- - Thursday, November 8, 2012

By Robert Litan and Carl Schramm
Yale University Press, $32.50, 280 pages

Just in time for President Obama’s second term, economists Robert Litan and Carl Schramm have given policymakers a recipe for spurring economic growth through entrepreneurship. It should be required reading for Washington’s movers and shakers, both in the administration and in Congress.

Republicans and Democrats disagree about almost everything, except that America needs more economic growth. In “Better Capitalism: Renewing the Entrepreneurial Strength of the American Economy,” Mr. Litan and Mr. Schramm have produced a variety of recommendations to appeal to both sides of the political aisle.

Mr. Schramm and Mr. Litan are at least partly responsible for the new popularity of entrepreneurship and its incorporation into university curricula. They spent the past decade at the Kauffman Foundation for Entrepreneurship, where Mr. Schramm was president and Mr. Litan was vice president for research and policy. Now Mr. Schramm teaches at Syracuse University and Mr. Litan is director of research at Bloomberg Government in Washington, D.C.

The authors calculate that the economy creates about 15 companies a year that will grow to earn $1 billion in revenue — the Googles, the Apples and the Yahoos. If this could be increased to approximately 60 companies, gross domestic product (GDP) growth would rise by 1 percent, generating another $150 billion in output and reducing unemployment and deficits.

So the question is: What stands in the way of the formation of these additional companies? What laws and government policies are preventing the next Microsoft and Ford Motor Co. from getting off the ground?

One reform that would help entrepreneurship would be to revise our immigration laws to admit more highly skilled immigrants, a goal that has been embraced by Republicans and Democrats.

Highly-skilled immigrants figure prominently in successful startups, and America needs more of both. If it were easier for foreign-born students and workers to obtain provisional visas to stay and work in America, visas that could transition into green cards later, America would have faster GDP growth and job creation. Foreign graduates in science, technology, engineering and math should have green cards stapled to their diplomas.

Another idea is to reform the U.S. corporate tax system. America should not have the highest corporate tax in the world. Further, the structure of the research and development tax credit needs to be modified, because it is of little use to startup firms that have yet to make a profit. The authors propose to allow the credit to be rolled forward until firms have sufficient income to be able to use it.

The authors argue, on the other hand, that levels of personal taxes and capital gains taxes are less important because entrepreneurs and investors are motivated by a passion for their work rather than monetary gains. In my view, the authors are too idealistic. Yes, it’s true that Apple’s founder, Steve Jobs, said he didn’t care about taxes because he went from having no money at all to having more than he knew what to do with. However, in a global economy, taxes above the international norm lead entrepreneurs to settle elsewhere — as is apparently happening in France, with its new 75 percent rate.

One significant issue for innovators is how to get their research commercialized. Mr. Litan and Mr. Schramm propose that American universities copy the “Express License Agreement” plan at the University of North Carolina and University of Washington. This cuts through much red tape and enables university faculty, who are at the forefront of research, to launch their own startups.

Mr. Litan and Mr. Schramm make an excellent case for the privatization of publicly held infrastructure, which has been successful outside the United States. With road construction and maintenance meeting basic safety standards, the authors write that “private ownership of roads, airports and other formerly public facilities would encourage more innovation and allow for more efficiency than would otherwise occur.” Plus, it would be a clear win from a budget perspective.

Less compelling are the authors’ proposals to mandate flexible fuel or hybrid vehicles to reduce America’s dependence on OPEC oil. Oil and gas production are increasing in North America due to hydrofracturing, reducing our dependency on OPEC. General Motors has twice suspended production of the Chevy Volt, and this year battery companies A123 and Ener1 declared bankruptcy.

In contrast, GM and Ford have announced plans to make dual-fuel pickup trucks that run on gasoline and natural gas without a government mandate. Fleets of buses and commercial vans are running on natural gas. It seems that companies are moving to natural gas without government direction.

These are minor quibbles in a fine book. And “Better Capitalism” couldn’t have come at a better time. Mr. Obama will have another four years to try to make the economy grow. Here’s the book for him, and for his Cabinet secretaries.

Diana Furchtgott-Roth, senior fellow at the Manhattan Institute, is most recently the author of “Regulating to Disaster: How Green Jobs Policies Are Damaging America’s Economy” (Encounter Books, 2012).

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