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Response to competitiveness RFI – entrepreneurship, education and exports

Continuing our series of comments on the questions posed by the Commerce Department’s Competitiveness study RFI (see earlier postings), lets us move on to the three E’s: entrepreneurship, education and exports.

In topic #2: Entrepreneurship, the RFI asks the following questions:

Through what measures can government policy better facilitate the creation and success of innovative new businesses? What obstacles limit entrepreneurship in America, and which of these obstacles can be reduced through public policy? What are the most important policy, legal, and regulatory steps that the federal government could take to expand access to capital for high-growth businesses?

In order to comment on the questions relating to entrepreneurship, we must first separate out various concepts:

1) start up versus growth

2) entrepreneurial growth (through new business opportunities) versus market expansion (through expanding into new markets geographically or serving an underserved market or by capturing market share or simply through an expanding customer base).

The start up process concerns establishing a new entity.  There are numerous specific issues associated with forming a new entity — business or non-profit.

The growth process may or may not be associate with that start up process.  For example, Google is not a start up.  Yet it is a very entrepreneurial company.  It is entrepreneurial because it seek to identify and exploit new business opportunities.  A new coffee shop is a start up, but probably not entrepreneurial growth company under this definition – even though it may be a coffee shop in an underserved market.

Entrepreneurial growth has two phases: identification of the new business opportunity and exploiting that opportunity.

It should be noted that innovative companies are not necessarily either start ups or entrepreneurial (under the above definition).  Ford is certainly no longer a start up.  Nor is it necessarily entrepreneurial.  But it is innovative.  Thus, there needs to be a separate set of questions as to how to help established companies use innovation to maintain or improve their competitive edge (which will be covered in topic #8 of this RFI).

Therefore, the question on entrepreneurship needs to be rephrased to focus on the start up and the entrepreneurial growth parts of the process.  Below are the relevant 3 questions:

1) What are the government policies that can facilitate the process of creating a new entity?  There are a number of programs already in place at the federal, state and local levels to assist new entity creation.  These include reducing or simplifying regulatory requirements, providing technical assistance, helping reduce risk (such as through insurance programs), assist in finding suitable facilities and providing access to capital.  These programs should be expanded — but focused on local activities. These “here is how to start a business” activities are most effective when they are targeted to and carried out at the grassroots level.

2) What are the government policies to help entrepreneurs identify new market opportunities?  Here one of the keys is access to information and knowledge.  For example, the technology transfer process is an important factor in this process.  Information about university and government-created technologies can help the entrepreneur spot new opportunities.  Technology transfer activities should not be just about closing the deal – but transferring information.  Other forms of information, such as market analysis, is also important.  Most important is maintaining the flow of information.  As is addressed elsewhere in the question #10 of the RFI, enhancing the exchange of ideas is a key part of any policy to support entrepreneurs.

3) What are the governmental policies and activities that can help entrepreneurs exploit the new business opportunities?  This question has both a resources-push and a demand-pull component.  On the input side, key is identifying and accessing the resources needed.  This may include technology, capital and workers.  Government programs to provide resources for the development of new technologies – such as the TIP program and SBIR – are important elements of this policy.  Policies that promote access to new government and university developed technologies are also important.  Obviously, programs that help provide access to capital and specific worker training activities are critical.  With respect to worker training, it is important that industry/company specific and on-the-job training are emphasized.  Similar to “start-a-business” assistance, this level of specific worker training is most effective when targeted to and carried out at the grassroots level.

On the demand pull side, some areas to be examined would be government procurement and regulations/standards.  Government procurement has served as the “thin-opening wedge” needed by many technologies to and regulations can create new opportunities as well.  Regulations and standards can create new business opportunities by redefining the market or creating markets for new goods and services.

In some cases, a modification of regulations and government policies may be needed to account for the new activity and to help create the market.  A regulation or a policy that was appropriate under one set of circumstances and activities may — inadvertently — become a barrier to new activities.  For example, the regulation that limits the use of financing under Industrial Development Bonds to only facilities producing tangible goods means that this program is not available to finance software development or bio-medical research facilities.

