By any objective analysis, economic growth during the Obama administration has been weak at best, even if you remove 2009 when he first took office in the midst of a recession. President Obama has presided over the worst post-recession recovery since such data was measured.
An organization called Lincoln Labs (not associated with MIT’s Lincoln Laboratory) advocates free market ideas in seeking to grow the U.S. economy. The group recently published “Lobbying for the Future,” which highlights 18-25 year olds with amazing ideas who want to turn them into businesses.
Lobbying is essentially an act of persuasion where a person in authority, usually someone who holds an office in the government, is persuaded to support rules or laws that give the persuading organization an advantage. “Lobbying for the Future” is one such movement, similar to the public trading portal HB Swiss, where professional lawyers take up a case to fight for a particular legislation that serves a public cause.
The critical aspect is creating an environment where it is not difficult for young people to get these businesses started.
The authors have said one of the big battles for small business has largely been won and that is creating right to work environments where labor unions have far less influence — what they call “Right To Work 1.0.” The next step is to implement what they call “Right To Work 2.0.”
“Lobbying for the Future” identifies three barriers to policies that would unleash a new wave of entrepreneurial innovations: Entrenched interests protecting their “turf” by lobbying for regulations and laws that create barriers to competition; a policy climate that discourages initiative and risk-taking; and the failure of previous government programs and obsolete and ineffective industries.
The critical aspect is creating an environment where it is not difficult for young people to get their businesses started
Big business loves regulation because it prevents competition. Amazon, Home Depot, Best Buy, and other big online retailers support an Internet sales tax because smaller online retailers will have difficulty complying. As much as Apple talks innovation, the company has been brutally effective at using patent laws and the Digital Millennium Copyright Act to keep competition at bay. Such entry barriers help explain why the number of new startups have declined and business failures outstrip startups over the last 35 years.
Tax policy hurts, too. The United States has a 35 percent corporate tax rate, which is the highest in the industrialized world. Certainly if you have a large successful business, it’s easier to book profits outside the country and lower the overall rate to less than 20 percent — and sometimes below 5 percent. The problem is, many new companies cannot do this and are saddled with the 35 percent rate the moment they become profitable. What better way to keep competition out than by keeping the corporate tax rate high?
On the lack of any new initiative, 2 percent economic growth has sadly become the “new normal.” It’s why President Obama will brag about 2.3 percent GDP growth. The expectation levels of our elected officials has become so low that such “growth” is cause for celebration. Presidential candidates have called for policies that would lead to GDP growth rates of anywhere from 4 percent to 6 percent a year. They’ve been pilloried from the liberal-left, as though such growth rates are impossible.
Internet startups are unique because the barriers to competition tend to be lower—at least in theory. But entrenched industries are using every resource at their disposal to stop companies such as Uber, AirBnB and Simple banking, which are undermining the old business models. Rather than deal with the competition, they are more apt to use their influence with politicians at all levels to make it far more difficult for these new companies to operate.
The reality is, for every Uber and AirBnB, there are hundreds of startups and new brick-and-mortar businesses that founder and fail. Based U.S. Census Bureau data, the percentage of American firms that are one year old has dropped from just over 14 percent in 1978 to a little over 8 percent just after 2010. Business startups used to outpace failures by 100,000 from the late 1980s until 2008. After the recession, that number dropped and still has yet to recover to where it is a net positive. Business failures are outpacing startups by 70,000 as of 2011.
Entry barriers like the corporate tax rate and high regulations help explain why the number of business failures have outstriped startups over the last 35 years
Finally, new businesses are forced to deal with outmoded processes and dated models. For some reason, it still takes three business days to clear a check, using telecommunications that is only just now starting to adapt to fiber optic connections for Internet instead of cable and DSL. Agriculture subsidies are still plentiful, despite the fact that most Americans are no longer farmers. Look at corn. A mere 10 percent of corn supply actually goes into corn-based food products. A much larger portion goes into making bio-fuels because of subsidies and tariffs.
In order to reverse this trend, Lincoln Labs identifies three key areas most in need of reforms:
The government sector consumes $6.2 trillion of the economy and opening it up to competition through tech growth, competitive bidding and outside consulting style management.
Reform ways the government regulates innovation specifically through patent laws and copyright laws.
Propose ways to get rid of old laws and regulations that are currently stifling competition and innovation.
The full paper has specific policy proposals to address all three areas and well worth reading in detail. It won’t be easy to take these proposals from the page to reality. But the authors take inspiration from President John F. Kennedy, who said: “We choose to go the moon. Not because it is easy, but because it is hard.”
Jay Caruso is a contributor for Opportunity Lives. You can follow him on Twitter @JayCaruso.