‘Startup America’ Will Have a Bad Ending
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.
But despite such hopeful details, Startup America’s total negatives outweigh the positive. Perhaps the biggest problem of all is the program’s potential for crony capitalism. Corporate charity often accompanies questionable quid pro quo agreements between private firms and government: in one particularly blatant example, in 2008, General Electric awarded $11 million in grants to schools in New York to Congressman Charles Rangel’s district, shortly after Rangel — the powerful head of the Ways and Means Committee — reversed his opposition to a tax shelter that greatly benefited GE. (Rangel has since been censured for other pay-to-play schemes.)
Major corporations are rushing to sign up as program “partners,” including IBM, Ernst & Young, and Intel. Firms have already pledged over $800 million in services, expertise, and capital to the campaign. Given the comments by the aforementioned unnamed White House staffer, it is doubtful that altruism alone accounts for their generosity.
With only $2.8 billion in mixed public-private funding to date, the program may look fairly insignificant now. But it has a great deal of potential for making economic mischief: the waste of taxpayers’ money, the interruption of natural market forces needed to actually restore prosperity, greater government control, and corruption. Let’s hope Startup America doesn’t do for entrepreneurship what HUD did for urban communities — or what Fannie Mae and Freddie Mac did for the housing industry.
“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.”
Green jobs are proving to be an economic disaster all over Europe. Even in England, windmills have been an economic nightmare and can only continue through heavy government subsidies.
Why can’t Obama get it through his thick skull that the Government creates NO permanent jobs? Unless, of course, you want to create more GOVERNMENT jobs, jobs that both you and I have to pay for, then it is great for creating “jobs.” We all saw the “magical” upside of all that “stimulus” money, right? That created oh so many jobs, didn’t it? And it sure did keep unemployment down, didn’t it? And it sure got our economy “jump started” with all those shovel-ready jobs, right? We flushed almost a trillion (with a “T”, America) dollars down the toilet and all it did was protect a few union and government jobs, people who usually vote Democratic (what a coincidence). And did the United States learn anything from this disaster?
Yes, it learned two things: (1) Government intervention in trying to create jobs is always an expensive failure and (2) We need a new president in 2012.
We sure do need a new president in 2012. Somebody who actually has a successful business track record that did not depend on government subsidies.
Cain wants complicated, regressive taxation with a bloated bureaucracy the Democrats can populate with their hacks–if the regressiveness is to be alleviated in any degree.
This is otherwise misnamed as the FairTax.
He’ll need to loose that and go for a single rate income tax if he wants my support.
Not another OBAMA-SCAMA-RAMA-lama-DINGDoNG. We sure did get a helluva community shake- down artist for our Payola Master and Chief . It’s really quite breath taking how openly the ruling party is able to lie, cheat & steal from the serfs. Seems they have absolutely no fear of retribution since almost everyone is now on the “take”. Isn’t this how the Nazis got rolling in Germany a few wars ago?
Not another OBAMA-SCAMA-RAMA-lama-DINGDoNG. We sure did get a helluva community shake- down artist for our first half-black Payola Master and Chief . It’s really quite breath taking how openly the Obama lead ruling party is able to lie, cheat & steal from the Real- Housewife- watching- serfs. Seems they have absolutely no fear of retribution since almost everyone is now on the “take”. Isn’t this how the Nazis got rolling in Germany a few wars ago?
“A shortage of private equity is not what’s holding back America,”
Well that is certainly an understatement: we’ve all heard that American businesses overseas are holding 1-2 trillion dollars that they cannot bring back to the US because of our corporate tax rate (highest in the OECD) – tax holiday anyone? And don’t forget the Federal Reserve Rate is near zero; with that kind of easy capital to get a hold of you’d have to be a Democrat to actually think that requiring capital is the problem. Problem is consumer spending needs to pick up, jobs have to be created for that to happen, and businesses are scared poopless about the US coming up upon 100% GDP indebtedness.
If a Republican is elected in 2012 and can get us on a path to fiscal sanity and general overall economic confidence, jobs will practically create themselves. Point being, if the President has to rely upon government “investment” to create jobs, then he is not doing HIS job, which is to create an environment where businesses WANT to spend, instead of doing what he is now: each month begging the corporate community to hire and invest even though, largely because of Obama, the economic environment is not right.
Jordan, you have a per chant for understatement! ” . . . largely because of Obama, the economic environment is not right.” Had you left out the, ‘largely’ and replaced, ‘not right’ with positively toxic, yours would have been an adequate description.
