Category: Government and Policy

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Government and Policy McNair Center Small Business Startup Ecosystems

Capitalizing on Competencies: Augusta, GA’s Innovation Path

Downtown Augusta, Ga., skyline as seen from Riverwalk. 12/12/96 Steven Schretzmann photo METRO

Cities around the country constantly aim to increase their innovative competitiveness. The city of Augusta, Georgia, continues to emphasize this goal to boost the local economy. After thorough research, the McNair Center generated suggestions to help Augusta’s leaders drive this growth.

The Ideal Situation for Growth

Although there are more than 28 million firms in the U.S., economic growth comes disproportionately from only a tiny fraction. More than half of growth in the American economy comes from these “High-Growth, High-Tech” (HGHT) enterprises. HGHT firms grow from nothing to IPO in a very short period, about 5-6 years.

HGHT firms desire areas with abundant funding. This includes venture capital (VC) funding, angel investors and crowd funding, government grants and contracts, and research and development (R&D) opportunities.

To support HGHT firms, certain systems and mechanisms must also be in place. Factors like accelerators, incubators and collaboration hubs all attract firms by creating innovation communities.

Evaluation of Current Situation

Augusta does not have a strong entrepreneurship record. With only one VC deal in the last few decades, it seems clear that entrepreneurs are not flocking to Augusta. The city’s lack of resident corporations with big R&D expenditure also indicates that innovation culture isn’t strong.

In terms of mentorship and support, there are no accelerators in Augusta, and only one incubator. The lone incubator, The Clubhou.se, was founded in 2012. They have 80 members, and boast that they “have helped 60 entrepreneurs grow 32 companies that create 90 jobs and a $7,000,000 annual economic impact in our community.” The Clubhou.se is yet to have a venture-backed success.

New or higher performing accelerators and incubators are necessary to attract large amounts of innovative firms. Right now, some of Augusta’s strongest innovation advocates are spearheading another entrepreneurship resource, the Augusta Innovation Zone. The Innovation Zone hopes to act as a physical hub for Augusta’s entrepreneurs.

Government grants and contracts, however, have a relatively strong presence in Augusta. With over 1,000 contracts and 200 grants from agencies like the Department of Defense and Department of Health and Human Services in the last ten years, Augusta has a clear ability to attract government work and win government grants.

Local Competition

Atlanta, the closest large city to Augusta, is currently ranked 26th for HGHT entrepreneurship among U.S. cities. Boasting $117 million VC invested, 6 new deals and 100 active startups in 2016, Atlanta is performing well. However, this is not performance that labels it as a leader in innovation. Atlanta’s ranking for startup density has dropped nine places relative to its rank in 2015. Although Atlanta is not a top performer, Augusta can expect a difficult relationship with Atlanta. Entrepreneurs tend to prefer strong entrepreneurship ecosystems, and Atlanta will be stronger than Augusta for the foreseeable future.

The Path Forward

The upcoming relocation of U.S. Cyber Command to Augusta, and the existing partnerships with local Fort Gordon, offer strong opportunities for growth in Augusta.

Perhaps the clearest path forward will be for Augusta to build off its current competency in receiving government contracts and grants. It could put together resources to make it easier for startups to apply for grants and provide government contract work. This strategy should attract new startups.

Working with the government often requires security clearances. In Augusta, this may create issues for startups who cannot obtain clearances. But there are many established firms whose employees already have clearances – Booz Allen for example has a large presence in Augusta. If these firms had incentives to partner with startups to jointly win grants and contracts, then an accelerator or an  incubator could act as a hubs to bring everyone together. Some famous ecosystem institutions elsewhere, like 1776 in Washington, D.C., owe much of their success to their roles as middlemen, running competitions, brokering joint contracts and enabling startup research.

Cooperation is Key

For this all to work, everyone – Augusta University, US Cyber Command, local government, established firms, ecosystem organizations and the startups themselves – all need to be in close proximity. The startups will also need help to allow them to focus on exclusively on fast-paced development.

Augusta’ Broad Street is their hub of business and tourism.

McNair Center Director Ed Egan sees potential in the future developments of Augusta. A new $60 million building named the Hull McKnight Georgia Cyber Innovation and Training Center (GCITC), built in partnership with the State of Georgia, Augusta University, and others, is currently under construction. It is located on the waterfront, just blocks away from the Broad Street strip. Egan posits that this is the best location for Augusta to try to create a startup scene.

Egan explains, “The GCITC could house much more than just cyber-related innovation. It could be the home to The Clubhou.se and The Innovation Zone, host drop-in offices for incumbents like Booz Allen, and be a place for U.S. Cyber Command and government agencies like the National Security Agency to host competitions and workshops.” Augusta has its own unique challenges, but, with the right approach and leveraging the GCITC, it could build its own unique ecosystem.

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Government and Policy McNair Center

Medical Device Startups and the FDA

Does the FDA approval process impede innovation? Medical devices must be reviewed for safety and effectiveness by the Food and Drug Administration before being marketed in United States, which encompasses 43 percent of the global market for medical devices. Startups in the medical device industry are often dissatisfied with this approval process, favoring the FDA’s European Union peer, CE Marking. Some founders even believe the time consuming and expensive FDA process “holds back the entire industry.”

Classification of Medical Devices

The FDA classifies medical devices based on their associated risks. Class I devices, like enema kits and elastic bandages, have minimal potential for harm and are typically exempt from the regulatory process. Devices that present medium risk, like contact lenses, are classified as Class II and carefully reviewed. Class III devices, such as pacemakers and replacement heart valves, are the highest risk devices, subject to the most regulatory controls.

Blood Pressure Cuff -- Class II

The FDA categorizes devices based on their function, not their underlying technologies. These categorizations may cause unnecessary delays by imposing regulatory requirements on technologies that have already been tested. Ariel Dora Stern of Harvard Business School found that for devices based on the same technologies, those placed in already existing product categories took less time to approve than those placed in new categories.

Premarket Processes

There are two FDA processes required of medical devices in different classifications:  Premarket Notification 510(k) and Premarket Approval (PMA).

Most Class I and Class II devices can be marketed after receiving 510(k) clearance. It demonstrates that the device is “substantially equivalent” to a device already on the market. Those devices that can be paired with substantial equivalents or “predicate devices” do not require a PMA. The 510(k) clearance tends to take around 200 days and costs much less than PMA.

PMA is required for new Class III high-risk devices. Companies need to submit evidence that provides reasonable assurance that the device is safe and effective. The PMA can take more than 450 days and include the ongoing costs of clinical trials among other expenses.

