Invest in entrepreneurship: for the best returns in economic development.

AuthorHill, Mark
PositionVIEWPOINT

EVERY EXPERIENCED investor knows the value of a balanced portfolio. "Safe" options like bonds and money market funds provide slow, steady returns. But it's the more aggressive investments that carry a higher risk, and also the greatest potential rewards.

The same principles apply to economic development. Larger, more mature companies can help anchor a regional economy, even account for a significant share of its jobs and tax base. But it's entrepreneurial success that's the real catalyst for dynamic growth.

Now more than ever, entrepreneurship is the critical ingredient for a diverse, thriving economy. Let's look at how entrepreneurial activity can drive Indiana towards our stated economic vision, defined by the Daniels administration in its "Accelerating Growth" strategic plan: Reversing our decades-long decline in per capita income to meet the national average by 2020.

Economists from the Federal Reserve Bank of Cleveland studied the factors that contribute to rising wages in a recent report, "State Growth Empirics: The Long-Run Determinants of State Income Growth." Their conclusions confirm what most policymakers already realize: Human capital, measured primarily by percentage of college graduates in the workforce, and innovation, measured here by patents-per-capita, are the best predictors of income growth. Entrepreneurial companies contribute significantly to both.

First, human capital--entrepreneurial firms employ a greater percentage of scientists and engineers than the labor market as a whole. Exciting, plentiful careers with fast-growing companies also help attract and retain more college-educated workers. To quote a Small Business Administration research summary: "The most entrepreneurial regions possess the highest proportion of the population with a college degree ... the average for the most entrepreneurial regions is more than 42 percent higher than the average for the least entrepreneurial regions."

By their very nature, startups are major contributors of innovation. A churn of ideas allows...

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