Growing Entrepreneurs

In “Investing in Entrepreneurs Everywhere” (Issues, Fall 2018), Tracy Van Grack emphasizes many of the right considerations that policy-makers and business leaders should have in mind as they seek to encourage entrepreneurship. Supporting young firms and searching for overlooked sources of talent are essential to restoring and broadening the United States’ economic vitality.

These challenges have taken on a new urgency. Declining entrepreneurship since the 1970s is part of a broader story of declining business dynamism, as I have summarized in a 2018 paper with coauthors at The Hamilton Project: young firms are less numerous and employ fewer workers, highly educated individuals are less likely to be entrepreneurs, and business formation is taking longer than it used to. At the same time, economic gaps between the best- and worst-performing places have become disturbingly large. These patterns have implications for both national economic growth and the availability of economic opportunity outside the main clusters of innovative activity.

Van Grack’s focus on start-up support, rather than subsidies for large, incumbent businesses, is particularly welcome. As Aaron Chatterji, a professor of business and public policy at Duke University, has described, states’ use of subsidies creates a playing field that is implicitly tilted against start-ups and young firms. A powerful political logic makes it difficult for any one state to stop favoring incumbent businesses; large, mobile firms can play one state off against another, securing large subsidies in the process. As Chatterji proposes, one solution is to provide a countervailing federal incentive to minimize these subsidies.

To address the geographic gaps that Van Grack discusses, we should be thinking about a range of ways to improve the productive potential of struggling areas. Two promising ideas are found in work by Abigail Wozniak and by E. Jason Baron, Shawn Kantor, and Alexander Whalley. Wozniak would allow college graduates to delay their loan repayment while they search for employment in labor markets further from their postsecondary institutions. Baron, Kantor, and Whalley would enhance linkages between research universities and struggling areas, increasing the spillover of innovations that support local economic activity.

One point of partial disagreement concerns the “mercenary culture” of Silicon Valley workers that Van Grack mentions (and implicitly disfavors). For the US labor market as a whole, the opposite problem is much more apparent: workers often have weak bargaining power relative to employers, are moving across places and jobs at a falling rate, and are generally struggling to achieve robust wage growth. Removing impediments to worker mobility is a core part of the solution to stagnant wages and productivity, and policy-makers should pay heed to the proposals contained in The Hamilton Project’s volume Revitalizing Wage Growth: Policies to Get American Workers a Raise, particularly those that address noncompete and no-poach agreements.

Ryan Nunn