrade the transportation, energy and communications infrastructure to put millions of people to work directly and facilitate the flow of ideas, technologies and people into new fields.
  • Increase government funding for R&D agencies like the National Institutes of Health and the Defense Advanced Research Projects Agency, and encourage domestic R&D through tax policies.

As President Clinton once said: “There’s nothing wrong with America that can’t be fixed by what is right with America.” The U.S. has huge strengths as the world’s #1 economy: entrepreneurial spirit, world-class universities, and a strong venture capital network, to name a few. What we need is a Congress who gets the job done. Washington’s aversion to compromise makes the budget problem seem as big as an elephant – even as the costs of social programs skyrocket and our roads and bridges crumble. That’s not a recipe for growth that will compete with Hong Kong, Vietnam, or the many other countries that are growing more rapidly than the U.S.

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