Monday, March 26, 2012
Entrepreneurs create jobs, but that is not their chief virtue
A MAN walks into a conference room at the W hotel in downtown Austin. The setting, sleek and hushed, says business. The trainers—red, puffy, and paired with a sports coat—add a wink: new business.
“There are crazy awesome start-ups happening in every nook and cranny in this country,” says Scott Case, the man in question. He is the boss of the non-profit Start-up America Partnership, which means to help fledgling entrepreneurs by smoothing their access to private-sector money and mentoring. The idea is that as these young companies grow, they will create jobs—new jobs, good jobs—and related economic activity that enriches the entire community. Some of the start-ups may even be “gazelles”, companies that grow by leaps and bounds.
Last year the Kauffman Foundation, a think-tank focused on entrepreneurship (and which provided initial funding for Mr Case’s partnership), released a report explaining that new firms typically create about 3m jobs in America each year. Between 1980 and 2005 they contributed some 40m net new jobs—as many as the country’s entire private sector managed over that time.
So people are keen to help. Barack Obama announced a start-up initiative at the beginning of last year, and last month he renewed the call. Congress is considering a bipartisan Start-up Act that could provide some tax credits, regulatory exemptions, and so on. Regional economic development groups have taken up the idea of economic “gardening”. The philosophy there is that regions should focus on core strengths and home-grown businesses, rather than squabbling with their neighbours in an effort to win a new car plant.
This is mostly sensible. Many of the proposals mooted for start-ups—expanding the number of visas for highly skilled immigrants, for example—are generally sound. And some start-ups do turn out to be gazelles. Next month, for example, will mark five years since Twitter came to national attention at SXSW, Austin’s annual internet festival.
Still, there is cause for caution. For one thing, there is some ambiguity over what sort of companies the policymakers are trying to promote. Mr Obama talks about “start-ups and small businesses”. Private-sector people, however, seem to have less interest in the latter. They would rather live in Silicon Valley than on Main Street. But high-tech concepts are not the only viable business ideas. The Austin metro area, for example, is home to just two Fortune 500 companies, Dell and Whole Foods; both, oddly, were founded in the early 1980s by dropouts from the local university.
Another issue is that the effects of start-ups on employment may be modest. Perhaps as a result of the recession, the number of new companies that actually employ people is declining. The cohort of companies born in 2009, according to Kauffman, created only 2.3m jobs.
Last month the White House invited Mike Krieger, the co-founder of Instagram, to attend the state-of-the-union message to show off America’s fastest-growing social mobile start-up. “What began as a small, two-person start-up working out of a pier in San Francisco has grown to a dozen employees,” Mr Krieger wrote. Even the bigger companies may not be labour-intensive. There is a danger that start-up jobs will be the next variant of “green jobs”: worthwhile, but slightly overhyped.