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Is the U.S. Still the Land of Opportunity?

Posted By Karen Campbell On September 20, 2010 @ 11:08 am In Economics | Comments Disabled

Cargo-Shipping Cranes

The Global Entrepreneurship and Development Index (GEDI) report [1] by researchers at the Small Business Administration shows that the U.S. may be slipping in its ability to sustain productive entrepreneurship relative to other countries.

Entrepreneurship plays a critical role in the formation of any economy; it is the critical agent in the productive creation and destruction cycle necessary for any dynamic economy. Public policy creates an institutional environment that can encourage or discourage productive entrepreneurship. Government intervention, though, can also have an affect on societal norms and cultural attitudes.

In the report, Drs. Zoltan Acs [2] and Lazlo Szerb [3] give an overview of a way to measure entrepreneurship by accounting for these complex institutional and demographic aspects. They draw their data from a range of sources, including Heritage’s Index of Economic Freedom [4].

Overall, the GEDI ranks the U.S. third—falling behind Denmark and Canada. More telling for the U.S., though, is its ranking on the sub-indices used to construct the overall index. These sub-indexes and the components that go into them can identify where there are “bottlenecks.” A bottleneck is a weakness that hinders entrepreneurship despite strengths in other areas of the economy.

The report highlights bottlenecks in the U.S. On the Activities sub-index, we rank number 8. The variables for “Cultural support, Tech Sector, and High Growth emerge as the chief weak points” in the U.S.

There seems to be a troubling trend developing in the U.S. of crowding out productive entrepreneurship and channeling it toward unproductive entrepreneurship. While other countries have been helping the entrepreneurial spirit thrive, the U.S. has lagged on basic reforms such as patent law reforms, tax reform, tort reform, and immigration/visa law reforms. Instead, lawmakers are trying to cut health care costs, find new energy solutions, and “fix” the housing market, financial market, and just about every other market. This also creates perverse incentives whereby it is more profitable to lobby the government for redistributed wealth than to create wealth by innovating new useful products, services, or processes.

The GEDI gives countries a new tool to assess economic development. It can hopefully be an early warning sign and provide insight where policy could be most constructive. The full index, methodology, rankings, and discussion will be published later this year by Edger Elgar Publishing. A book launch for the index will be held at The Heritage Foundation in January 2011 followed by a conference jointly sponsored by George Mason University, the Mercatus Center, and Heritage to discuss the index, the state of entrepreneurship data collection at the country level, and the potential uses of the index to address policy questions. Stay tuned!


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/09/20/is-the-u-s-still-the-land-of-opportunity/

URLs in this post:

[1] Global Entrepreneurship and Development Index (GEDI) report: http://www.sba.gov/advo/research/rs370tot.pdf

[2] Zoltan Acs: http://policy.gmu.edu/tabid/86/default.aspx?uid=6

[3] Lazlo Szerb: http://www.english.ktk.pte.hu/tartalom/108

[4] Index of Economic Freedom: http://www.heritage.org/index/

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