The clinical study stage often takes as long as the initial concept development stage. Josh Makower, Aabed Meer and Lyn Denend at  Stanford University surveyed over 200 medical device companies and found that it took the companies an average of 31 months from first communication with the FDA to receive 510(k) clearance and 54 months for PMA. 81 percent of survey respondents believed that the FDA has a difficult time with novel technologies. Stern also found that the first device in any given category took 34 percent longer to receive approval than the next device in that category, leading to an average delay of 7.2 months.

Hefty Expenditures

Makower et al. found the average total cost to bring a low- to moderate-risk 510(k) product from concept to clearance was $31 million, with $24 million spent on FDA-related activities. For a higher-risk PMA product, the cost became $94 million, with $75 million spent on FDA requirements. Approximately 50 percent of medical device exits (acquisitions or IPOs) are under $100 million; 75 percent are under $150 million. As the cost of getting to market approaches the average exit value, the funding equation looks less attractive to venture capitalists.

Obstacles to True Innovation

It is likely that companies sometimes compromise and pursue the less risky yet also less innovative 510(k) route. They make relatively simple extensions to low-risk product lines already in existence. The FDA typically evaluates more than 4,000 510(k) notifications and about 40 original PMA applications each year. This means that only one percent of devices are innovative, new medical technologies that require clinical data to get FDA approval.

Challenges Facing Small Companies

Startups face particular challenges in navigating the FDA regulatory process. More than 80 percent of the 6,500 medical device companies in the U.S. have fewer than 50 employees. According to the industry-wide survey, 72 percent of small companies submit new products. Only 35 percent of large companies do this. The total average review time for small companies is 330 days, as opposed to 177 days for large companies. However, Stern found that privately-held firms with revenues under $500 million made up only 14 percent of FDA submissions for follow-on devices and 7 percent for novel devices.

CE Mark or FDA?

The EU represents 31 percent of the global medical device market, which has a projected value reaching $544 billion by 2020. Access to both the American and European markets gives startups 74 percent of the global market, worth $400 billion. Attempting both FDA approval and CE Mark approval simultaneously is not feasible for most companies

In 2012, a Boston Consulting Group study found that most PMA medical devices were available in Europe 3 years earlier than in the U.S. Makower et al. found it took medical technology firms an average of seven months to get CE Mark clearance and 11 months to get PMA for the EU. Approximately two-thirds of small medical device companies obtained clearance in Europe first. The number one reason is the unpredictability of 510(k) requirements, according to a comprehensive industry-wide survey conducted by John H. Linehan and Jan B. Pietzsch at Northwestern University.

The difficulty of obtaining FDA approval also makes it harder for startups to raise VC funding. In 2012, BCG interviewed venture capitalists on medical device investments and found that some investors would not invest in a medical device startup unless the company received a CE Mark and promised consequent revenues in Europe.

Conclusion

The value and importance of FDA approval are undeniable. However, policymakers should examine whether the lengthy and expensive FDA approval process is necessary. The FDA might consider reducing the length of the process for all applicants. It might also help if the FDA accommodates startups’ specific needs. This can be done by granting subsidies to small businesses, offering expedited paths to truly novel and needed technologies and providing equipment or space for conducting clinical trials to innovative startups.

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Government and Policy McNair Center

The Carried Interest Debate

In the 2016 election, carried interest and its taxation was a hot topic. Often explained as a “loophole” that allows the rich to exploit tax codes, carried interest is not a political issue that clearly fits within party lines. Lobbying by the financial sector occurs on both sides of the political aisle, and there are opponents and supporters within both parties. What are the dynamics of this debate, and what are the arguments for whether carried interest should be taxed differently?

Private Investment Funds

In the 2016 election, both Donald Trump and Hillary Clinton rallied against “hedge-funds” for paying so little tax. However, these comments were misleading. Clinton and Trump were actually talking about a tax rule that applies to a range of private investment funds.

A private investment fund invests capital with the goal of making returns for its investors. But within this description there is a lot of variety in the types of funds. Funds vary in their sources of capital, the targets of their investments and the roles they play in the economy.

https://commons.wikimedia.org/wiki/File:Fund_Structure.pngPrivate investment funds are typically set up as limited partnerships, rather than limited liability companies (LLCs). They organize themselves as general partners and limited partners. The general partners are the funds’ managers, which may be structured as a managing firm. Managing firms are often incorporated as an LLC. The limited partners are the funds’ investors. They are called limited partners because they are required to have limited involvement in the funds day-to-day activities. These investors are usually financial institutions, pension funds, insurance companies and wealthy individuals.

Rewarding General Partners

General partners invest in their own funds (typically contributing less than 5 percent of the capital) to make money. However, their compensation comes through management fees and carried interest. Usually around 2 percent of a fund’s raised capital goes to management fees.  Management fees are paid regardless of the fund’s performance and are there to cover operating costs and base salaries.

When a firm is set up it negotiates how excess returns – those paid after invested capital has been repaid – are shared. An 80/20 split between investors and managers is typical. Managers with strong track records can and do negotiate for more, sometime even offering to forgo management fees.  This 20 or so percent that goes to the managers is called “the carry” or, formally, the carried interest.

Types of Private Investment Funds

Common types of private investment funds include private equity funds, venture capital funds, hedge-funds and mutual funds.

Private equity funds generally invest in large companies with the intent to restructure and sell the firms for a gain. These investments usually mean acquiring controlling interests in public companies through stock purchases. The fund will then take the company private. Private companies can then be sold to another buyer or back to the public with a new initial public offering. However, private equity firms do also sometimes acquire private companies.

Venture capital funds invest in high-tech startup companies with high-growth potential. Once the fund purchases a stake in the company, it also provides coaching and other services to the company in order to increase its chances of success. Venture capital funds sell their positions at initial public offerings or when their portfolio companies get sold to incumbents or private equity firms.

Hedge funds focus on achieving high returns through risky investments. They differ from mutual funds in the diversity of their strategies and their underlying assets. Mutual funds typically only take long positions in stocks and bonds. Hedge funds can invest in anything. Their underlying assets include stocks, bonds, commodities, derivatives, warrants, futures, options, currencies, land, real-estate and much else besides. Hedge funds will often simultaneously take both long and short leveraged positions.

Tax Treatment

The carried interest controversy stems from its tax treatment. Carried interest is subject to a maximum capital gains tax rate of 20 percent (the long-term capital gains rate). This is compared to the maximum ordinary income tax rate of 39.6 percent, which is also the maximum short-term capital gains rate.

Those in favor of the current system believe that a higher rate would reduce the incentive for general partners to take risks. They sometimes specifically claim that greater taxes on carried interest could discourage innovation and efficiency in markets.

Those opposed to a reduced tax rate for carried interest frequently argue that carried interest is performance-based compensation.  Comparing it to a bonus, they say that it should be subject to the ordinary income rate.