Another activity would be technical assistance beyond the “here is how to start a company” — technical/scientific help (connecting with experts in universities and national labs) and business/organizational (mentoring).  One specific way might be in helping provide technical assistance in identifying and better managing a company’s intangible assets.  By understanding their intangible assets, a company will better understand where the new business opportunities lie based on their asset base and what resources (existing or to be acquired) would be needed to exploit that opportunity.

Topic #4 asks about education:

How important is catalyzing greater interest and training in science, technology, engineering and mathematics (STEM) fields? What strategies can be most effective on this score? Can educational technologies be better utilized to this end? What are the critical opportunities and limitations to the creation and adoption of effective education technologies? How can investments in community colleges better leverage public-partnerships to better train Americans for the jobs of today and tomorrow?

As I noted in my overview, all of these are good questions — but they are far too narrow.  The focus should be broader on the development of the important intangible asset of human capital.  Formal education is only on part of that process.  The topic should also include on-the-job training, non-traditional education, and areas beyond STEM.  Such a broader focus would lead a modification of the questions above.  For example, what are the critical opportunities and limitations to the creation and adoption of effective education and training technologies — and their utilization in multiple settings (classroom, individual learning, on-the-job training)?

 Starting with a human capital focus would also broaden the field of view go beyond the training and education parts of workforce development.  What are the organizational changes that are needed to better improve and utilize human capital – such as the development of high-performance work organizations?  What are the labor force policies that either help of hinder human capital development?  Such a broader focus would breakdown the policy silos that hinder an effective policy toward our most importance asset — people.  (From more on the need for an overall policy approach to high-performance work organizations, see Jarboe and Yudken, “Time to Get Serious About Workplace Change”.)

 The third “E” is covered in topic #7: Exports.  The RFI asks:

How could the government better assist small and medium-sized domestic firms sell their products abroad? What policies can be pursued that would help all U.S. businesses increase their exports?

Once again, the question needs to be framed in broader terms.  Exports are only part of international trade  The broader question is as follows: how can the government help companies win in the international trade game?  There are 4 reasons why companies don’t benefit from international trade.

1) They are not in the game.  Many companies simply don’t sell outside of a limited geographically areas.  In this case, the first question is appropriate: How could the government better assist small and medium-sized domestic firms sell their products abroad?  Export promotion activities need to be better coordinated and made more effective. 

2) There are trade barriers and unfair trade practices that keep US goods and services out of other markets.  Here is the role for trade negotiations and trade enforcement.  But the activities need to go beyond lower barrier to trade (i.e. trade agreements).  Agreements are meaningless if there is no enforcement. 

Likewise, bilateral trade agreements do not cover third-country markets.  Aggressive export promotion activities, including matching of export financing, may be required.  For example, the creation of an export financing warchest might be needed to bring more countries into the OECD export financing disciplines.

3) There are unfair trade practices in home markets.  Exports are only half of the international trade picture.  Competing in US market is increasingly no different than competing in international markets.  Facing unfair trade practices at home — such as dumping and illegal subsidies — are the equivalent of facing trade barrier abroad.  It is a government-created competitive disadvantage for US firms.  Mercantilist practices are the same whether they are applied against US companies in a foreign market or in the US market.  The broader question that needs to be asked is as follows:  What are the policies and actions need to counter mercantilist practices of other nations both in markets abroad and within the US? 

4) The companies’ good and service are not competitive.  It may be that some US companies’ products are more expensive and/or not as good as their competitors.  Companies with uncompetitive products will simply not benefit from international trade no matter how much the government promotes the product, lowers trade barriers or defends it against unfair trade practices.  In these case, the remedies are mostly a private sector matter.  But, as the last three decades have indicated, there are multiple areas where government can help.  These are range from cost of capital to increasing productivity through worker training to business support activities such as MEP — and is the overall purpose of this RFI.

Addressing the fundamental competitiveness of American companies will help ensure that American business and workers benefit from international trade both at home and abroad.

Crossposted from The Intangible Economy

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