Leaps of Logic

Thomas Frediman wrote an editorial for the New York Times on April 4, 2010 that I was agreeing with. The engine of economic growth is small, start-up companies, he said. It seems those types of companies accounted for virtually all job growth in the United States between 1980 and 2005.

According to Freidman, “You cannot say this often enough: Good-paying jobs don’t come from bailouts. They come from start-ups. And where do start-ups come from? They come from smart, creative, inspired risk-takers. How do we get more of those?”

I couldn’t wait for his conclusions. What are the first things that come to mind when asked, “How do we get more start-up companies?” I bet what came to your mind is not what came to Freidman’s. “There are only two ways,” he says. Only two, and here they are: “Grow more by improving our schools or import more by recruiting talented immigrants.”

What? These are the ONLY two ways to get more start-ups in America? And they involve education and immigration policy? I don’t suppose these policies being hot-button political issues has anything to do with this logic.

Just get this straight, Mr. Freidman leaps to the conclusion that our colleges and universities aren’t producing enough would-be entrepreneurs and that if we allow Juan to cross the border unfettered he’ll get an “improved” education and start a new company. Yet even Freidman admits there are thousands of foreign students in our colleges and universities and millions of foreign graduates in professional jobs in this country. Sounds like our underperforming schools and backwards immigration policy is working for them.

Go back, then, to the original premise. “Good-paying jobs don’t come from bailouts. They come from start-ups. How do we get more of those?” What if we told would-be entrepreneurs in and graduated from our schools that we we will reduced or eliminate their corporate taxes during the start-up phase, say for three to five years. Not only is that a strong incentive to start a new company, all the new employees of the company will be paying taxes, increasing revenues. Many cities already do this sort of thing with reinvestment zones, providing investors tax breaks for redeveloping blighted neighborhoods. New businesses and consumer spending in the zones more than make up for the tax breaks.

But new companies are having difficulties getting investment capital – too risky, much more risky than, say, mortgage loans. Perhaps, while we’re in the mood to tells banks what to do, we should require a certain percentage of their loan portfolios be for new businesses. If banks want to make more consumer or business loans, they have to increase the capital they invest in new businesses.

Now that’s just two MORE ways to get more start-up companies in America, because Mr. Freidman is right, “Good-paying jobs don’t come from bailouts. They come from start-ups.” They do not come when politics takes the place of policy.

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