The controversy surrounding carried interest has faced increasing media scrutiny since the 2012 election. Former Presidential Candidate Mitt Romney paid taxes of just $1.9 million on $13.69 million in income in 2011, an effective rate of 14.1 percent  Perhaps in response to the media and public uproar, the American Taxpayer Relief Act of 2012 raised what was then the long-term capital gains tax rate of 15 percent to 20 percent. President Obama signed this change into law on January 2, 2013.

The Economics

To economists the key question is one of efficiency: Would free markets achieve the efficient outcome without the additional incentive that carried interest provides? The answer probably depends on the type of private investment firm.

Venture capitalists face enormous information problems when trying to assess their potential investments. And many of their portfolio firms create value for outsiders who aren’t investors and who don’t use the firm’s products themselves. Each of these reasons leads to inefficient under-investment, which carried interest could help address.

Hedge-funds may make markets more complete by allowing investors to place capital into a wider range of underlying assets. Private equity firms may provide a “market for management” that disciplines publicly-traded firms. It is possible that without these types of investment vehicle there would be market failure, but it is unclear that they need additional incentives to address it.

Because mutual funds just aggregate and manage stock and bond portfolios – a job done by brokers and investors themselves – it is hard to see why they need subsidizing.

Looking to the Future

The House Republicans’ 2016 Tax Reform Proposal includes no explicit mention of carried interest. However, it does advocate for “reduced but progressive” capital gains taxes. If the administration chooses to adopt this plan, carried interest tax breaks could become even larger.

However, it is difficult to predict the fate of carried interest tax breaks, especially given President Trump’s past statements. During his campaign, Trump was highly critical of these tax breaks. He claimed that fund managers were “getting away with murder” by taking advantage of the rule. However, since taking office, Trump Administration has made no mention of its plans to address this tax code provision. The administration plans to reform U.S. tax law in the coming year, so carried interest is definitely a topic to look out for.

See the McNair Center’s wiki page on Carried Interest for further explanation of the dynamics of carried interest.

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Government and Policy McNair Center

Global Policy Uncertainty and U.S. Stock Trends

The Financial Times has predicted that “the rise of Donald Trump may already be casting a shadow over the global economy.”

When it comes to the Trump Administration, the world is unsure what policies to expect. Trump’s positions on international trade and tendency toward nationalist policies are a concern for the rest of the world. However, the U.S. stock market is performing at record-breaking highs. Economic research has linked policy uncertainty to stock market slowdowns. If this is so, why is the American stock market responding so positively?

Policy Uncertainty

With President Trump’s unprecedented actions and unpredictable behavior, policy uncertainty seems like the only thing that is certain. With unbroken ties to his family businesses, casual use of Twitter, and frequent attacks on the media, President Trump is shaping up to be different than any president that America has seen before.

When it comes to policy, much of the Trump administration’s plans are unclear. Throughout his campaign, Trump took many different positions on major issues. For example, Trump claimed in multiple campaign speeches that the wealthy should pay higher taxes, saying “Right now they are paying very little tax and I think it’s outrageous.” However, in Trump’s August 2016 tax plan, the top 20 percent of earners would receive 67 percent of the overall individual tax cuts.

Whitehouse.gov also contains pages on high-priority goals for the Trump administration, such as the military, jobs and growth, and energy. However, it offers minimal details as to how the administration plans to accomplish these goals.

Uncertainty and Investment

Typically, we expect policy uncertainty to affect investment, reflected through stock markets and other economic measures. Moody’s Analytics explains that uncertainty theoretically raises the cost of capital, postpones consumer spending and creates an incentive for employers to slow hiring and investing.

Economists Lubos Pastor and Pietro Veronesi of the University of Chicago Booth School of Business developed an economic model that directly related policy uncertainty and stock prices. The model predicts that stock prices respond negatively to policy uncertainty; when uncertainty is large, the reaction is largely negative.

A study by Scott Baker of Northwestern University, Nick Bloom of Stanford University and Steven Davis of the University of Chicago found that policy uncertainty also negatively affects firm employment and investment. “Firms with greater exposure to government purchases experience greater stock price volatility when policy uncertainty is high and reduced investment rates and employment growth when policy uncertainty rises,” the authors explain. Citing household hesitations in spending, finance cost increases, and risk aversive behavior, and market rigidities/frictions as factors, the researchers claim that uncertainty can deeply impact decisions at a microeconomic level.

Nonetheless, scholars still do not completely understand the true effects of policy uncertainty on the economy. Moody’s Analytics found that “a sudden spike [in uncertainty] can have economic costs, but it can also be used as an excuse for weakness in the economy when there could be other clear causes;” this is especially true during presidential elections. The study asserted that policy uncertainty will likely remain high as the Trump Administration enacts new policies; however, the economic costs attributed directly to policy uncertainty will likely remain minimal.

Current Uncertainty and Economic Trends

Quantitatively, it is clear that global policy uncertainty is reaching unforeseen levels. In January 2017, the month of Trump’s inauguration, the Global Economic Policy Uncertainty Index reached the highest levels observed since the index began in the late 1990s.

The World Bank cites policy uncertainty as a cause for economic slowdowns in 2016-2017. Emerging market economies and world trade performance are both weaker now than in previous years.

When we focus in on United States, however, the narrative is different. The U.S. stock market has been

https://commons.wikimedia.org/wiki/File:Trump_address_to_joint_session_of_Congress_2.jpg
On March 1, the President Trump addressed a joint session of congress and the Dow closed at over 21,000 points for the first time.

performing relatively well since Trump’s election. Following an initial negative reaction on the morning of November 9, stock markets have reached new heights since November. On the first day of March, the Dow broke records by closing above 21,000 points for the first time, and in mid-March, the Nasdaq composite hit an all-time high.

Why has the U.S. Economy Responded this Way?

There are many potential reasons why the U.S. stock market has responded so positively in the face of high global policy uncertainty.

“Major international institutions such as the IMF, the OECD and World Bank have recently upgraded their forecasts of global economic growth largely due to expectations that tax cuts, rising infrastructure spending and a wave of deregulation will boost the US economy under the new president,” the Financial Times claims. All three of these proposals are good signs for the stock market. Trump’s intended timeline for these policies is unclear, but stock markets may be betting that they will be implemented eventually.

The stock market’s strong performance could also be linked to Trump’s approval ratings. A study by Ned Davis Research found that a low presidential approval rating corresponds with gains in the stock market. According to Gallup, Trump’s approval are ratings lower than any other president that they have tracked in 72 years. The NDR research only specified that there is a correlation between these two factors, but not causation. If there is any deeper causal connection between presidential approval ratings and stocks, then Trump’s low approval rating could explain recent trends.

Will it Last?

