State of the Union

STATE OF THE UNION By Michael S. Malone

Mr. President:

Got $2 billion to spare if it has a chance to turn around the economy?

You probably do, what with all of those hundreds of billions in repaid TARP funds you were talking about using for a ‘second’ Stimulus.  Given that the first one didn’t do much good, it seems like a dumb idea to try to same old Keynesian trick again.  When it comes to recessions, the rule is:  If first you don’t succeed, try, try a different economist.

The advantage of this new strategy is that it is not only cheap, but it also has the best chance of creating all of those new jobs America needs if we’re not going to have a ‘jobless recovery.’  And you know how important that is:  reportedly, job creation is going to be the theme of your State of the Union address in a few weeks.

But you’ve got a problem.  After a year in office spent trying to restructure the economy instead of actually fixing it first, we now find ourselves sputtering along as other nations in the world begin to recover.  We’ve taken on astronomic, historic debt.  Unemployment is not only at Great Depression levels in some regions, but isn’t likely to improve anytime soon.  And the nation’s economic heart, its millions of small businesses, are hunkered down, afraid to invest in themselves or hire new people, because they are rightly fearful of what bomb you are going to drop on them next:  higher taxes, carbon offsets, card check, etc.

The FDR/New Deal model isn’t going to work this time (actually, it didn’t work the first time either:  my family lost its Oklahoma farm in 1938, not 1933).  Colluding with Big Business and Big Labor (and Big Pharma lately, too) in some kind of Progressive fantasy from 1910 won’t work either, as you saw last year.  GM is still in trouble (with GMAC now added into the mix) and the unions you protected not only aren’t any stronger, they are more hated than any time in their history.

There’s no Hoover Dam/CCC/WPA solution available either.  If you were going to try that, it would have been last year, when Americans were so frightened that they would have accepted some sort of shovel-ready make-work emergency action.  But the panic has now passed, and, frankly, you don’t have the enough dough left to pull it off.  Besides, emergency measures like that require the citizenry to put enormous faith in the competence of the federal government – and right now your approval numbers are tumbling, and Congress’s are so low they aren’t even in the tank, but in the dirt under it.

The only way out now is down a path that I assume is anathema to both you and the Congressional leadership.  But you’ll take it because, no matter how much you dislike it, it was the only real solution anyway.  It’s your one chance of saving both your legacy and your party’s majorities on Hill:  You are going to have to unleash business.

I’m not talking Big Business here.  Those guys are very good and making money and consolidating markets.  But they stink at new job creation.  No, I’m talking the little guys, the ones with businesses valued under $20 million, the ones who create all the new jobs.  At best, you’ve ignored them and paid them lip service at a ‘summit’ for them in which they weren’t invited.  At worst, you’ve tried to use them as a piggy bank for your various social engineering boondoggles and as a whipping boy for all that you think is wrong with America.  And, understandably, they’ve responded by voting not with their feet, but with their wallets:  lay-offs, cutbacks in production and inventories, cancellations of new products and services, abandonment of expansion plans.  And who can blame them?  They have made a rational response to an irrational situation.  They have every right to be scared of you and the future you are trying to deliver.

 

This is your biggest challenge to recovery, and the more you try to grab it with the Big Hand of government, the more it is going to slip through your fingers.  There is no moral imperative for these entrepreneurs and small business owners to do what they do – the work itself is hard enough — and so, if the burden gets too heavy or the obstacles too great or the system too unfair, they’ll just stop, or at least slow down.  And there’s nothing you or the federal government can do to make them do more.

The only solution, the only way for you to get this nation humming again at the head of the world’s economies, and the only way to restore real prosperity, is not to stand behind and terrify and coerce these small companies.  It’s not even to stand in front of them and dangle a carrot.  Rather, it is to run along side them, offering encouragement, providing support – and when necessary, sprinting ahead and knocking away any obstacles (including those of your own creation) that loom ahead.  [And, by the way, given your Progressive tendency to believe that all businesspeople are potential felons, this role also helps you keep them on the right path . . .]

And that brings us to the $2 billion mentioned at the beginning of this column.  The core of the idea comes from Silicon Valley entrepreneur and blogger Sramana Mitra.  For her New Year’s resolution she announced a goal of helping 1 million entrepreneurs get their companies through the all-critical phase of making their first million dollars in revenues.   If this could be accomplished, Mitra argued, the result would be $1 trillion added to the GDP and 10 million new jobs.  I think she’s right – and though Mitra was talking about doing this around the world, there’s no reason we can’t do all of that right here in the United States.

Think about it:  We live today in a world defined in large part by the Internet.  Facebook, Twitter, Google, eBay, on-line retailing – much of how we spend our day (and our money) in some way involves the Web.  Not surprisingly, given its pervasive presence, the Internet has in turn led to the creation of thousands of new companies, millions of new jobs and billions of dollars in new wealth – none of which existed twenty years ago.  And it all arose from a few million bucks spent by a government agency, DARPA, forty years ago. 

Obviously, not every initiative of this kind succeeds.  In fact, most fail – but that’s the risk.  It’s a game of ratios:  arm enough smart people with good ideas and the capital they need, and about half will succeed in some way, and 10-20 percent will change the world.

Two billion dollars, Mr. President.  Chump change compared to all of your other stimulus programs.  But it’s two thousand $1 million investments, enough for a major government venture capital test program.  Bring together a small group of proven, veteran Venture Capitalists – say, Don Valentine, Bill Davidow, Mike Moritz, Tim Draper, your buddy John Doerr, and a half-dozen other legends – and call on them to volunteer to serve their country by sitting on an investment board whose charter would be to invest that money in new ventures as a back-up to existing investors.  The only criteria would be high-risk, early stage start-ups with a high chance of success if they can get to the next round of investment.  That’s it;  no social engineering (like having to be headquartered in low-income areas), no political initiatives (like requiring all investments t be ‘greentech’).  No, the only goal is success: the building of great companies that create thousands of new jobs, establish huge new markets, and create great wealth.

That, of course, is only the beginning.  There’s still all of those artificial obstacles up ahead for these companies.  So, why not follow the lead of your chief of staff?  Rahm Emanuel reportedly leaned on the House Finance Committee to agree to a permanent stay of the financially onerous Sarbanes-Oxley regulations for companies valued less than $75 million.  The result?  We’re seeing the first spate of companies going public in years.  So, keep going, Mr. President:  suspend stock option expensing for new start-ups, put a temporary hold on capital gains taxes, promise to keep the Internet tax free, make the current hiatus from inheritance taxes permanent, promise to revamp the patent system to make it more affordable to individual applicants, and a whole bunch of other things that today make starting a successful company more difficult than it needs to be.

You thought an economic crisis would give you free reign to implement a social revolution in America.  You were wrong.  So why not try prosperity instead?  Put some of the above into your State of the Union Address and watch what happens, starting with the NYSE and Nasdaq the next morning.  You may just find that a happy and optimistic America is a lot more responsive to your dreams. . .