First there is the actual work, it is hard enough as a problem just by itself. There is the investment to start it in material and human resources, the planning and organizing of the process, overcoming the problems that pop up including the deficiencies of experience and material that are part of beginning, and then the actual successful completion at a profit high enough to continue. But I am confident of overcoming these problems.
However, in consideration of beginning there is the second problem. Federal, state, local, and sometimes industry entities all have hoops to be jumped through. Federal, state, local taxes all to be documented, collected, and reported in the appropriate manner. Licenses obtained, fees routed to appropriate parties, legal structures maintained,… and on and on and on.
It seems overwhelming, how does anyone ever start anything? How many workaday ideas still born under the looming precipice? What kind of a profit margin do you need to overcome the morass?
If politicians want to encourage entrepreneurial activity, they would first have to get a clue.
And Barry O’Bama resorts to his “community organizing 101″ again. What’s new?
Their use of the word “diversity” is code for “favoritism”. They will make sure any benefactors are in line with the Democrat/Socialist/O’Bama agenda, and are hard core Socialist/Union sympathizers that have the power to control their voting bloc.
Even the most extreme sycophant now knows that anything O’Bama says, is code meaning the opposite of what he intends to do, and he will make sure only his most faithful get the prize.
Before my crystal ball’s warranty ran out, it was telling me that O’Bama will lose in a landslide in the next election, because everyone has discovered what a complete fake and failure he is. And being the petulant juvenile that he is, he might consider his closest ally an enemy at any moment.
My sister was an entrepreneur. Got a dealers license, shop and had 3 people working for her at one point. The local government drained a great deal of her start up capitol with frivolous landscaping. She weathered a few shocks but cash for clunkers terminated the used car market. So she has now gone back to programing. Instead of making jobs she took one.
If your business is not funneling money to democrats they don’t care about you.
“If your business is not funneling money to democrats they don’t care about you.”
One suggested edit: “If your business is not funneling money *or votes* to democrats they don’t care about you.”
Then the statement is 100% true.
That says it all right there. No effort to remove obstacles, no intention to streamline the rat’s nest of red tape. No, this whole “partnership” is going to be about using the new cover sheet for TPS reports. And everyone knows that the trick to entrepreneurship is getting the necessary forms in and planning.
Reminds me of when I was in government. I reported to a new site, which was undergoing 6 Sigma training. So off we went, but turns out the training was actually about how to have meetings and set up committees to talk about doing 6 Sigma. Yes, the message was, “We are going to transform this organization. So here is some training about how to set up committees and hold meetings about transforming.” Oddly, nothing about actually making changes.
Jay, you are far too kind. First, as soon as you see the SBA involved you know politics and leftist race preference are involved, the rest is just cover for more control and mechanisms for steering and controlling capital, for bribes and power, and especially for the posturing that demagogues do best. Hayek and others have said it, the lessons scream out, even with the best intentions, not to be found in this fascist administration, government cannot correlate the massive information that the price mechanism represents, even if they wanted to, which they don’t.
A stable dollar, suitable energy sources, non-invasive tax rates, and a careful rein on regulation, and voila, people will do what free people do, they will place the investments, win or lose.
A large, established business can afford regulatory costs more easily than a startup entrepreneur. This is why big businesses beef about regulatory burdens but contribute to politicians who increase them, because the effect of regulation is to raise barriers to new competition.
If the obstacle to entrepreneurship is excessive regulation, the solution is to reduce the regulations. Instead, the Blackstone Foundation, favorite charity of the Blackstone Group hedge fund, hires 15 “master entrepreneurs” at $240,000 apiece to shepherd would-be entrepreneurs through the regulations. It’s no mystery Obama got so many contributions from big business executives. Regulations like Obamacare protect them from smaller competitors.
Twenty years ago, Hillary Clinton answered small businessmens’ objections to the cost of Hillarycare with “I can’t save every undercapitalized business in America.” It’s easy to see why Mrs. Clinton would give such a flippant answer to small businessmen. She never was one or ever really dealt with any, having been nothing but a government-connected lawyer and a politician’s wife. It’s no wonder, either, why The One(tm) isn’t concerned about the job-preventing effect of Obamacare. He never met a payroll until he became President and now he’s doing that with 40% borrowed money.
Why is it that whenever someone with a socialist philosophy proposes business growth it always looks like business growth under the National Socialists?
We don’t need a government with favored businesses.
When I was in Political Scicnce they had a name for the situation where Private Entities own the company, but Government Directs the business.
I remember it was an Ism.
What was it again?
It’s on the tip of my tongue.
