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‘Startup America’ Will Have a Bad Ending

Is Obama's latest economic initiative boon or boondoggle?

by
Jay Schalin

Bio

May 28, 2011 - 12:00 am
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In January, the Obama administration announced a major new initiative to revitalize the national economy called Startup America. Its main objective is to unleash the nation’s latent entrepreneurial energy.

But it is just as likely to unleash a wave of failed enterprises and crony capitalism.

For one thing, it may have already been exposed as a cynical political ploy. According to the American Spectator, in February, an unnamed White House staffer stated that Startup America was largely a ruse: “It’s one more way to engage corporate America. We know many of the executives are predisposed to Democrats, this is just a way to build more connections.”

Even if it is instead a legitimate attempt to spur the economy, it should be met with skepticism — as should all such government programs. Government is rarely good at picking economic winners and losers, even when attempting to be objective. Startup America openly mixes political priorities with economic goals. Specifically, one of its core goals is to “inspire and empower an ever-greater diversity of communities and individuals.” Such a divided mission is a blueprint for failure and political payoffs.

Another ill-conceived goal of the program is to “accelerate green technology innovation.” The environmental sector is often heralded as the wave of the future by the eco-friendly Obama administration, but one study by Spanish economist Gabriel Calzada showed that each “green” job created by his government actually destroyed 2.2 other jobs. And 90 percent of those green jobs were temporary.

The program has two distinct strategies. One part is government action — mainly, providing capital for startup companies using $2 billion given by the Small Business Administration. This infusion of capital is probably the wrong tool for the job of jump-starting the economy. “A shortage of private equity is not what’s holding back America,” says Karlyn Mitchell, professor at NC State University and former Federal Reserve economist specializing in small business finance. (The more likely culprit for the economic malaise is uncertainty about the future.)

The other strategy, consisting of corporations partnering with federal, state, and local agencies, is more complex. On the positive side, it doesn’t take an “all your eggs in one basket” approach. Different partners will tackle the problem of spurring entrepreneurial activity in different ways.

One recently announced partnership, the Blackstone Entrepreneurs Network in North Carolina’s Research Triangle region, will spend $3.6 million donated by the Blackstone Group’s charitable foundation to recruit 15 “master entrepreneurs” to work with researchers at four universities.

This arrangement is designed to tear down what, according to Mitchell, may be the most crucial roadblock to entrepreneurial success by university researchers: a deficiency of business savvy and expertise. Blackstone’s master entrepreneurs will guide them through the necessary paperwork and planning.

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