Freedom Line Blog

The Kauffman Foundation for Entrepreneurship’s newest report on business creation rates across the United States offers some intriguing insights for policymakers.

According to Robert Litan, the foundation’s vice president of research and policy, “The Great Recession has pushed many individuals into business ownership due to high unemployment rates.”  “However, economic uncertainty likely has made them more cautious, and they prefer to start sole proprietorships rather than more costly employer firms.  This ‘jobless entrepreneurship’ trend negatively effects job creation and the larger economic recovery.”

No doubt, regulatory barriers and confiscatory rates of taxation are causing start-ups to make the same kind of cost-saving hiring decisions as larger, more established firms.  Across nearly every industry these days companies are hiring people to independent contracts rather than salaries, converting many ‘company men’ into standalone consultants.

While becoming an accidental entrepreneur may not be the first career choice of many people – and according to the Kauffman study the college educated cohort saw the steepest decline in their willingness to start their own business – the movement of millions of people into the ranks of the self-employed could have huge consequences for policymakers.

For starters, this army of new business owners is much more likely to demand rollbacks of costly regulations and profit-killing tax rates on corporations.  Your perspective changes when you go from receiving a paycheck to making a payroll.

Remember, the people that lose a job and start a business are the people whom the government should want to help the most.  They aren’t looking for a hand-out or even a hand-up, just space to make a contribution that others in the free market will reward.

This constituency is a natural growth area for the conservative movement.

The best part about the Kauffman report is that entrepreneurial activity can be found in important electoral pockets.  Consider:

• Entrepreneurial growth was highest among 45- to 54-year-olds, rising from 0.35 percent in 2010 to 0.37 in 2011
• The top five highest entrepreneurial rates among the fifty states were:

(1) Arizona with 520 per 100,000 adults creating businesses each month during 2011;

(2) Texas with 440 per 100,000 adults;

(3) California with 440 per 100,000 adults;

(4) Colorado with 420 per 100,000 adults; and

(5) Alaska with 410 businesses started per 100,000 adults

The key to our economic recovery rests on policymakers understanding that Americans want to work.  I submit that any politician willing to make the necessary changes to tax and regulatory rules so that start-up owners can become employers as well as entrepreneurs will find a loyal constituency, and one well worth fighting for.

For those CFIF readers looking for intellectually stimulating Christmastime reading, I heartily recommend Walter Russell Mead’s extended blog post titled “The Crisis of the American Intellectual.”  Picking up and expanding on Alan Bloom’s thesis in “Closing of the American Mind,” Mead issues a frontal attack on our nation’s intellectual elites, a group Mead faults as failing to adapt to a changing world.  Himself a Democrat, Mead argues that intellectuals – the best credentialed, most influentially placed people in our society – across the political spectrum owe it to the people and causes they champion to get serious about constructing a workable, sustainable government.  Here is a too brief sample:

Right now, too many intellectuals try to turn this into a left/right debate rather than one about the past and the future.  There is a liberal case for the radical overhaul of our knowledge industries as well as a Tea Party one.  People who want to extend government protections to more groups need to be thinking how government can be radically restructured so it can be more effective at a lower cost.  People who want more education to be available for the poor need to think about deep reform in primary and secondary education, and they need to think up ways to reduce the spiraling costs of university education.  Those who like the public services provided in troubled blue states like New York, Illinois and California need to redesign state government and find alternatives to the tenured civil service bureaucracies built one hundred years ago.  Those who want more access and more equal access to education, to legal services and to medical care need to think about how we can use technology to radically restructure the way we organize and deliver these services — and the more you care about the poor the less you can care about the protests of the guilds.

Governor Chris Christie (R-NJ) is challenging the public education guild (i.e. teachers unions).  Governor Mitch Daniels (R-IN) challenged the bureaucratic leviathan and won key reforms.  Rep. Paul Ryan (R-WI) is challenging the unsustainable structure of the Great Society.  Ryan once worked for Jack Kemp as a speech writer during the latter’s stint as Bob Dole’s vice presidential running mate.  Kemp challenged liberal statists and libertarian anarchists with his vision of an “Opportunity Society,” an approach to government policy that injected economic opportunity down into the roots of the welfare state.

The debate about government spending will dominate our politics for the foreseeable future.  Hopefully, policy entrepreneurs like Christie, Daniels, and Ryan will gain the attention – and the success – their ideas deserve.