Oh well, at least the Trains Ran On Time. (I guess that will be true of High Speed rail as well.)
This will probably be like one of those green jobs I witnessed here in Tennessee. On the way to an old shooting range I had to go under an overpass on my way to the range. One of those green jobs consisted of a company painting the steel of the overpass a dark shade of green and took about 3 weeks. Guess the employees are now collecting 99 weeks of unemployment since that job is over!
Great planning and no real stimulation of the economy! What do you expect from a communist running our country?
Steve DeMarcus, you guessed right! Here in Texas, I applied for a census job, I missed one question on the test, was not hired. (I have a degree.) The job was listed as “Temporary” but guess what? Everyone who was hired is now receiving UNEMPLOYMENT COMPENSATION to this day. It’s a feature, not a bug. Plus, I saw the Census Taker People since they used our church as an office for a bit. The racial makeup was interesting…as our area is probably 85/15 white to black.
same observation here i took 3 hour test for supervisor have 2 degrees did excellent filled out all the mountains of paperwork all good then fbi check revealed misdemeanor domestic assault charge in ghetto md my ex alcoholic i raised child all years she dead of alcohol no injuries i had exparte gone to court 2xs for help and used not to give me job and the racial make up here is the same i was charged in prince george county ghetto capitol of the world the black cop died of aids or cancer at 51 and she died at 53 may they rest in hell
“What do you expect from a communist running our country?”
More of the same.
Grandiose plans and schemes by government do not amount to an economic engine.
Any legitimate business chipping in to such blather should be viewed with a jaundiced eye.
A few weeks ago, our idiotlogue in chief made some statement to the effect…”Hey, American business, get the jobs going !” ASIF change from the status quo was simply a matter of ordering that up.
Obama’s main concern, of course, would be in the interests of getting re-elected and “things” being less economically bleak a year from now.
But concrete moves, like business friendly tax policies and government getting out of the way ?
Fergetaboutit.
A very simple way of assessing all the various plans of Obama and the commiecrats is to consider the title. The ‘american reinvestment and recovery act’ sank us deeper in debt and hindered any recovery. The ‘patient protection and affordable care act’ will insure the patients are NOT protected and healthcare is less and less affordable. The ‘employee free choice act’ will make sure that employees have no choice other than to bend to union thuggery.
The DREAM act is a nightmare for non-illegal aliens.
With this in mind, I can confidently predict that the main effect of ‘startup america’ will effectively be to shut down America.
But on the bright side, we have a black president, so it’s all OK.
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.
Because professors are experts at running a business.
What a forking joke.
the government has no interest in fixing any issues. just to keep their cushy jobs.
I think 85% should be voted out. and the obama fraud impeached (for any of a number of felonies he has committed not the least of not upholding the constitution).
had the government not intervened then the economy would be a lot better off.
“Startup America openly mixes political priorities with economic goals.”
No it doesn’t. It is openly political, PERIOD, as that is the only business that Obama and his Administration know. There are no economics here, there can’t be because no one in this admninistration has a clue what economics are or how business actually work.
Thanks.
The nation faces a problem which will not be easy to overcome.
Major industrial and services giants are consolidated and largely centralized. Picture them as the turkey buzzards circling overhead America’s viable small business pastures. Viable, successful small businesses, are eventually strangled by capital requirements and restraints, leaving them vulnerable to the turkey buzzards to be consumed or…left to die on the vine after a wide array of legal challenges by the buzzards. The evolution of personal computers has been the one great exception in our history….not to be repeated again anytime soon. Even that idustry has joined the consolidated protectionist buzzards!
The national ‘cumulative’ of small business marks a signficant component of the national economy but is severely constrained by the consolidated giants….their special interest influences and yes, even the federal government with its legislated laws and executive branch policies!
A two billion dollar investment wouldn’t even buy a successful medium sized company today and Obama is going to do what with two billion dollars administered through the SBA partnered with politicized investor groups?
I don’t expect much of anything from this government. Unless they have the very necessary mandate from the Throne to rule. Then they rule in vain.
Obama know that our news media is lazy and stupid, and therefore is easy to control. Since they are easy to control, he knows he can say just about anything regardless of what he is doing. And the people apparently don’t give a damn because they will blindly re-elect him. I believe that only a damn fool will vote for this communist, and therefore most Americans are damn fools like the news media sound bites they believe.
Government is rarely good at picking economic winners and losers, even when attempting to be objective.
Oh come on.
Government is great at picking losers.
By just picking them, they become losers!
