THE POINT-COUNTERPOINT PUBLICATION FOR NOVEMBER 10, 2010
making the best use of our dollars
entrepreneurship or government intervention?
POINT The Catalyst of Economic Progress A NK I T MEH TA
Building a culture of entrepreneurship is the best way to revitalize the economy.
Volume 24 Issue 7
Even though the government has an influence on the overarching frameworks that bear on an economy’s capacity to be adaptable, the implementation of change rests within private sectors. These private sectors are dominated by entrepreneurs—those who are willing and able to take risk, be innovative, and exploit business opportunities. Local governments and institutions privileged with the responsibility of bringing positive economic growth and welfare to the community should push for entrepreneurship as the means of change to stimulate job growth. Since the industrial revolution and the defining visions of managerial admen in the twentieth century, American culture has defined success for the youth as the career of an executive of a Fortune 500 company. This stencil needs to be altered to accommodate the innovators who play a crucial role in creating a forward-moving economy. A culture of freedom and innovation must be cultivated in society and encouraged by government (federal, state and local) authorities, educational institutions, and their respective auspices. Although there is risk in the entrepreneurial journey, the risk can be combated with entrepreneurial education and a network of support systems. Ensuring a skilled workforce through entrepreneurially driven improvements in our school systems includes better training in science and engineering and government policies to support programs that teach people how to start a business. We cannot look to the federal government as the primary motor of economic growth. The White House lacks a coherent job creation strategy, and the administration’s stimulus package has not produced the predicted results. It has given bailouts to banks and car manufacturers to simply stop these companies from going under, and it wants to increase taxes for those making over $250,000 annually by letting the Bush tax cuts expire at the end of the year. Recently, Obama asked the lame-duck Congress to invest $50 billion in infrastructure and jobs—a plan that was met with dismay, as these investments do not stimulate the job market quickly. Now more than ever, universities and governments need to further recognize the power of entrepreneurship as an agent of economic change. They need to galvanize the youth to think within the margins of existing ideas, lubricate the entrepreneurial pipeline at the national level, and work to commercialize America’s inventions and new business on a global scale. Without doubt, augmentation of the entrepreneurial population will lead to job creation and a new foundation that is needed to kickstart America’s economy. A recent study by The Kauffman Foundation (KF) concluded that the national conversation about job creation should focus on creating a thriving environment for start-up companies. Particularly, highgrowth start-ups which tend to: 1.) be concentrated
in certain sectors; 2.) be more R&D intensive; and 3.) demonstrate higher levels of innovativeness. New firms are adding an average of 3 million jobs in their first year, while older companies lose 1 million jobs annually. The government is slowly encouraging the materialization of these through the National Advisory Council on Innovation and Entrepreneurship (of which President Coleman is Co-Chair) and a Small Business Act, where the government will give $30 billion to help smaller banks issue loans to small businesses. This alone, however, will not inspire and empower enough talent to take an entrepreneurial path to spur job growth. Notwithstanding the exiguous efforts to raise entrepreneurial awareness via Michigan government, the University of Michigan has made substantial progress in fostering an entrepreneurial culture. Thanks to entities such as MPowered Entrepreneurship, the Center for Entrepreneurship, and the Zell-Lurie Institute, the initiative is coming from all corners of campus and reaching multiple disciplines. One of the fundamentals of sustaining the entrepreneurial ecosystem in Ann Arbor is ensuring that pro-entrepreneurial efforts are interconnected and fluid for students active in the pipeline. If students reach a roadblock or find themselves in the middle of the desert with a novel idea, it is the responsibility of entrepreneurial groups to shed light on opportunities for advancement. As with many endeavors, starting a business is a long, winding journey. If budding entrepreneurs can’t find the next landmark to guide them down the correct road, reaching their destination becomes an even more formidable task. Thus, it is crucial to ensure that at every step of the journey, inspiration and support of all kinds are available. The University of Michigan has found a model of developing entrepreneurship that works. It caters to students from all walks of entrepreneurialism— from the clueless novice to the serial student entrepreneurs and everything in between. It meshes well with the educational experience, as students may access it through courses, practicums and extracurriculars. The entrepreneurial ecosystem offers the resources needed to succeed in starting a business— grant money, industry expertise, competitions, consulting-services, and more. U-M’s entrepreneurs have the capacity to make changes necessary to revitalize the economy in Michigan, and their impact will only increase as the community culture continues to embrace entrepreneurship. The author is a junior in Communication Studies and Linguistics with an interest in persuasion and acculturation. Outside academia, Ankit is the President of MPowered Entrepreneurship.