There is also a possibility that this boom is only temporary. Economist Larry Summers believes that this is the case. He cites future nationalist policies and increasing insider sales, among other factors, as the potential downfall of U.S. stocks. Along with this, Foreign Policy argues that the Trump Administration is taking the wrong approach to boosting the economy; most of the benefits will be enjoyed by the wealthy. Research shows that fiscal spending that focuses on helping low-income individuals/families has a more positive long-run economic impact. However, the Trump Administration is not placing much emphasis on these types of programs. Further, Trump has even suggested cutting large portions of programs meant to help low-income Americans.

Conclusion

It is too early to predict what the next four years will mean for the economy. Although news outlets and social media may make it feel as though unprecedented amounts of uncertainty to the United States, the economy does not seem to be responding to this uncertainty negatively, at least for now. In the short term, we can view this as a positive trend; nonetheless, we must be wary of any potential downturns in the future.
The author would like to acknowledge Dr. Russell Green at Rice University’s Baker Institute for providing the idea and framework for this post.

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Government and Policy McNair Center

Congress Turns Its Attention to Entrepreneurship and Innovation—But Does It Take Effective Action?

U.S. Capitol west side by Martin Falbisoner

AnnesGraphLegislation passed during the first three months of  the 115th Congress pays disproportionate attention to entrepreneurship and innovation. McNair Center research shows that in a typical congressional session, less than 2 percent of legislation introduced is relevant to E&I issues. As of March 23, three of the ten bills that have become law during the 115th Congress directly address entrepreneurship and innovation.

A focus on entrepreneurship and innovation issues does not alone make for effective policy. Of the three E&I bills that have become law, only one, the Tested Ability to Leverage Exceptional National Talent (TALENT) Act supports a proven program, the Presidential Innovation Fellows. The other two laws, the Promoting Women in Entrepreneurship Act and the Inspiring the Next Space Pioneers, Innovators, Researchers, and Explorers (INSPIRE) Act, are devoid of meaningful changes to public policy.

TALENT Act: Codifying a Proven Program

The TALENT Act is the most likely of the three bills to have real world impact. This bill, sponsored by Majority Leader Kevin McCarthy (R-CA23), codifies the Presidential Innovation Fellows program begun as an executive order under President Obama. This bill was part of McCarthy’s Innovation Initiative, a suite of legislation introduced in the 114th Congress. In an interview with Fortune, McCarthy described his goal for the initiative as, making government “effective, efficient and accountable.”

The McNair Center’s Julia Wang explains that Innovation Fellows are embedded in government agencies, working to effect internal change. Projects include making information about clinical trials for cancer drugs available to patients in a searchable website as part of the Cancer Moonshot, developing an interagency data portal for child welfare and creating Uncle Sam’s List, which enables government agencies to in-source services from other federal agencies.

Promoting Women in Entrepreneurship and Innovation

The lag in women’s participation in entrepreneurship and innovation is a matter worthy of public policy attention as the McNair Center’s Tay Jacobe details; however, the Promoting Women in Entrepreneurship Act and the INSPIRE Act do little to address these issues.

Women in the NSF I-Corps

nsf-i-corps-oct-20111
The 2011 pilot I-Corps program was a mixed gender group, although women do appear to be in the minority.

The Promoting Women in Entrepreneurship Act directs the National Science Foundation to “encourage its entrepreneurial programs to recruit and support women.” The NSF’s premier entrepreneurship program is the Innovation Corps (I-Corps). I-Corps uses Steve Blank’s Lean Launchpad method to train NSF-funded scientists to turn their research findings into entrepreneurial ventures. Scientists who successfully complete the I-Corps program can receive additional support for their ventures. NSF’s Small Business Innovation Research/Small Business Technology Transfer (SBIR/SBTT) programs financially support I-Corps.

When the bill was debated during the 114th Congress, the bill’s sponsor, Representative Elizabeth Esty (D-CT5), and the bill’s cosponsors did not present any evidence that the current NSF programs were failing to enroll women scientists and engineers. A picture of the 2011 pilot I-Corps program on Steve Blank’s blog shows a mixed gender group, although women do appear to be in the minority.

Several premier research universities, including Rice University, host I-Corps programs. The federal government requires that all participating universities are in compliance with Title IX, which prohibits sex discrimination in educational programs, in order to receive funding.

Hidden Figures No More: Women in STEM at NASA

The INSPIRE Act directs NASA to continue support of three current initiatives. All of these programs seek to encourage girls and young women to pursue careers in STEM. Two of these initiatives—NASA Girls and NASA Boys and Aspire to Inspire—provide interested students with virtual contact with NASA mentors. The third—the Summer Institute in Science, Technology, Engineering, and Research (SISTER)—is a week-long program for middle school girls at Maryland’s Goddard Space Flight Center.

Sponsored by Representative Barbara Comstock (R-VA10), this legislation directs NASA to continue supporting these programs, but does not mention expansion. The INSPIRE Act did not appropriate funds to support these programs, but funds were appropriated for NASA’s Office of Education in the agency’s fiscal 2017 budget, which became law on March 21.

President Trump’s budget proposal for fiscal year 2018 eliminates funds for the NASA Office of Education , although NASA Acting Administrator Robert Lightfoot promises that the agency will  “continue to use every opportunity to support the next generation through engagement in our missions and the many ways that our work encourages the public to discover more” even if funds are not appropriated for the Office of Education.

The INSPIRE Act requires NASA to submit a plan to Congress on outreach to women. This will encourage communication between female K-12 students and retired astronauts, scientists, and engineers. In the floor debate, both Comstock and cosponsor Esty cited the importance of visible role models in motivating  young women to pursue STEM.

Nonetheless, the bill’s narrow scope will limit the effects of the INSPIRE Act. If Congress removes NASA Education Office funding in fiscal year 2018, INSPIRE, which received bipartisan support, will only result in a report on educational activities that the agency would have difficulty funding.

Impact

All three acts passed Congress with bipartisan support. This suggests a shared interest in furthering government innovation and expanding access to careers in entrepreneurship and STEM. This support also implies that political leaders are prioritizing action on the rapidly expanding high-tech, high-growth sector. This sector now accounts for one fifth of the U.S. economy.

Would Congress be willing to go beyond the limited scope of these bills to effect truly innovative public policy? Past congressional sessions have devoted little attention these issues. However, Majority Leader McCarthy’s Innovation Initiative, including all three of the discussed bills, suggests that this neglect will not continue.

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Government and Policy McNair Center Small Business

Crowdfunding

What is crowdfunding?

Crowdfunding is constantly evolving and hard to define. Elizabeth M. Gerber at Northwestern University defines crowdfunding as “an open call over the Internet for financial resources in the form of a monetary donation, sometimes in exchange for a future product, service or reward.” Due to the ease and availability of crowdfunding sites, crowdfunding has changed the way entrepreneurs source funds.

