Entrepreneurial Resurgence Marks Beginning of Longer Road toward Job Recovery

The 18th annual Development Report Card for the States (DRC) finds a resurgence in entrepreneurial activity within the states. However, this resurgence isn't yet mature or widespread enough to provide a sufficient number of quality jobs to make up for the losses in recent years.

Specifically, the 2004 DRC finds that

• research and development spending is on the rise, both in the private sector and in the nation's universities; 
• government funding to boost domestic business ideas with potential for commercialization is up; 
• entrepreneurial capital is flowing faster, from both private and government resources; and 
• the number of new companies is growing, as is the number of jobs created by new businesses.

A number of DRC indicators confirm these trends. Rising dollars allocated to university and private research and development as well as Small Business Innovation Research (SBIR) grants mean that innovation and related business development are on the rise. Private lending to small business as well as Small Business Investment Company (SBIC) financing have both increased, providing more capital for budding entrepreneurs. An overall increase in new business job growth, new companies, and traded sector strength indicate more rapid business development activities.

However, the 2004 DRC also finds that a continuing weakness in the labor market has led to a drop in the quality and availability of jobs in an atmosphere of narrowly distributed benefits:

• the numbers of unemployed and underemployed people remain relatively high; 
• wages and job quality are eroding; 
• more people are living in poverty; and 
• the income gap between high- and low-wage earners is on the rise.

Several DRC indicators reflect these trends. More people are looking for full-time jobs as the unemployment rate and the rate of involuntary part-time employment continue to increase. Average annual pay has increased but not enough to keep up with inflation. There is a growing income disparity between rich and poor and benefits are disappearing as fewer people are covered by employer-provided health insurance.

Cultivating Entrepreneurial Energy

With hope, the entrepreneurial findings of this year's report card could represent the beginning of a promising trend. State policymakers must act to nurture this upward swing. There are immediate steps that state economic developers can take to improve their entrepreneurial energy:

• Stop using state resources to chase "big-business" jobs that may not last.  The use of tax incentives to lure new businesses or encourage expanding businesses has gotten out of control. An overemphasis on landing high-profile firms—no matter the quality or stability of the jobs created—overshadows and shifts investments away from entrepreneurial development. Instead, offer incentives for homegrown business development to build long-term entrepreneurial capacity and competitiveness in communities.
• Integrate hands-on entrepreneurial education into the state systems. Use standards of learning to encourage entrepreneurial activities in teaching math, economics, and other disciplines. Incorporate entrepreneurial ideas in the context of teaching reading and math. Develop entrepreneurship as a credit option throughout the state's postsecondary educational system—including vocational education.
• Make sure that entrepreneurs can get affordable, convenient, and effective assistance. Map existing resources, supplement Small Business Development Centers (SBDCs), and link educational activities—then publicize the results. Pay special attention to rural and distressed areas of the state.
• Engage the private sector, philanthropies, and the media. Raise the profile of entrepreneurship, highlight self-employment, create a cross-sector task force to study and support entrepreneurship. Create a series of "Governor's Awards" for entrepreneurial development—ranging from a business plan competition for high-school students, to the recognition of nonprofit programs that help low-income entrepreneurs.
• Ensure that entrepreneurs can access appropriate types and sources of equity and debt capital to start and grow businesses. The state should seed loan pools and encourage in-state bank holding corporations, locally-owned independent banks, community development financial institutions, and philanthropies to make referrals and share risk.

Addressing the Needs of Workers in Transition

For the long term, it is important to foster entrepreneurship and innovation. But, in the near term, state policymakers must address the needs of workers who have been hard hit by the slow recovery until more quality jobs become available. There are immediate steps state policymakers can take to address the needs of displaced workers:

• Understand and address the needs of dislocated workers—blue-collar and white-collar, rural and urban. Respond immediately. Support nontraditional approaches such as long-term educational support for retraining older workers. Create and expand programs to address crisis needs such as stress and financial management.
• Work with plants to provide advance notice of layoffs, and to create early-intervention, employer-level labor-management committees to work with displaced workers (perhaps through plant-based peer counselors).
• Work with federal legislators and regulations to ensure that the Trade Adjustment Assistance (TAA) programs are flexible and well-funded enough to meet the needs of workers including service sector workers who lose their jobs due to offshoring. Take advantage of all the resources to which state workers are entitled. Restructure the programs so that they are less complex and more in line with workers' needs. Improve service delivery systems and provide better marketing for existing wage supplements available to workers who are able to find new jobs.

Conclusion

Entrepreneurship is a critical element in securing economic prosperity and a high quality of life for all Americans. Entrepreneurship offers a way to engage people from all walks of life to take control of their own economic destinies. As employment uncertainty continues among workers in the US, creative alternatives are desperately needed. No longer are hard work and determination sufficient to assure someone of earning a livable wage, buying a home, or building a nest egg. In every state, there are people who have been adversely affected by the weakened labor force. They have lost their jobs, their health insurance, and sometimes their homes. They face the frightening prospects of reentering a job market for which their skills may not be well-suited. The 2004 DRC suggests that through entrepreneurship the pioneering spirit of Americans lives on in the changing face of the 21st century economy.