From the Bookshelf

The future belongs to the risk-takers

By:James E. Casto

Issue:Winter 2015 : Nuts & Bolts

In August of 2011, a few days after an ailing Steve Jobs resigned as chief executive of Apple, The Wall StreetJournal wrote:
“When the history of the past 40 years is written, who will be seen as the more consequential figure – the average American President, or a college drop-out who built the first personal computer in a garage and went on to lead the most important company of the 21st century? We’ll put our history money on Steve Jobs. … There’s a large lesson here about economic growth and its sources. … Another lesson here is that the future belongs to the risk-takers, who sense opportunities when others see only folly or danger.”

There, in the proverbial nutshell, is the central premise of an important new book, Where the Jobs Are: Entrepreneurship and the Soul of the American Economy (John Wiley & Sons, $29.95), written by two veteran experts on the U.S. economy, John Dearie and Courtney Geduldig.

John Dearie is Executive Vice President for Policy at the Financial Services Forum. Prior to joining the Forum in 2001, he spent nine years at the Federal Reserve Bank of New York, where he held positions in the Banking Studies, Foreign Exchange, and Policy and Analysis areas. His writing has appeared in The Wall Street Journal, the Financial Times, Politico and American Banker, Geduldig is Vice President of Global Regulatory Affairs at Standard & Poor’s. Prior to joining S&P, she was Managing Director and Head of Federal Government Relations at the Financial Services Forum. From March of 2008 to November of 2011, Courtney served as Chief Financial Counsel to Senator Bob Corker, R-Tennessee. She also spent two years as the Deputy Assistant Secretary for Banking and Finance at the U.S. Treasury Department.

During the Great Recession of 2008-2009 and the difficult months that followed, nearly 9 million American jobs vanished. Today, the economy has largely rebounded but millions of Americans remain unemployed, underemployed or have grown so discouraged they’ve dropped out of the workforce. And, perhaps most alarming of all, Washington doesn’t seem to have a clue about how to put those jobless Americans back to work.

Dearie and Geduldig began exploring the reasons behind the nation’s job crisis – and how it can be resolved. Central to their effort was research based on Census Bureau data
by scholars at the Ewing Marion Kauffman Foundation. They found that all net new job creation in 23 of the past 30 years came from businesses less than one year old – true

Thus, the two became increasingly convinced that the answer to putting Americans back to work lies in accelerating the creation of start-up ventures. To explore that premise in depth, they set out on a remarkable road trip. Under the sponsorship of the Washington-based Financial Services Forum, they spent a summer traveling the country to meet and conduct roundtables with entrepreneurs in a dozen cities. More than 200 entrepreneurs participated – explaining in specific and often vividly personal terms the issues,
frustrations, and obstacles they’ve encountered as they launch new businesses, expand existing young firms and create jobs.

Dearie and Geduldig expected to hear different things in different cities. Instead, in cities large and small in all regions of the country, the entrepreneurs’ obstacles
consistently boiled down to six main points:

  • Lack of adequate skills and educational preparation in the workforce.
  • Immigration policies that discourage attracting skilled workers and keeping foreign students after graduation.
  • Not enough sources of capital.
  • Complex and burdensome regulations at the local,state and federal level.
  • Taxes.
  • Economic uncertainty caused by continuous manufactured fiscal crises in Washington, D.C.

“I don’t think it’s an exaggeration to say that the summer was a revelation to my colleagues,” says Rob Nichols, president and CEO of the Financial Services Forum. “I vividly recall them returning from the various roundtables they had organized around the country tremendously excited about the entrepreneurs they had met, what they had heard, particularly anecdotes and insights, and the implications for economic policy.”

Dearie and Geduldig could have summed up what they learned that summer and put in a report that would be filed away somewhere and quickly forgotten – much like that wooden crate shunted off to a giant warehouse at the end of “Raiders of the Lost Ark.” Instead, the two have put their findings in a book, one that comes with some strong endorsements.

Norman R. Augustine, the retired chairman and CEO of Lockheed Martin Corp. says that “Before any candidates for Congress are permitted to have their names listed on the ballot, they should have to certify that they have read Dearie’s and Geduldig’s book.”

Former MIT president Charles M. Vest, who died in December 2013, had an opportunity to review the book’s manuscript before his death. Vest, a Morgantown native and West Virginia University graduate, pronounced it a book that “will grab your lapels, look you in the eye” and shout a clear message about the importance of start-ups.

Readers with scholarly backgrounds will be delighted to know that the book includes more than a dozen complex charts and graphs, along with 30-plus pages of footnotes. But it doesn’t require a PhD. degree to grasp Dearie’s and Geduldig’s three-part message:

First, young businesses are extremely fragile, and yet, those new businesses that survive tend to grow and create jobs at very rapid rates. Second, the policy needs and priorities of new businesses are unique. Policies intended to enhance the circumstances of large corporations or even existing small businesses – however well intentioned – often miss the needs of new businesses. Third, policy help for America’s job creators is urgently needed.

Accordingly, Dearie and Geduldig offer a laundry list of suggested corrective actions, falling into a half dozen broad categories.

First, they urge that Congress “establish a preferential tax and regulatory framework to cultivate new business formation and growth.” Essentially, this would mean that businesses less than five years old would have to be taxed and regulated differently than established businesses.

Citing the frequent complaint from business and industry that they can’t find people with the job skills they need, the two call for a top-to-bottom shakeup of America’s educational system, kindergarten to college and university, with a goal of enhancing the “quality, technical capacity and flexibility” of the nation’s workforce.

Congress, they write, urgently needs to “modernize immigration laws to attract and retain the world’s best talent.”

They see new federal tax credits for those who invest in start-ups and urge the Small Business Administration to make its lending more available, less complex and cumbersome and less restrictive.

Congress, they urge, should mandate a significant reduction in “regulatory burden, complexity and uncertainty.” Increased federal funding of research and development will, they say, automatically accelerate scientific and commercial innovation and ultimately create new jobs.

Finally – and this might be the most important item on their long list – Dearie and Geduldig write that “reducing fiscal and economic uncertainty” will accelerate job growth. Of course, the odds are mighty long on seeing that happen in the current partisan environment that now prevails in Washington.

Yes, the future belongs to the risk-takers, people cut from the same mold as Apple’s Steve Jobs and some of the familiar innovators of yesteryear – Samuel Morse, Eli Whitney, Thomas Edison, Henry Ford and others. But the risk-takers clearly merit a helping hand if their efforts are to flourish and produce some of the new jobs Americans needs, and the authors of Where the Jobs Are have performed a valuable public service by outlining how that aid and assistance might best be rendered. Let’s hope the White House and Congress are listening.

James E. Casto is the editor of CAPACITY.