How Should States Encourage Entrepreneurship?

The importance of entrepreneurship for economic growth and development is widely recognized. State and local policymakers and economic development officials are gradually turning their attention away from policies such as direct subsidies that encourage business relocation towards policies aimed at promoting entrepreneurship. Since states with high rates of entrepreneurship also have high levels of venture capital some state policymakers advocate using public resources to expand the pool of available venture capital in a state. Although a popular development strategy, a new study shows this approach is flawed.

At the heart of this public policy issue are two competing views of how to facilitate entrepreneurship. For some policymakers encouraging entrepreneurship involves improving the entrepreneurial climate through the lowering of tax and regulatory burdens. This view is consistent with a large body of academic literature showing that a good way to encourage entrepreneurship is to provide individuals with the freedom to pursue their dreams. Other policymakers focus on the financial constraints facing would-be entrepreneurs and how public policy can mitigate the financial hurdles to entrepreneurship. State financing of venture capital firms is consistent with this view.

Joshua Hall

Full Story: http://independent.org/newsroom/article.asp?id=1674