We need to do more to reinforce the point that entrepreneurial firms, more so than major corporations, are the real drivers of U.S. job creation and economic growth. I posted my comments titled “Think Small. Create Jobs. Win-Win” on Fareed Zakaria’s Washington Post blog addressing this issue, and will also be discussing this issue in an number of forums. We can be doing much more to support entrepreneurial firms to promote economic growth, and we are well behind many countries as I noted. Comments welcomed.
Here is the link to Fareed Zakaria’s Washington Post blog http://www.fareedzakaria.com/home/Articles/Entries/2011/8/18_Obama%E2%80%99s_Job_No._1__Create_jobs.html#
Here is a copy of my post:
Let me share another perspective on our job creation challenges, what I call the “Think Small. Create Jobs. Win-Win” strategy.
Today we hear we need to provide major corporations with new incentives to jumpstart job growth. We are told EPA, FDA and other agencies are impeding the ability of major corporations to grow and create jobs.
I don’t think so.
Get past the rhetoric from all sides and look at the numbers, always a good approach. And what the numbers suggest is we need a new, aggressive, and what I call a “Think Small. Create Jobs. Win-Win Strategy” offering a more realistic, approach to jumpstart our economy and job creation.
You be the judge- here is my view:
• Most new jobs in the business sector are created by major corporations. False.
Most new jobs are created by entrepreneurial companies that have less than 500 employees- that is a historical fact. SBA statistics show that during the past 15 years, firms with less than 500 employees accounted for 64 percent of net new hires in the U.S. and pay 44 percent of the U.S. private payroll. Exact percentages may vary year to year but these are the facts.
• Most technology innovation is driven by R&D within major corporations. False.
Smaller, entrepreneurial firms provide the rocket fuel driving our technology innovation engine. SBA statistics show small firms produce 13 times more patents per employee than large patenting firms; and these patents are twice as likely as large firm patents to be among the one percent most cited.
• Most U.S. trade is driven by major corporations. True and False
Major corporations do account for the bulk of U.S. exports, representing 71.1 percent of total exports in 2006. But of the total number of firms exporting goods and services, 97.3 percent of the total were entrepreneurial firms with less than 500 employees. And in 2006, the entrepreneurial firms with less than 500 employees accounted for 28.9 percent of the total $910.5 billion in U.S. exports.
The above points are counter-intuitive and I find not mentioned often in the media. Entrepreneurial, smaller firms are fueling our nation’s job creation and economic growth.
Andy Grove, Intel’s founder, estimated that so far we have achieved less than 5 percent of the Internet’s real business and personal impact. Paraphrasing Andy Grove’s quote, my vision is we have only achieved less than 5 percent of the benefits and personal impact that “entrepreneurial thinking”, entrepreneurship programs, and creative strategies and policies will provide, implying 95 percent of the real entrepreneurship opportunities, changes and benefits lay ahead. And these include new job creation and economic growth.
We are concerned about global competition from China and India and we should be, but again look at the numbers here, such as the Forbes ranking of Global 2000 firms, i.e., the 2,000 largest companies in the world with global reach into all overseas markets. Suppose you add up revenues of Global 2000 companies by country where they are headquartered. Next look at the GDP of each of these countries and ask the question: what are the top three countries with the highest total Global 2000 revenue as a percent of GDP? Switzerland ranks highest at 245 percent, followed by the Netherlands at 218 percent, and the United Kingdom at 112 percent. And who do you think are the bottom three? China at 4, India at 5, and Mexico at 11 percent. While the GDPs are higher in China and India, this shows the impact of major companies in the global markets. Global companies, not countries, compete in global markets. And in China and India, emerging, entrepreneurial companies are driving their economic growth tsunamis… And I can cite many other examples which can help us develop a blueprint to jump-start job creation and economic growth pursuing creative “entrepreneurial-driven” policies.
And China’s growth was not by accident but through careful planning. As I outlined in a Washington Post OpEd several years ago (“ New Ideas Needed as Jobs Shift”, Washington Post, Mar 3, 2008), clearly many countries such as China are well ahead of the U.S. in implementing successful entrepreneurship programs helping smaller firms “survive and thrive”. For example, China’s smaller businesses drive economic growth, employing about 75 percent of all urban employees, holding about 60 percent of all invention patents and accounting for about 80 percent of new products- China is pursuing a comprehensive plan to create 10,000 mostly small- and medium-size companies each year, hoping to create 100,000 new jobs. Malaysia’s MSC initiative, managed within the prime minister’s office, has an impressive track record, attracting 2,006 companies representing about sixty-three thousand knowledge workers- creative entrepreneurial policies such as R&D credits, tax incentives, strategic financing are some of the policies used to drive growth here. And I can cite many other examples which I believe can help us develop a blueprint to jump-start job creation and economic growth.
So why not here? Offering new creative entrepreneurial programs to emerging companies would not only help diversify our regional economy but also add to the tax base. Imagine 50 emerging firms, each with sales of $5 million. Helping those firms increase their annual growth from a baseline growth of just 20 percent, up to 30 percent adds $361 million new revenue over five years, helping add new employees, increasing tax revenues and, most important, creating a more diversified, knowledge-based regional economy.
I and many others have a vision on the new entrepreneurial directions and possibilities, such as a proposed Entrepreneurship Empowerment Program (‘EEP’) I developed with a colleague several years ago to help inner city entrepreneurs, both young and old, start and grow new business ventures, with both local government and business support. And we have the opportunity to enhance our current entrepreneurial education process, building on best practices now used by institutions in selected overseas markets.
I may be more passionate than most about entrepreneurship driving business value creation and economic growth and do have a vision here. Exciting times lie ahead.
Paul B. Silverman is the author of a new entrepreneurial management strategy book Worm on a Chopstick: Understanding today’s Entrepreneurial Age: Directions, Strategies, Management Perspectives; serves as CEO of Sante Corporation creating a new vision for personal health care management; and is an Adjunct Professor in the Center For Entrepreneurial Excellence in the School of Business at George Washington University