D
Many of the above comments are far-too-kind concerning the effect of government on job creation and the business climate. Let’s be blunt here: big government either ruins or makes more expensive everything it touches. The scam perfected by pro-big govt. ideologues of both parties, but especially the Democrats goes something like this – first, intervene in a functioning, if not perfect market to show the electorate you are “watching out for their interests.” Second, when govt. intervention causes more harm than it fixes, blame businesses or the private sector (or even capitalism itself) as the problem. Third, use the occasion to demand more funding and more regulation of “out of control” and “greedy” businesses and those who run them. Fourth, blame subsequent poor market performance and failure to create jobs on business, rather than accepting responsibility yourself. Repeat as needed, ad infinitum, laughing all the way to the bank with the loot you’ve plundered from the very businesses you demonized!
“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.”
Sadly, necessary paperwork and planning have nothing to do with business savvy and expertise. Hire an accountant to do that and get on with the real part of a business, selling the product. Get in front of customers. They’ll tell you what they want and what you’re doing wrong. Learn how to reach them, lure them away from your competition, and keep them happy. You may then have a chance. Pushing paper is all government-type people know. Stay away from them.
Hi happy memorial day, just reading and becoming a little depressed with the garbage this admin. is craming down our throats. Then on my pandora rotation Lee Greenwood came on with God Bless The USA and was uplifted.
Blessings to you all, and enjoy this weekend, and remember those who have fallen.
“A shortage of private equity is not what’s holding back America,”
The only reason a person invests is because, when all risks are taken into account, he can clearly see that the chances of that it will pay off, after all expenses and TAXES are taken into account. To rephrase: what counts to an investor is total return AFTER TAXES.
I sold a business once. In that tax year I was “rich”, and had to pay taxes at the top-bracket rate. The next year I returned to having an income that was not much above the median for my technical profession. I had sunk 15 years of my life in that business. I could have just gone to work in LA, or Chicago or NYC for some big company and drawn a salary. But I didn’t, I started a business that today employs 500 people.
My business would not exist today had it not been for a subset of venture capital called “angel investors”. These are people who take the greatest risks because they are willing to fund ideas that only exist on the backs of napkins being put forward by people who have no track record running anything.
For our safety, the federal government has made it very difficult for the person with this startup idea to be able to even present his idea and solicit investment unless the investor is “Accredited”, meaning he has a net worth of at least $1 million or satisfies some additional criteria. This makes it very difficult to find investors in the first place. And worse, the SEC has
recently raised the bar with respect to these limits.
I find these limits to be insulting, and a violation of equality before the law. They prohibit my banker neighbor from personally investing in my startup, but allow Lindsay Lohan to.
So, on the one hand, the administration tells us it wants to improve the ability of people to start up new business ventures, but on the other hand, it reduces the number of people who it allows to make those investments. The fact that this issue is not even on their radar screen tells me just how little they really know about what it takes to start a business today.
I’m in the process of starting a high technology company. I can vouch for the importance of angel investors.
One thing many people don’t realize is that angel investors actually invest more money than the more well-known venture capital companies.
Also, the disastrous changes in requirements for angel investing proposed for the “Restoring American Financial Stability Act of 2010″ were removed by the Senate on a voice vote. Thank goodness. The original requirements as drafted by the Democrats would have killed over 90% or more of angel investment in America.
Excellent bio! However, I wish you’d expanded a bit about the qualifying criteria and limitations/perameters of angel investing. For example, our little angel network only worked through State and local economic development corporations and had a very high criteria matrix limited to expansion investments for 500K to 1M newly established companies. We felt, that for a new business that establishes itself, expandiion funding was one of the most difficult funding experiences for them and rarely fit into the lower level of a VC. We could also move our investments to keep our cashflow working for new startups who succeeded.
The bar for Angel funding is high and folks should not be led to think otherwise. The SBA’s risk bar is much lower with little to no management inclusion criteria thus, the high rate of new startup failures…at a rather high cost to the taxpayers.
Specifically, one of its core goals is to “inspire and empower an ever-greater diversity of communities and individuals.”
IOW, Whites, Asians and Republicans need not apply.
Maybe Obama needs a Spontaneity & Creativity Czar.
Just another failed Obama “five year plan”. I don’t pay a lot of attention to this fool other they I try to see what assault against America is in the works. No matter what he says, we need look no further than what he does and what his minions are doing.
It’s another useless, phony distraction of this administration, and it’ll go the way of Cash for Clunkers and his Transparency (NOT) Initiative…i.e., flushed down the circular drain along with all the other non-growth and job-killing ideas of Obama.
Great blog, #25/theBuckWheat.