A typical modern crowdfunding campaign begins with a page on a crowdfunding website. The page describes the concept of the project, the fundraising goal and the rewards for backers. Videos, sketches and graphics demonstrate the potential of the idea. From there, backers can donate money in exchange for tiered rewards, usually depending on the amount of money contributed.

History

The first popular online crowdfunding platform, AristShare, launched in 2003 as a way for musicians to receive funds to produce new music. Artists could offer incentives to investors, like exclusive access to content or previews. This reward-based structure made the deal appealing to both artists and contributors.http://i.vimeocdn.com/video/590376642_1280x720.jpg

After the success of smaller, niche-based crowdfunding sites like AristShare, larger and broader sites took hold of the crowdfunding scene. Two of the most successful, Indiegogo and Kickstarter, were founded in 2008 and 2009, respectively. Kickstarter boasts that since their founding, more than 12 million people have contributed funds to entrepreneurs, pledging more than $2.9 billion. Indiegogo is similarly successful, raising more than $1 billion from 11 million backers.

A crowdfunding project meeting its goal does not always mean that the project will be successful in the long run. Crowdfunding campaigns can be successful if their product seems exciting to backers, but if their business plan is not sound, then it is hard to maintain success beyond the initial crowdfunding. For example, one of Indiegogo’s most popular campaigns, a high-tech smartphone concept called the Ubuntu Edge, was unable to go into production due to financial issues even though the project had raised the second highest amount of money in Indiegogo’s history.

In 2015, Crowd Expert estimated that the crowdfunding industry was worth approximately $17.25 billion. In comparison, Venture Capital in 2015 was estimated at $58.8 billion.

Successes and Failures

The most basic measure of success for crowdfunding campaigns is whether the project reaches its goal. Research from Ethan Mollick at the Wharton School of the University of Pennsylvania indicates that being successful in a crowdfunding campaign requires strategic planning. “Crowdfunding projects mostly succeed by narrow margins, or else fail by large amounts,” Mollick asserts. Kickstarter’s records back up this claim. Kickstarter’s success rate is only 35.72 percent, meaning that only about one third of projects reach their goals.

Researchers at Northwestern attempted to understand the dynamics of successful crowdfunding campaigns. Using data from previous Kickstarter projects, they used machine learning to try to predict the success of projects. Their algorithm analyzed different factors of project pages, considering aspects like number of sentences in project description, length of campaign, goal of project and number of rewards available, among others. The accuracy rate for this research was 67 percent. This research shows that although some factors can success in some cases, there is no exact recipe for a successful campaign. The researchers explained, “There is a possibility of the existence of a hidden variable that would help us classify better.”

Nonetheless, certain crowdfunding projects receive immense support and go on to experience long-term success through being acquired, undergoing an IPO or surviving as an independent business. The most successful Kickstarter campaign of all time, a smartwatch called Pebble Time, was able to raise over $20 million even though the initial goal was only $500,000. Pebble produced and shipped over 2 million watches before shutting down operations in December 2016, selling its key assets and intellectual property to Fitbit. Indiegogo has also seen projects that turned into profitable businesses, like the Flow Hive and the SONDORS Electric Bike. Both of these startups have grown since their campaigns and expanded their product lines.

Economic Implications

Crowdfunding might be an effective way to use private action to stimulate the economy and help small businesses and startups. For individuals who have difficulty initially accessing angel investment, venture capital or bank loans, crowdfunding can provide an alternative. A successful crowdfunding campaign can enable small businesses to access these more traditional types of funding later in their lifetimes.

A study in 2015 in the Thunderbird International Business Review qualified crowdfunding as a Fast-Expanding Market. FEMs are characterized by youth, rapid growth and highly lucrative results. Crowdfunding encourages virtual “formation of clusters of expertise and capability,” encouraging collaboration across the world. Adding to the “efficiency and productivity in the community value chain,” researchers also speculate that crowdfunding has the potential to bring Small and Medium-sized Enterprises (SMEs) out of sluggish growth rates.

Crowdfunding Policy

Equity crowdfunding allows investors to purchase a small equity or bond-like share in a business.

In 2011 and 2012, mainstream media brought attention to the Facebook Problem. Facebook filed complaints regarding the threshold on private investors that a company could have without registering with the Securities and Exchange Commission. Facebook considered the threshold, 500, far too low. In response, the SEC’s JOBS act in 2012 raised this threshold to 2000. Although this policy change initially intended mainly to help companies like Facebook, it inadvertently affected equity crowdfunding positively. The regulations allowed more investors per equity crowdfunding campaign.

In May 2016, another SEC regulation update gave equity crowdfunding sellers and investors even more leniency. The new policy exempted small crowdfunding operations from certain SEC regulations on investing. To qualify for exemption, issuers may only raise up to $1 million in crowdfunding per year; investors can only contribute a certain percentage of their income per year. The SEC also regulates the extent to which crowdfunding portals can involve themselves in users’ crowdfunding transactions. Although equity crowdfunding may help small businesses get initial capital, it may affect the firm’s ability to raise follow-on funds later in the process.

Nonetheless, there are still other crowdfunding policy issues that the SEC may need to address. The updated regulations place a financial burden on portals, holding them liable in certain cases of issuers not keeping promises. They may also pay too little attention to the size of businesses/individuals that use crowdfunding to raise funds.

Conclusion

Crowdfunding has potential to shake the dynamics of investment in the coming decades. We need to ensure that the regulations surrounding this market are desirable for investors, issuers and crowdfunding portals.

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Government and Policy McNair Center

The International Entrepreneur Rule: The US Startup Visa

SAN FRANCISCO, CA - SEPTEMBER 7: Atmosphere during the TechCrunch Disrupt SF 2013 Hackathon inside The Concourse at San Francisco Design Center on September 7, 2013 in San Francisco, California. (Photo by Jeff Bottari/TechCrunch) *** Local Caption ***

The Obama administration proposed new provisions for immigrant entrepreneurs in August 2016. The administration designed the proposal to attract international entrepreneurial talent to the United States, especially in advanced technology fields. In mid-January, with only days left in President Obama’s term, the United States Citizenship and Immigration Services (USCIS) finalized the details of the “International Entrepreneur Rule.” It is scheduled to go into effect on July 17, 2017. Whether it goes into effect will depend on President Trump’s immigration plan, which may see changes in the current H1-B visa program.
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Overview

The International Entrepreneur Rule would allow USCIS to grant discretionary parole to international entrepreneurs for two and a half years . However, entrepreneurs may struggle to qualify for a parole grant unless they are already involved in a successful venture. The rule states that first-time applicants must own at least 10% of a U.S. startup that is less than five years old and play a significant role in its management.

