Living Outside the Box with Joe WallaceAs the Great Recession enters its third year with no solution in sight, numerous writers are finally beginning to analyze the problem of unemployment in America. The real problem: the failure of the American economy and our government to achieve any success in job creation. It seems as though we are nearly $1 trillion into programs designed first to “save” the economy that always seem to turn into programs that “avoided disaster” after the saving just didn’t happen. Thomas Friedman, a historically liberal democrat who writes for the New York Times, has actually become one of the leading evangelists for the capitalistic practice of promoting and investing in start-up and emerging technology businesses. In a recent column Mr. Friedman wrote the following:
“You want to spend $20 billion of taxpayer money creating jobs? Call up the top 20 venture capital firms in America… and make them this offer: The US Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way.”
That is the profound kind of bold and proven action that has the capacity to not only solve the unemployment problem, but to have Tom, myself, and Steve Forbes holding hands and dancing around the campfire singing kumbayah. There are four ingredients that are both vital and necessary for an entrepreneur to have an opportunity for a significant commercial success. They are talent, ideas, ambition, and of course, money. Venture capital only solves one of those needs. Friedman goes on to attack our immigration policies in a way that would go far to solve the other three needs. He points out correctly that 25 percent of successful high-tech start-ups over the last decade were founded or co-founded by immigrants. Some of the more visible ones are Sergey Brin, the Russian-born co-founder of Google and Vinod Khosla, the India-born co-founder of Sun Microsystems. In Silicon Valley that number is close to 50%. So the obvious solution to the talent, idea, and ambition issues is to use some of the venture money to attract immigrants who are hungry to participate in the American dream. He goes on to state the following.
“What made America this incredible engine of prosperity? It was immigration, plus free markets. Because we were so open to immigration -- and immigrants are by definition high-aspiring risk-takers, ready to leave their native lands in search of greater opportunities -- we as a country accumulated a disproportionate share of the world’s high-I.Q. risk-takers.”
America needs smart immigration reform. Our country was once a magnet to many of the world’s “high-IQ risk takers” and they came in droves creating what has been the most successful business model for a country that has existed in the modern world. Today, we are not only denying talented college graduate work visas, but we are on a taxation path that is repulsive to people who are starving for freedom and commercial success. That must change and it must change now.
I got a call from a colleague this week who was sort of teasing me about living in a location that has all of a sudden become a leading-edge city. My current home, Evansville, Indiana, that I have groused about for the eleven years has NO ANGEL INVESTMENT NETWORK and NO VENTURE CAPITAL FIRMS. It shows.We have a very limited number of corporate headquarters and no garage-to-stock market technology companies that are still in vogue in my old California home. People who grow up in Evansville routinely move to the coasts and achieve great successes. Without the ability to form equity capital, their dreams do not happen here.
My friend had read a copy of the Wall Street Journal article, “Angels out of America.” What he was chiding me about was that the new Finance Reform Act has a provision that further reduces the pool of Angel Investors making entrepreneurial success even more difficult in this country. Specifically what his congratulatory critique said is that “soon the whole country will “be like Evansville.” It was not meant as a compliment and it was not an endorsement of the bill before the Senate. Quite the opposite, he told me, rather than elevate the fortunes of Midwestern conservative enclaves like Evansville, that our President has finally shown his plan to bring the rest of the country down to the entrepreneurial level that we know as rock bottom. Brain drainers will no longer go to the coasts, now they will go to other countries.
How $30B can save the Economy: My Proposal
I have often wondered just how much impact Angel and Venture Capital has on the economy. The Government “needs” job creation yet private investors are into the creation of wealth. The two are symbiotic. I do not know of any case where wealth has been created where jobs have not been created too. There are many cases, most of them within the halls of government where “make work” jobs are created without generating any wealth at all. It is also a widely accepted that it takes roughly 7 employees in the private sector to support 1 government job. That alone eliminates government jobs or government controlled jobs from consideration.
It has been documented that through a business incubator, $1B will create 50,000 companies that will in turn create 250,000 jobs. That is a respectable $4,000 per job created as opposed to the GM bail-out number of $1.4 million per job saved. That being accepted, it is easy to scale this number to conclude that $30 Billion will create 7,500,000 jobs, or approximately the number that have been destroyed in the Great Recession.
I have experience with business incubation as I was the founding CEO of Innovation Pointe. In early 2008, some people from now President Obama’s campaign asked for my advice about what they should be doing to help small businesses. My simple response was “leave them alone.” They stared blankly at me and wanted an explanation. My gut response would have been to speak very slowly and to say “leave them the @#&* alone,” but I reconsidered that approach. I explained how government paperwork and taxation both defocused small businesses from concentrating on their business and how labor laws basically are repellent to hiring that important first employee. It all fell on deaf ears. At this point there is more paperwork, less available money, and a myriad of new reasons not to scratch an entrepreneurial itch, at least not in the United States of America.
That said I would like to amend my previous advice. What the Obama Administration should do to create the jobs that they need to create to keep their own jobs is to allocate $100M to every American city with a population over 100,000 people. The last time I looked there were about 300 such cities, so $30B would be the total investment. This money should be managed by a private money manager of which there are plenty available now, and should be exempted from every federal rule for businesses funded including Equal Opportunity, Family Leave Act, Davis-Bacon Laws, and even reporting period until a business reaches a significant size. I would suggest that size be $5M per year in revenue. There should be no elected officials allowed on the boards of directors of any of these venture firms.
This bold program would solve the unemployment problem that America is saddled with right now. It would also solve the innovation deficiencies that always grow when money is scarce and people get into survival mode. Maybe it would even attract some of the talent from abroad to our shores as it has for the last century.
You’ve heard that saying: As General Motors goes, so goes America. Thank goodness that is no longer true. We cannot afford to have a dysfunctional business as a role model. As Silicon Valley, Austin, Boulder, and Route 128 have taught us, as entrepreneurs go, so goes the economy. If this is true for a handful of leading cities, it should be the new mantra for America.
What’s in it for America? As long as the venture money, core innovation, the key management and corporate headquarters remain here and pay taxes our economy will prosper. America is where the best jobs, top management, marketing, design, and shareholders will be. Where innovation meets ambition and capital is raised still matters.
Recently government has been so involved in the future of the business community that many people are either laid off, or have taken their eye off the ball. Americans get their news and base their decisions on the rants of talk-show lunatics, tea parties and politics that has become a blood sport. Fortunately, though, we still have risk takers who are not paying attention to any of this nonsense, who know what world they’re living in -- and are just doing it. We need many more and the distraction of a $30B Venture fund available all across the country has just the potential to do exactly that.
When the success of this program is realized and we are once again a nation of doers and wealth creators, I will revert to the advice that I gave the enthusiastic supporters of President Obama when he was just a candidate. What should government do for business, “not a damn thing, leave them alone!”
As the Great Recession enters its third year with no solution in sight, numerous writers are finally beginning to analyze the problem of unemployment in America. The real problem: the failure of the American economy and our government to achieve any success in job creation. It seems as though we are nearly $1 trillion into programs designed first to “save” the economy that always seem to turn into programs that “avoided disaster” after the saving just didn’t happen. Thomas Friedman, a historically liberal democrat who writes for the New York Times, has actually become one of the leading evangelists for the capitalistic practice of promoting and investing in start-up and emerging technology businesses. In a recent column Mr. Friedman wrote the following.
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