Reviving Entrepreneurship in America
August 7, 2013 Leave a comment
There has been considerable concern regarding the current status of entrepreneurship in America. Overall, American entrepreneurs are producing less wealth than they have in the past. According to a recent study by Barclays, entrepreneurs in developing countries currently produce more wealth than their American counterparts. Demonstrating American entrepreneurs’ relative lack of entrepreneurial success, the same Barclays study determined that 21% of American millionaires cited business profits and sales as their primary source of wealth, as opposed to 58% of South American millionaires, 41% of European millionaires, 68% of South Africans millionaires, 48% of Middle Eastern millionaires, and 57% of East Asian millionaires.
The United States seems to engender a business environment that is favorable to entrepreneurial endeavors. For example, the world’s first venture capital industry was founded in America. In addition, American universities have ties to industries, creating additional opportunities for entrepreneurship. Open immigration policies have also historically contributed to entrepreneurial success in America. Even the American consumer culture is advantageous to developing entrepreneurial enterprises, as American consumers are generally willing and eager to test new products. However, today, entrepreneurs in America face certain challenges that largely result from burdensome taxing regulations and narrow immigration policies. Sam Graves, Chairman of the House Committee on Small Business, agrees. At a Committee hearing in May 2012 examining the state of entrepreneurship in America, Graves stated, “Entrepreneurship is a cornerstone of the American dream— having the freedom to take risks in order to chase your dreams and hopefully become successful and prosperous. The federal government should be encouraging this ingenuity which leads to job creation and economic growth, instead of impeding with more bureaucratic red tape.”
Regulatory red tape is especially detrimental to entrepreneurial opportunities, as federal taxes and regulations are disproportionally burdensome to small businesses. In the past four years, regulatory costs for small businesses have increased by almost $70 billion. The recession has also made it increasingly challenging for entrepreneurs and startups to find financial backing. In response, following the recession, crowdfunding has emerged as a prominent source of investment. As stated in the Crowdfunding Industry Report, “Crowdfunding shows to be a viable alternative for raising capital to fund small businesses and startups.” However, it is evident that regulations must be updated as crowdfunding and other novel forms of business financing continue to be embraced.
Realizing the significant role of immigrant entrepreneurs in America is imperative to revitalizing the U.S. economy. Over 40% of current Fortune 500 firms were founded by immigrants or their children. Furthermore, the National Venture Capital Association recently released a study demonstrating that companies backed by venture capitalists with at least one immigrant founder produce more IPOs and employment opportunities than they did before the recession. Congress is beginning to take notice of the value of immigrant entrepreneurs, proposing the possibility for “start-up visas.” This new class of visas would be available to foreign entrepreneurs who create at least five jobs through their business’s formation and also raise a minimum of $500,000 in investments from venture capitalists, angels, or other types of investors.
Clearly entrepreneurs are vital to the health of the American economy; entrepreneurs have consistently been integral to U.S. economic growth. In response to the struggling American economy, President Obama has placed significant emphasis on the concept of “middle-out” economics, which focuses on strengthening the middle class. As an added advantage, “middle-out” economics would simultaneously benefit American entrepreneurs. According to a study by the Kauffman Foundation, about 90% of American entrepreneurs are of middle or lower class origin. Therefore, if implemented effectively, Obama’s “middle-out” economic strategy would improve the state of American entrepreneurs, thereby strengthening the overall U.S. economy.
Posted by: Marjorie Baker
Sources: The Economist, House Committee on Small Business, Washington Post, Forbes, CNBC, the Kauffman Foundation, National Venture Capital Association