Applicants must also demonstrate that their startup has high potential for growth and job creation. The two main avenues for satisfying this criterion are demonstrating that the company has received $250,000 or more in venture capital from “established U.S. investors” or at least $100,000 or more in funding from government entities. Applicants that do not meet these standards may still qualify if they can demonstrate “significant public benefit that would be provided by the applicant’s (or family’s) parole into the United States.”

After their initial parole is over, entrepreneurs may apply to extend their stay for an additional two and a half years. In order to receive an extension, entrepreneurs must show that their startups have “shown signs of significant growth.” A total of two parole grants is the maximum; there are no further extensions. If entrepreneurs wish to stay longer, they must find another method to secure a visa or a green card.

Analysis

When this rule was originally proposed by the Obama administration, it received early praise; Tim Ryan, the co-founder of Startup San Diego, applauded the proposal as a step in the right direction.

However, government agencies only expect this rule to impact a very limited number of entrepreneurs. The Department of Homeland Security estimates that a mere 2,940 international entrepreneurs will qualify annually. DHS also estimates they will bring approximately 3,234 dependents and spouses. In contrast, the USCIS approved 85,000 H1-B visas in the 2014 fiscal year.

The high level of investment required may serve as a hurdle for applicants. Y Combinator, widely considered the world’s best startup accelerator, only offers startups a maximum of $120,000 in investment funding. However, to qualify for the proposed International Entrepreneur Rule, USCIS expects companies to have at least $250,000. Not only that, but this money must come from investors with a record of repeated investment successes. Some policy advocates worry that there simply will not be enough reputable investors able to provide that level of funding. Moreover, even if some investors can fulfill the requirement, they may not all have the necessary experience to satisfy the rule.

The rule may help to keep entrepreneurial talent in the U.S., but will do little to attract new recruits. The applicant pool may be limited by the requirements that the company must be U.S.-founded and that the applicant have a significant role in the company. Because of these specifications, applicants must be individuals who are already in the U.S. Nonetheless, this rule may help international students at U.S. universities who are unable to acquire H-1B visas.

There is also an issue of time — entrepreneurs only have five years, maximum. The high levels of investment required for initial application and renewal may put strain on startups. TechCrunch puts the average time of an “IPO-track startup” at about seven years, although it can take up to ten years. Given this information, the parole periods may not be long enough to positively impact startups.

Ultimately, potential investors may view the startup visa as an undesirable risk. Investors will be aware of the possibility that a company, or at least its key members, could lose immigration status.

Lastly, it is unclear whether the Trump Administration will alter the details of the rule. A Department of Homeland Security spokesman informed CNN on January 23 that the DHS is still awaiting guidance on how President Trump’s executive order freezing new and pending regulations will impact the International Entrepreneur Rule’s implementation.

Learning from Other Countries

The U.S. is not the first to propose a visa for startup entrepreneurs. Many other countries have established their own processes for admitting international entrepreneurs, including the United Kingdom, Canada and France.

The U.K. allows individuals wishing to set up or take over a business within its borders to apply for a Tier 1 (Entrepreneurship) Visa which can be extended before they can apply for settlement or an indefinite leave to remain. The U.K.’s financial requirements for applicants are also more flexible than the U.S. requirements in sources and amounts of funding. The U.K. startup visa does not require that applicants start the business themselves. Instead, intention of starting a new business, taking over one or providing significant funding is enough.

Canada seeks to attract innovative talent by tying them to government-approved Canadian entities with a goal of facilitating long-term success. The Canadian Start-Up Visa Program focuses on the creation of new startups. Applicants must obtain at least one letter of support that details funding from a list of designated organizations. This includes venture capital funds, angel investor groups and business incubators.

France launched its French Tech Visa in 2016 to complement the “French Tech Ticket” program it began in 2015. The French Tech Ticket program selects 70 international entrepreneur teams and provides funding and support with a French incubator for a year. The French Tech Visa expands this program to attract foreign startup founders, exceptional talent, investors and angels by offering renewable visas.

The U.S. could look into incorporating aspects of these programs to compete for the top foreign entrepreneurs. For example, the entrepreneurs can only renew this visa once; perhaps lawmakers could extend its duration or allow additional renewals. The U.S. could also aid the integration of accepted businesses into the startup and tech communities. These changes, however, would be dependent on President Trump’s immigration policy.

Conclusion

Eligibility requirements of the International Entrepreneur Rule are rigorous, and the time period allotted by the visa is short. It is reasonable to assume that the proposed startup visa would have little, if any, economic impact. Moreover, if President Trump repeals the order, there may be little hope for a truly meaningful startup visa. While Trump vows to “establish new immigration controls to boost wages and to ensure that open jobs are offered to American workers first,” his exact plans for reforming H-1B visas, including the possibility of a startup visa, are unclear.

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Government and Policy McNair Center

Reducing Recidivism through Entrepreneurship

Reducing Recidivism through Entrepreneurship

High rates of recidivism in the United States negatively affect prisons, inmates, the government and tax-paying citizens. In 2013, the U.S. imprisoned 2,220,300 people. A Bureau of Justice Statistics study found that within three years of release, 67.8% of released prisoners were rearrested. Utah_State_Prison_Wasatch_FacilityWithin five years, 76.6% of released prisoners were rearrested.

Researchers typically link recidivism to unemployment, low levels of education, mental health problems, inability to re-integrate into society after prison, impulsiveness, association with other criminals, family instability and as well as other factors.

High levels of recidivism costs states millions of dollars; A Pew Charitable Trusts study estimated that if 41 states cut their recidivism rates by 10%, they would save $635 million. On top of the monetary costs for the states, recidivism rates have a negative effect on families and communities including family instability and a higher probability that a family will live in poverty. Solving the recidivism issue would not only save the government and taxpayers money, but it would also improve the lives of former inmates and those around them.

Entrepreneurship Potential of Inmates

A variety of entrepreneurs and public service organizations have developed programs to empower prisoners and combat high recidivism rates. Notable social entrepreneurship programs such as the Last Mile and Cafe Momentum provide leadership skills and help reduce recidivism through a variety of methods. The Last Mile, as the McNair Center’s Julia Wang describes, focuses on teaching inmates business and computer skills in California. Cafe Momentum, a functional restaurant in Dallas, gives released youth offenders transferable life skills related to the restaurant industry.

While social entrepreneurship is a start, what about actually teaching entrepreneurship skills to prisoners?

