Monday, May 21, 2012


Last week, during an eight day visit to the United States, I paid a visit to the Ewing Marion Kauffman Foundation in Kansas City, Missouri.

Established in the 1960s by a local entrepreneur, it is now one of the thirty largest foundations in the USA with an asset base of around $2billion. More relevantly, it is focuses its activities on specifically advancing entrepreneurship and improving the education of children and youth.

In terms of the former, the Foundation works with leading educators, researchers and other partners to further understanding of the powerful economic impact of entrepreneurship and to improve the environment in which entrepreneurs start and grow businesses. It also develops programmes to train the nation’s next generation of business leaders through enhancing entrepreneurial skills and abilities.

Needless to say, the meetings we had with their research, policy and training divisions were extremely useful and whilst Kauffman does focus its efforts solely within the United States, it welcomed the opportunity to work with a small nation such as Wales in the future.

However, it is not only Wales that can learn from the Kauffman Foundation and its focus on delivering a more entrepreneurial economy should strike a chord with politicians and policymakers in the UK Government. Certainly, with the economy still stuttering, it is clear that government can, and must, play a bigger role in stimulating entrepreneurial activity to create wealth and jobs.

In particular, there needs to be more high growth sustainable businesses created within the economy.  To achieve this goal, there needs to be a continuous stream of new ideas capable of being commercialised, more bold entrepreneurs who can launch and build new twenty-first-century companies, fewer roadblocks to the launch and growth of these new enterprises, and low-cost capital available to finance them.

However, there seems to be little impetus to support more new firms within the USA, despite the evidence on their role in the economy. For example, nearly all of the new jobs created in the US economy have come from businesses that are less than five years old. More importantly, a disproportionate number of innovations during the last decade have been commercialised by new firms.

This policy vacuum by the political leaders of America has led to the Kauffman Foundation proposing a "Startup Act" to jump-start the U.S. economy and increase job creation by accelerating the growth of new and young businesses.

Some of the changes in government policy proposed by this act include welcoming immigrants capable of building high-growth companies to the United States by providing "Entrepreneurs' visas" and green cards for those with degrees in science, technology, engineering and mathematics. This is plain common sense, given that research has shown that non-Americans have founded over half of the new firms in Silicon Valley and that a disproportionate number of the 500 largest U.S. public companies were created by immigrants or the children of immigrant founders.

The Act also recognises that new, growing firms often require outside capital, in the form of both equity and debt. This is especially true for firms in capital-intensive businesses in fast growing knowledge-based sectors such as alternative energy or aspects of life sciences. It therefore proposes that any long term investments in start-ups should be free from capital gains to differentiate it from other forms of personal investments. It also suggests, to deal with the cashflow difficulties that many new firms face in their earlier years, that they should be excluded from corporate tax in the first year of taxable profits, with a 50 per cent reduction in the next two years.

Finally, there is a recognition that many new firms are faced with a disproportionate amount of regulatory burden. The Act therefore proposes that such barriers to the formation and growth of new firms can be reduced ensuring that all business regulation lapses automatically after ten years unless it is reproposed and implemented. In addition, common sense and cost-effective standards for regulations should be introduced, and a regular assessment made of state and local startup policies.

The Kauffman Foundation still has a long way to go before it ensures that such proposals become real but the job creating potential of new firms is something that policymakers in the UK, at both national and devolved levels of government, need to recognise.

Whilst much of the focus of the industrial policy in Westminster and Cardiff Bay has been on supporting larger companies, the real job creators in the economy have yet to be appreciated by our politicians. Whether the UK needs its own Startup Act is open to question but it certainly needs Government to make it easier for entrepreneurs to set up new firms and, more importantly, to put policies in place that enable them to oo sustainably over the long term.