With Washington stuck in election gridlock, it’s up to state and local governments to promote policies that foster entrepreneurship and accelerate economic growth, according to state governors and leading academics from the Kauffman Foundation. 

“Now is the time for the states to become more aggressive about serving as laboratories of innovation and entrepreneurship,” said Kauffman interim President Benno Schmidt in the third annual "State of Entrepreneurship Address” on February 9.

During the address, titled “A Roadmap for State Growth,” Schmidt focused on reducing state and local legal and regulatory barriers to startups and young companies, which play a significant role in U.S. new job creation. 

Those barriers are already having an effect on the country’s start-up culture. Last year, U.S. start-up activity fell 5% from 2010, Schmidt said. Each startup created fewer than five jobs in 2011, down from 7.5 jobs in the 1990s, he said. “This is a worrying development, given that, until the recession, new firms over the past three decades generated virtually all net new jobs in the U.S. economy.”

Governors Dave Heineman (R-NE) and Jack Markell (D-DE) spoke at the event on the need to establish the kind of environment that companies and entrepreneurs find welcoming. “It does make a difference what the culture is in your state,” Heineman said. “Are you open for business or not?”

Heineman, who spoke exclusively to Free Enterprise before the event said his administration has been holding regular entrepreneur impact summits to highlight a business owner who is finding success in the state. “Here we are a small state and the last two years our average population growth has exceeded the national average because people are finding our state is a good place to do business,” Heineman said.

The biggest obstacle to encouraging entrepreneurship is attitudes and culture, Markell said. States must make entrepreneurs “feel welcome and wanted. States need to understand that it’s better to have 400 million-dollar companies than one $400 million corporation,” he said.

In conjunction with the State of Entrepreneurship address, the Kauffman Foundation released two reports: “State Startup Act,” which lays out an agenda for state-level policymakers to foster entrepreneurship, and “License to Grow,” which showcases barriers to entrepreneurship imposed by state and local governments.

Recommendations include:

• Reforming occupational licensing, which acts as a barrier to entry for entrepreneurs seeking to provide services to consumers at the state and local levels through new business models at lower cost and/or higher quality.
• Allowing university faculty to retain licensing rights to the technologies they develop, without having to gain university approval, and/or to more rapidly move innovations from the laboratory to the marketplace.
• Reducing state-level paperwork, time and effort required for firm formation.
• Making state-level business shutdown and liability costs as low as possible, because not all new ventures succeed.