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Entrepreneurs are key to recovery

Kauffman Foundation Senior Fellow Paul Kedrosky.

TEXT OF STORY

Tess Vigeland: On this Independence weekend we thought we'd take a look at some of the ways folks are declaring their financial freedom in this recession. Paul Kedrosky is a senior fellow at the Kaufman Foundation and he argues that entrepreneurs are one ticket out of this economic mess. I asked him if that's really possible when we're in the middle of a credit crunch.


Paul Kedrosky: It's never easy to be an entrepreneur and it's particularly hard when capital is scarce, but the vast majority of those companies start with your own personal bank, which happens to be your credit cards, so those things aren't really going away. So maybe the total amount of credit you have is less than you had before, but the disappearance or the relative absence of the more high profile sources of credit really shouldn't affect anything.

VIGELAND: Let's talk a little bit about what else that may stand in the way of entrepreneurship these days, and you argue that there is a certain amount of prejudice about what makes an entrepreneur. Explain that for us.

KEDROSKY: Right, I mean we have this made in Hollywood, or made in Silicon Valley, view of entrepreneurs that says they're 22-year-old recent Stanford graduates in their garage somewhere in Palo Alto, which is a great story and we all love to tell it, but the reality is most entrepreneurs outside of tech are over the age of 35. It's a pretty even cross section between men and women. It's a much, much more broad, less youth-centric focus. It just so happens that in technology it is younger folks in Silicon Valley, but that's the wrong place to focus. Coming out of this recession is going to require entrepreneurial activity in far more areas than Internet software.

VIGELAND: So you have these 20-somethings that are opening up businesses, what is standing in their way? You talk about how health care is a big issue.

KEDROSKY: Right, exactly, so one of the myths in entrepreneurship is this idea that the primary obstacle is the availability of capital when most entrepreneurs are ego-driven people who believe they can manage technology risk, they can manage capital risk. What they can't manage is health risk.

VIGELAND: So this is an argument for universal health care that that will then allow people who are more worried about their health, and really need the insurance, to go out and start their own businesses.

KEDROSKY: Right, and if you look at surveys of entrepreneurs who are outside of this and of the 25-35 demographic, their concern is, 'what happens if I get sick?' And that prevents many of those people from going out and being entrepreneurial. They're risk takers, but they don't want to take risks in areas that they can't manage and health is one that they can't manage. So adequate health care is actually an incredibly important obstacle that we need to face down if we want more entrepreneurs outside the 20-something demographic.

VIGELAND:So aside from health care what are some of the other policy changes that you think might be needed to pave the way for these folks who want to start something new?

KEDROSKY: So health care aside another area where I think we could do a lot is in education, and not the obvious thing of saying let's create more entrepreneurship programs. A better example of using education like a lever is to recognize that something like a third of tech startups on the West Coast, to use that group again, had immigrant founders. We should make life easier for more such people, people who come to this country to do master's in Ph.D-level education, to go out then and start a new company. So my suggestion is, and I say this somewhat glibly, but I think it's a legitimate point, of attaching green cards to all postgraduate diplomas in this country.

VIGELAND:Literally attaching the green card to the diploma.

KEDROSKY: One, two, three, go! It certainly beats the alternative where we give them this wonderful education then send them home and say good luck starting a new companies that we'll then worry about later on. Why don't we try to take advantage and build upon that success rather than making it more difficult for ourselves?

VIGELAND:To learn more about Paul Kedrosky's views on entrepreneurship, check out his article in the Washington Monthly called, "The Next Frontier."

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Mr. Kedrosky's arguments regarding immigration and entrepreneurship are inconsistent. He starts by tellings us to ignore the stereotypical Silicon Valley entrepreneur because they are so atypical, but then he tells us that we desperately need more immigrants because they're behind so many tech startups. Which is it? Furthermore, he doesn't bother to crunch the numbers behind his "green card stapled to PhD" idea. The tiny minority of foreign PhDs that start their own companies is vastly outnumbered by the thousands who compete with domestic PhDs for positions at established companies. The net effect is to depress wages and not to create more PhD-level jobs: http://www.nber.org/cgi-bin/printit?uri=/digest/dec06/w12085.html

Paul's point about the critical importance of health insurance was right on - I just had a conversation with a colleague about her desire to start a new venture but that she just couldn't let go of the health insurance at a job she hated. She's in her sixties and a proven entrepreneur - but she's also the breadwinner in her family and both she and her husband have a few health issues (naturally). So, her talent will be wasted!

I agree completely Health Care is truly one of the biggest deterrents from an entrepreneur to start their own company. It is also a big obstacle for attracting talent since real small company. Besides the fact that having a smaller risk pool places a burden on tiny companies(handful of employees) and puts them at a dissadvantage. I know for a fact that health care is one of the top 2 reasons that a few in academia would not jump into entrepreneurship full time before retiring. The creative destruction which we so much brag about here in the US could be brought to a halt. A tragic example of an entrepreneur is a very recent story about Robin Beaton, a Texas woman who testified in congress very recently (she even was a nurse for 30 years before trying to test the entrepreneural waters); her story and many others are examples of the baggage our healthcare system is on our society. I don't understand why NPR nor any large news boutique brought the subject to the public. I watched he whole 3 hours of congress hearing in partial sadness and horror (it is available at the C-SPAN website under the product ID 287048-1). I know a few small entrepreneurs who are just going without health insurance and running full risk; they figure that if they get sick they might just tough it out or try to get a job making money for somebody else.

I agree completely Health Care is truly one of the biggest deterrents from an entrepreneur to start their own company. It is also a big obstacle for attracting talent since real small company. Besides the fact that having a smaller risk pool places a burden on tiny companies(handful of employees) and puts them at a dissadvantage. I know for a fact that health care is one of the top 2 reasons that a few in academia would not jump into entrepreneurship full time before retiring. The creative destruction which we so much brag about here in the US could be brought to a halt. A tragic example of an entrepreneur is a very recent story about Robin Beaton, a Texas woman who testified in congress very recently (she even was a nurse for 30 years before trying to test the entrepreneural waters); her story and many others are examples of the baggage our healthcare system is on our society. I don't understand why NPR nor any large news boutique brought the subject to the public. I watched he whole 3 hours of congress hearing in partial sadness and horror (it is available at the C-SPAN website under the product ID 287048-1). I know a few small entrepreneurs who are just going without health insurance and running full risk; they figure that if they get sick they might just tough it out or try to get a job making money for somebody else.

I find Dr. Kedrosky's stance that health care costs are the main deterrent to older entrepreneurs starting their own companies laughable. As a 30 something entrepreneur out here in the "real" world I have many older entrepreneur friends and business contacts. Health care and its associated cost is maybe #6 on their list of concerns. More troublesome issues often discussed (in no particular order) include: 1) The vague and ever changing government tax code. 2) The lawsuit happy society we live in. 3) Lack of educated and motivated young workers. 4) Government regulation (look to current cap and trade legislation as a perfect example). 5) The availability of working and investment capital (There are actually companies that require greater capital requirements than what you can charge on your Visa). Anyone who looks at government run health care without rose colored glasses on can see it will not ease any burdens on our entrepreneurs. A truly motivated person can find very cost effective medical plans to cover their basic needs. My guess is these plans will be remembered as a bargain once the government gets involved in the health care field.

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