Can state government policy and spending really help develop an entrepreneurial economy?
The answer is an astounding no, according to a new study by the Kauffman Foundation, a Kansas City, Mo. nonprofit think tank, which found that there are few things local governments can do to influence the growth and creation of new startups.
In fact, Kauffman advises states against creating public venture funds that aim to develop a startup culture. The study also found that research universities cash rich from government grants don’t generate higher entrepreneurship rates.
The findings serve as sobering news to Connecticut policymakers, which have approved millions of dollars in taxpayer money in recent years to make the state more of a draw to innovation and startups.
Whether it’s the $864 million Bioscience Connecticut initiative, a $125 million investment in Connecticut Innovations the state’s quasi-public venture capital arm or smaller $10,000 innovation grants, the state’s entrepreneurial money spigot has widened in recent years.
But according to the Kauffman Foundation, which dissected startup rates in 356 U.S. metropolitan areas, the most significant way states influence new businesses is simply by graduating more students from high school and college. A region’s size also plays a role: more people equals more startups.
So, where does this leave Connecticut? Should the state ditch its new found efforts to create an innovation ecosystem?
The answer is haphazardly no, but lawmakers should think twice about policies that carry hefty pricetags and a promise to create new jobs and businesses. More likely than not, taxpayers won’t get a good return on their investment.
Despite having relatively high college and high school graduation rates, Connecticut is certainly not a startup hotbed. In fact, Kauffman ranked the Hartford region in the lowest quartile for new businesses. Fairfield County fared better.
Stagnant population growth, burdensome regulations, and the high costs of doing business in Connecticut are several factors that have repelled new businesses over the last few decades. That’s part of the reason lawmakers have resorted to new government programs to spur job creation.
Let’s face it, Gov. Dannel P. Malloy’s First Five initiative and Small Business Express loan program, which have provided tens of millions of dollars in grants and loans to large and small companies that promise to add new jobs, wouldn’t be needed if Connecticut was more economically competitive with other states.
Instead of investing more taxpayer dollars to create jobs, state government would be wiser to cut spending and lower the cost of doing business here.
And, while graduating more high school and college students is important, it’s only half the battle. The challenge is keeping those young, talented, and potential entrepreneurial minds in Connecticut, and to stem a brain drain that has many graduates seeking greener pastures in Boston, New York or other major U.S. cities.
To do that, the state must demonstrate an ability to produce new, good paying jobs, something it hasn’t been able to do consistently in decades.
To be fair, there are some wise state government investments that have been made over the years. Although the Kauffman study urges states not to start venture capital funds, Connecticut Innovations has proven to be an effective early-stage investor. Without CI, the credit pool for Connecticut startups would be limited. CI has also largely been self-sufficient the recent $125 million investment was to expand its lending capabilities not make up for losses.
Still, availability of venture funding doesn’t necessarily lure new startups to the state.
Meanwhile, the state’s Next Generation Connecticut initiative, which will invest $1.5 billion to develop UConn’s science, technology, engineering, and math curricula, could help churn out more graduates in fields that are ripe for spurring entrepreneurship and innovation.
Connecticut’s challenge will be keeping those young minds here. No state government program can make that happen.
