New Kauffman Foundation Paper Advances Regional Policies for Fostering Entrepreneurially Driven Economic Growth;Paper Provides a Roadmap for How Regional Economies Can Grow by Forming and Growing New Firms Rather Than Chasing after Existing Ones: The Report Also: -- Examines the best approaches to creating business clusters -- Sheds light on the connections between entrepreneurial activity and urban success -- Reviews seven areas of government policy that could conceivably affect entrepreneurial activity

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Creating the next Silicon Valley, Research Triangle or any of the other successful entrepreneurial business clusters around the country calls for economic development policies aimed at fostering entrepreneurially driven growth. That is according to a new report issued today by the Ewing Marion Kauffman Foundation, which advises local, state and regional policy officials to eliminate regulatory hurdles to forming new businesses, among other recommendations.

Although this is a seemingly obvious proposition, it represents something of a departure from past thinking about how local, state or regional economies grow.

    "Policy-makers at local and state levels increasingly recognize that entrepreneurship is the key to building and sustaining their economies' growth," said Robert Litan, vice president of Research and Policy at the Kauffman Foundation. "Although this is a seemingly obvious proposition, it represents something of a departure from past thinking about how local, state or regional economies grow."

Once adhering to the policy of "smokestack chasing," where a variety of tax and business incentives are offered to encourage targeted business relocations, economic development officials have since turned their focus toward replicating the economic benefits of entrepreneurship business clusters, such as California's Silicon Valley, North Carolina's Research Triangle and Massachusetts's Route 128 corridor, according to authors of the Kauffman report, Entrepreneurship and Urban Success: Toward a Policy Consensus.

While history suggests that such firm chasing is largely a zero sum game in fostering economic growth, the new challenge centers on what policies officials can implement to encourage the formation of entrepreneurial business clusters, according to the report.

While the effectiveness of any single policy approach to creating a business cluster is relatively modest, the Kauffman Foundation research finds that the strongest consensus supports streamlining local regulatory approvals and discouraging progressive taxation at the state and local levels.

"Local entrepreneurship depends, in part, on attracting entrepreneurial people, and this requires quality-of-life policies that attract these people," said Ed Glaeser, Glimp professor and director of the Taubman Center for State and Local Government, John F. Kennedy School of Government, Harvard University, and a co-author of the report.

Policies such as investing in local schools, limiting the enforcement of non-compete clauses in business contracts, and developing citywide Wi-Fi centers are among the programs economic development officials should consider when seeking to create high-tech entrepreneurship business clusters, according to the report. City officials also should consider quality-of-life policies, like congestion pricing, that can make their areas more attractive to potential entrepreneurs.

The policy guide examines the most effective ways to promote new economic growth and innovation, as well as how to lower barriers for individuals to form and sustain businesses that drive growth. The report addresses seven areas of government policy that affect entrepreneurial activity including: education, local policies toward crime and amenities, physical infrastructure spending, legal infrastructure, general and targeted aspects of the tax code and targeted spending on entrepreneurial activities.

Interventions that are also important, but that need cost-benefit analyses, include local entrepreneurship encouragement and mentoring programs, and improvements to schools, local amenities and transportation infrastructure. The least attractive options involve policies that target spending either on research programs or on particular industries or particular firms. Localities rarely have the requisite expertise required to make good decisions in this area, the report says.

A copy of the paper can be downloaded at Periodic updates to this document will be posted online at this location.

About the Kauffman Foundation

The Ewing Marion Kauffman Foundation is a private nonpartisan foundation that works to harness the power of entrepreneurship and innovation to grow economies and improve human welfare. Through its research and other initiatives, the Kauffman Foundation aims to open young people's eyes to the possibility of entrepreneurship, promote entrepreneurship education, raise awareness of entrepreneurship-friendly policies, and find alternative pathways for the commercialization of new knowledge and technologies. It also works to prepare students to be innovators, entrepreneurs and skilled workers in the 21st century economy through initiatives designed to improve learning in math, engineering, science and technology. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo. and has more than $2.4 billion in assets.

Related Studies: On the Road to an Entrepreneurial Economy:

A Research and Policy Guide; 2007 State New Economy Index; Kauffman Index of Entrepreneurial Activity

Suggested Links:; SSRN

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