COUNTERPOINT When the Market Isn’t Enough There are many benefits of living in a market economy, most of which we witness first-hand. However, there are some areas where the efficient equilibrium of market allocation falls short. The market doesn’t automatically invest in education and infrastructure, and by definition it ceases to function effectively in a recession. Fortunately in these cases, government can and should intervene. Such government activity promotes productivity and job growth, which alleviates pain during times of recession and leads to economic stability in the long term. The government plays an indispensable role in funding and providing education. Without government assistance, many Americans are unable to obtain the college degrees that are increasingly necessary to succeed in a high-tech economy. Through grants alone, the Federal Government helps to pay tuition for nearly nine million students who would otherwise be unable to afford college, and it provides subsidized, low-interest student loans for millions more. Even more significantly, state governments heavily subsidize tuition at state universities, which allows local students to obtain competitive educations while avoiding student debt. The economic benefits of this assistance are evident. Investment in human capital has been one of the primary engines driving the growth of the American economy over the past century. Highly educated workers are both more productive and more fiscally responsible. More importantly, they are also far more likely to make technological discoveries—often with the help of federal assistance—that improve existing industries and create new ones, which drives job creation. However, investment in education does not appeal to firms because the payoff is never seen directly. Some private aid for students is available, but for corporations, short-term payoffs usually outweigh longterm benefits. Unless newly graduated students work for a loan agency, firms will receive no immediate gain from investing in education. This creates a significant gap between the amount lent on the private market and the amount that would be economically efficient—in other words, market failure. The market also fails to invest efficiently in infrastructure, an essential element of the framework of the modern economy. Capital investments in interstate highway and public transit systems as well as GPS and the Internet provide numerous benefits for a large cross-section of the economy. Though corporations benefit from these public goods, they generally don’t profit from direct investment in them. The government should have a large role in creating basic tools, which the private sector can use to innovate and, ultimately, create jobs. It is also important that the government invest in social infrastructure like basic scientific research. Every year the Federal government funds a large num-
ber of grants for scientific research, much of which is utilized for innovation. This research is often expensive and rarely has direct commercial applications— the development of string theory or the hunt for smaller subatomic particles has no immediate payoff. By expanding the breadth of human knowledge, however, basic research frequently generates new activity and creation. Most modern inventions rely on basic research conducted decades or even centuries previously; nuclear theory, certain types of pure mathematics, and general relativity were all believed to lack application when first developed but resulted in nuclear power, computers, and precise GPS devices. The value of basic research lies in its availability to anyone who sees in it a potential application; there is no patent available on the Laws of Thermodynamics or the germ theory of disease. As a result, the government is the only entity both willing and able to promote the sort of technological progress that drives the growth of the entire economy. But the government’s most important economic power today is its unique ability to fight recessions. In a recession, financial institutions stop making funds available, while both firms and individuals cut down on spending. The result of this is that perfectly good economic resources—the labor force, but also factories and infrastructure—go to waste. Because the government is not primarily concerned with making a profit, it can engage in fiscal stimulus in the form of unemployment aid, aid to state governments, and public works projects in a way that firms simply can’t. Moreover, this recessionary spending isn’t “irresponsible budgeting” because it doesn’t require the artificial diversion of economic resources. It simply reactivates idle resources to do what they should be doing anyway, and increased tax revenue from the resulting economic growth can help finance the stimulus. Because government is able to take a long-term approach as well as run deficits on a large scale, it is in a unique position to revitalize the economy. Far from being the time to cut budgets and rely on the private sector, recessions are an ideal time for government to increase spending. These three facets of government economic activity are not separate, either. Consistent investment in education and infrastructure helps build a stable economy, and recessionary spending helps protect the education system and invest in infrastructure. The government has a responsibility to serve the people when private industry cannot. By increasing funding to education, research, and infrastructure, the government can provide jobs while also laying the foundation of a stronger and more productive economy.
THE ROOSE V ELT INS T IT U TE, CENTER ON ECONOMIC DE V ELOPMEN T
Government intervention to strengthen the economy is necessary to make up for the flaws and shortcomings of the market.
The Roosevelt Institute Campus Network is a student policy organization that engages new generations in a unique form of progressive activism, empowering young people as leaders and promoting their ideas for change. November 10, 2010
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FIVE THINGS About Entrepreneurship MPowered’s newest project is called Start-Up Weekend. It puts together teams of students and community members who work to create a business in 54 hours.
In recent years, the US has fallen in the ranks. Denmark and Canada are now considered to be the best countries for entrepreneurs, with the US falling to a disappointing sixth. The Christian Science Monitor
Almost two thirds of entrepreneurs are men, and the vast majority—roughly 90%—are white. PowerHomeBiz.com
Some entrepreneurs are really successful. Bill Gates famously dropped out of Harvard to begin an entrepreneurial journey that led to the creation of Microsoft in 1975. Reuters
For some time, America was the world leader in entrepreneurship: between 1996 and 2004, it created an average of 550,000 small businesses monthly. The Economist
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VOLUME 24 ISSUE 7
Edited by Aaron Bekemeyer, cover photographs by Laura Gillmore
Art Director Meirav Gebler Illustration Jill Brandwein, Dan Connors, Laura Gillmore, Rose Jaffe Advisors Michael Brooks, John Chamberlin, Robert L. Houbeck, Jr., Greg Merritt, Carrie Landrum