While some might assume that inmates are incapable of holding down a job, let alone establishing their own businesses, the reality is that many people leaving the prison system are potential entrepreneurs. Inmates that took the Miner Sentence Completion Scale-Form T test, an assessment of entrepreneurial aptitude, scored higher than average entrepreneurs, slow-growth entrepreneurs and manager scientists. Additionally, many inmates are in prison due to their participation in illegal forms of entrepreneurship, including drug trafficking and smuggling. In Freakonomics, Steven Levitt remarks that the gang in Sudhir Venkatesh’s study of the drug trade acted as a franchise for the larger Black Disciples organization. Coupled with the willingness to take risks that characterizes many inmates, prisoners could be prime candidates for entrepreneurship.

Prison Entrepreneurship Program

One of the most notable and successful programs is the Prison Entrepreneurship Program (PEP), an innovative rehabilitation program aimed at transforming inmates in Texas. PEP places carefully selected inmates through a four-month business education program. This program teaches them skills valuable in entrepreneurial settings, including financial literacy, an employment workshop, a business etiquette course and a Toastmasters class. Participants take over forty exams and interact with business executives. The final exam involves a thirty-minute business-plan presentation. PEP also provides a prison-release and post-prison components including follow-up and startup mentoring.

PEP’s results demonstrate a fantastic return on investment, especially given the 1,300+ participants. 100% of PEP graduates find jobs within 90 days of release. Nearly 100% of these graduates stay employed after a year. Since 2004, PEP graduates have launched more than 200 businesses. Six of these generate over $1 million in gross annual revenue. Most importantly, PEP graduates have a recidivism rate of less than 7%.

Defy Ventures

Defy Ventures also provides an entrepreneurial education to inmates. This national organization, which mostly operates in New York and California, describes itself as “an entrepreneurship, employment and character development training program for currently and formerly incarcerated men, women and youth.” It puts former inmates, mostly former leaders of drug rings and gangs, through a two-month training program. Defy Ventures graduates of this program are eligible to apply for a 12-month entrepreneurship program in which they compete for startup grants. This program has a 3% recidivism rate and has produced more than 150 startups. Most of these startups are small businesses, such as eco-friendly cleaning services. Defy has distributed over half a million dollars to these startups and small businesses through business-pitch competition awards and micro-loans. Additionally, participants report a 95% employment rate within 7 months of enrolling in Defy.

Inmates to Entrepreneurs

Inmates to Entrepreneurs provides educational seminars on entrepreneurship, online resources and group-based support to help former inmates start low-capital businesses. This program, based in North Carolina, focuses on giving seminars on starting businesses in local prisons to inmates with six or fewer months to serve. Additionally, the organization brings in ex-offender mentors who run successful businesses. A.J. Ware, a member of the Board of Directors for this nonprofit noted in a TEDxRaleigh talk that participating inmates had less than a 3% recidivism rate. Additionally, former inmates had 75% employment rate within 90 days of release. Ware also stated that in 2012, participants started 14 business. Inmates to Entrepreneurs is unique in its ability to provide large-scale learning. Its online resources and seminars are easier to implement in a variety of locations compared to the other two programs.

For the Future

These three programs illustrate the potential of entrepreneurship programs in reducing U.S. recidivism rates. Expansion of these programs could potentially make the same positive impact on prison populations across the nation. However, it is also possible that the small size of these programs is integral to their success.

All of the programs described here carefully select a small group of participants. It may not be possible to target all parts of the prison population. Many of these programs have a competitive application process and low acceptance rate. Researchers could conduct further studies to see the effects of entrepreneurship programs on a large scale without rigorous selection criteria.

It may be impossible to use these programs to help all prisoners, so how many can these programs help? A 2012 Bureau of Justice Statistics statistic table on federal arrests indicates that approximately 20% of inmates could have entrepreneurial potential based on their crime. White-collar crime and drug trafficking offenses all indicate entrepreneurship potential. Targeting these specific offenders with entrepreneurship programs can help reduce recidivism.

Focusing on a small subset of the population still has long-term beneficial effects for inmates and their communities. PEP has a 340% return on every dollar donated due to reduced recidivism and reliance on government assistance. The potential economic benefit of an expansion of these programs could save the government and taxpayers millions of dollars.

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Government and Policy McNair Center

Patents and the Cancer Moonshot

Patents and the Cancer Moonshot: How Subject Matter Eligibility Affects Research

When standard cancer treatments fail, some doctors are turning to the developing field of immunotherapy. Immunotherapy involves treatments that use the patient’s own immune system to combat cancer. Both pharmaceutical companies and the federal government see the promise in funding research in this innovative field. However, R&D in cancer treatments is a time-intensive process, and it takes months, if not years, before doctors can bring cutting-edge research to their patients.

In January 2016, President Barack Obama called for the Cancer Moonshot to double the rate of progress in cancer research. Vice President Joe Biden traveled across the country and the world (including to Rice University) to collect information on current barriers in cancer research, like inefficiencies in the patent process. However, is the lengthy patent examination process truly what is slowing cancer research?

Accelerating the Process with “Patents 4 Patients”

To help accelerate cancer research, the United States Patent and Trademark Office launched the Cancer Immunotherapy Pilot Program (also known as “Patents 4 Patients”) in July 2016. This program aims to fast track the review of patents that involve treating cancer using immunotherapy.

Usually, the USPTO examines patents in order of their U.S. filing dates. However, under “Patents 4 Patients,” the Patent Office will grant special status to patent applications relating to cancer immunotherapy. The USPTO aims to finish examining petitions submitted before June 29, 2017 within twelve months of granting special status.

Often, USPTO examination takes a long time. Over the last two years, first office action pendency, or how long it takes to mail a First Office Action after a patent application is filed, takes an average of 16.5 months. Additionally, traditional total pendency, or how long it takes to decide whether to issue or abandon a patent, takes an average of 26.4 months. The new Pilot Program certainly has the potential to reduce these wait times. However, long patent examination periods are not the only barriers that researchers face when developing cancer treatments.

Patent Subject Matter Eligibility: A Look at Section 101

Under Section 101 of Title 35 of the United States Code, “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement” is patent-eligible. Over the past few years, the U.S. Supreme Court has affected what is patentable. Under judicially recognized exceptions, laws of nature, natural phenomena and abstract ideas cannot be patented.

Most controversially, in Mayo v. Prometheus (2012), the Court held that correlations between blood test results and patient health were “laws of nature” and that any claims relating to these correlations were patent ineligible under 35 U.S.C. §101. Similarly, in AMP v. Myriad (2013), the Supreme Court held that claims relating to isolations of naturally occurring DNA cannot be patented.

Because of these decisions, the USPTO has rejected or abandoned many patents relating to cancer immunotherapy treatment on the basis that they claim laws of nature. According to Patently-O, patent rejections based on Section 101 objections increased substantially after the Mayo ruling from 15.9% of office actions to 86.1%.

For example, the USPTO has rejected patents relating to using gene expressions to predict chances of breast cancer (US20100035240A1) and using a specific protein as an early indicator of cancer (US20150072355A1) because they are applications of laws of nature. However, unlike the USPTO, the patent offices in Europe, Japan, and China have accepted these applications and granted their patents. Current U.S. patent law does not conform with internationally recognized forms of patent eligibility. Stifling the progress of research through patent rejections does not bode well for U.S. cancer patients. By refusing to protect emerging discoveries, the USPTO undermines cancer treatment research, especially in innovative fields like immunotherapy.

More Barriers with the FDA Approval Process

Even after a treatment is patented, it can take years to go through the phases of the clinical trial process. Phase I and II determine the safety and promise of a treatment. Phase III tests the effectiveness of the new treatment compared to existing standards. After successfully going through trials, companies file a New Drug Application (NDA) for Food and Drug Administration (FDA) approval.

According to DiMasi, Grabowski and Hansen (2016), clinical trials take an average of 9 years and 8 months. After a company submits an NDA, the FDA takes an average of 16 months to review it. This lengthy approval process further slows down R&D in cancer treatment.

Improving Subject Matter Eligibility Guidelines

Excludability in fast-growing fields like immunotherapy is extremely valuable in the early stages of R&D. Patents provide stability and a relative level of certainty, so a more quickly granted patent can help firms stake their claim in a developing treatment. However, the higher amount of claims rejections decreases the probability that companies will be able to protect their research. Questions about what is patent-eligible material could discourage investment and deprive researchers of necessary funding.

The Cancer Moonshot initiative is eager to make the patent process more efficient to quicken the progress of cancer treatment. While Patents 4 Patients could potentially help expedite research, long pendency periods are not the only barrier to accelerating research. Many discoveries are patentable, nonobvious applications of laws of nature. Yet, after recent court rulings, the USPTO still rejects their patent applications.

In late 2016, the USPTO held two roundtables to improve the its guidance for patent examiners on subject-matter eligibility.  As judges and policymakers continue to define what can be patented, they must recognize the impact of their decisions on cancer treatment innovation.

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Government and Policy McNair Center Women

The Right to Entrepreneurship

Entrepreneurship and human rights are not frequently mentioned in the same conversation in the United States. However, in international policy, human rights and entrepreneurship are linked by many common policy goals, including enforcing the rule of law, improving infrastructure and fighting corruption. Rights necessary to pursue entrepreneurial endeavors–like the right to participate in the economy, the rights to education and information and access to credit–are considered crucial for the world’s poor. By pursuing these goals, human rights activists and entrepreneurship advocates can work together for the good of all.

https://upload.wikimedia.org/wikipedia/commons/d/de/UN_Geneva_Human_Rights_and_Alliance_of_Civilizations_Room.jpg The UN Human Rights Council meets here.
The UN Human Rights Council meets in Alliance of Civilizations room in Geneva.

Human Rights

Human rights are defined by the UN Office of the High Commissioner for Human Rights as “rights inherent to all human beings, whatever our nationality, place of residence, sex, national or ethnic origin, colour, religion, language or any other status.” Since the 1948 UN Universal Declaration of Human Rights, criteria has changed. Nonetheless, human rights continue to be a top priority in international law. According to the Department of State, the U.S. places an emphasis on human rights while pursuing foreign policy goals:  “A central goal of U.S. foreign policy has been the promotion of respect for human rights, as embodied in the Universal Declaration of Human Rights.”

A Mutually Beneficial Relationship

Human rights and entrepreneurship have the ability to reinforce one another. Hrishikesh D. Vinod of Fordham University examined the policy and advocacy goals of entrepreneurship and human rights, looking for areas for collaboration. He identified five key areas where the goals of entrepreneurs and rights advocates align: promotion of fair competition, creating infrastructure, protecting migration rights, exposing government corruption and preservation of the rule of law. Vinod describes entrepreneurship and human rights as natural allies. He notes that “their cooperation is likely to become a potent force for a worldwide progressive change.”

A study done by the Pontifical Catholic University of Peru helps to demonstrate Vinod’s argument in action. In this study, implementation of a human rights awareness and training campaign in Central Asia by a nongovernmental group increased new micro-businesses by five percent. The researchers who conducted this study urged that “the time is now ripe for acceptance of human rights approach to development of entrepreneurship as the human rights and entrepreneurship share a preoccupation not only with necessary outcomes for improving the lives of the people but also with better processes.”

The Right to Entrepreneurship

The United Nations Development Programme asserts that the rights that allow someone to start a business or become self-employed are “essential for the livelihoods of the poor.” The UNDP stresses that micro-entrepreneurship and self-employment are often the only option for the poor to generate money. Protection of these rights can impact many lives.

The right to entrepreneurship, along with other economic rights, can lead to the promotion of other social and political rights. A study commissioned by the World Bank explains the nature of the relationship: “The importance of participation in economic decision-making demonstrates how civil and political rights and socio-economic rights are mutually supportive, and why human rights recognize them to be interrelated, indivisible and interdependent.” For example, micro-credit and micro-entrepreneurship can increase economic, social and political empowerment of the poor, especially poor women. The Benazir Income Support Program offers small loans to women in Pakistan to pay for expenses and pursue entrepreneurship opportunities. However, this program did more than just bolster these women’s rights to entrepreneurship; the program also resulted in previously “unregistered” women becoming “registered,” giving them access to other social and political rights.

A 2010 study on women in rural Bangladesh also noticed a connection between entrepreneurship and other rights. Bangladeshi women often don’t have the opportunity to become formally involved in the economy. In this study, small bank loans gave them capital to start micro-businesses and increase their economic empowerment. With the ability to participate in trade, women can use their newfound security to pursue other rights as well.

In 2008, the Harvard Human Rights Journal pushed for the promotion of entrepreneurial rights of the poor. In their recommendation for the U.S. Human Rights agenda going forward, they suggested that the U.S. increase micro-entrepreneurship funding for other countries “because we know it works.” They added that it is “up to us to focus our resources on building a new generation of small entrepreneurs in the developing world.”

How Can This Impact Policy Decisions?

Knowing that entrepreneurship and human rights have the power to reinforce one another, we can create policy that accelerates both. When we protect human rights, individuals can feel empowered and safe to explore entrepreneurial endeavors. The trend works in the opposite direction as well; possessing the right to entrepreneurship can empower individuals to pursue the protection of their other rights. Economic power can allow vulnerable individuals to fight more effectively for the promotion of their rights.

This relationship demonstrates an important point for advocates of any cause: it is important think about collaboration whenever possible. There is always potential to find compromises that benefit all, and we have more in common than we expect.