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News : Innovation Last Updated: Feb 10, 2011 - 7:17 AM

Rules for Growth: US entrepreneurship, startups, universities and strategies for jobs
By Michael Hennigan, Founder and Editor of Finfacts
Feb 9, 2011 - 6:34 AM

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Rules for Growth: The US Kauffman Foundation, a leading entrepreneurship think-tank, on Tuesday published a comprehensive collection of essays which focuses on startups, universities and improving both strategies and legal rules that would boost job creation.

Last week, the Obama administration launched the Startup America program, in conjunction with the Foundation.

Entrepreneur Steve Blank says in Fortune Magazine that the program is dead-on-arrival, because: "There are three problems. First, an entrepreneurship initiative needs to be an integral part of both a coherent economic policy and a national innovation policy – one that creates jobs for Main Street versus Wall Street. It should address not only the creation of new jobs, but also the continued hemorrhaging of jobs and entire strategic industries offshore.

Second, trying to create Startup America without understanding and articulating the distinctions among the four types of entrepreneurship means we have no roadmap of where to place the bets on job growth, innovation, legislation and incentives.

Third, the notion of a public/private partnership without giving entrepreneurs a seat at the policy table inside the White House is like telling the passengers they can fly the plane from their seats. It has zero authority, budget or influence. It's the national cheerleader for startups."

The Kauffman Foundation said on Tuesday that the United States economy is struggling to recover from its worst economic downturn since the Great Depression. After several huge doses of conventional macroeconomic stimulus—deficit-spending and monetary stimulus—policymakers are understandably eager to find innovative no-cost ways of sustaining growth both in the short and long runs.

In response to this challenge, the Kauffman Foundation convened a number of America’s leading legal scholars and social scientists during the summer of 2010 to present and discuss their ideas for changing legal rules and policies to promote innovation and accelerate U.S. economic growth. This meeting led to the publication of Rules for Growth: Promoting Innovation and Growth Through Legal Reform, a comprehensive and groundbreaking volume of essays prescribing a new set of growth-promoting policies for policymakers, legal scholars, economists, and business men and women. Some of the top Rules include:

  • Reforming US immigration laws so that more high-skilled immigrants can launch businesses in the United States - - foreigners are responsible for about 25% of startups .   
  • Improving university technology licensing practices so university-generated innovation is more quickly and efficiently commercialized.
  • Moving away from taxes on income that penalize risk-taking, innovation, and employment while shifting toward a more consumption-based tax system that encourages saving that funds investment. In addition, the research tax credit should be redesigned and made permanent.
  • Overhauling local zoning rules to facilitate the formation of innovative companies.
  • Urging judges to take a more expansive view of flexible business contracts that are increasingly used by innovative firms.
  • Urging antitrust enforcers and courts to define markets more in global terms to reflect contemporary realities, resist antitrust enforcement from countries with less sound antitrust regimes, and prohibit industry trade protection and subsidies.
  • Reforming the intellectual property system to allow for a post-grant opposition process and address the large patent application backlog by allowing applicants to pay for more rapid patent reviews.
  • Authorizing corporate entities to form digitally and use software as a means for setting out agreements and bylaws governing corporate activities.

Rules for Growth: Promoting Innovation and Growth Through Legal Reform(pdf)

Download the Rules for Growth in ePUB format  (compatible with the Apple iPad and e-readers)

The essay on the role of universities and innovation, says that more recent accounting of the importance of university generated innovations is reflected in an analysis of the top 100 “most technologically significant new products” listed each year in R&D magazine. Fred Block and Matthew Keller report that universities and federal laboratories have become much more important sources of the top 100 innovations over the last thirty five years. In 1975, for example, they note that private firms accounted for over 70% of the R&D 100, while the academic institution share was just 15%. By 2006, just three decades later, these two shares were reversed: academia contributed over 70% of the top 100 innovations, while private firms accounted for about 25%.

The authors say that the real story is more likely, however, that the huge growth of federal funding for research over the six decades after World War II took a couple decades to begin to translate into commercially significant innovation, and such federal funding for research will continue to be a crucial federal policy affecting the national innovation system.

In 2009, the various federal agencies channeled approximately 60% of the $147bn they spent on research and development—or roughly $90bn—directly to US universities.

According to the Association of University Technology Managers (AUTM), which compiles these data for most universities annually, universities earned $1.9bn in licensing revenues from faculty-generated IP in 2008, up from just $221m in 1996, when these data were first available. The top ten university earners over the entire 1996-2008 period are listed in table 1.

The authors acknowledge that many impacts do not show up in market transactions or prices and they cite an MIT study of the number of firms and jobs associated with its faculty and alumni and found that MIT alumni had founded 25,800 active companies that employed 3.3m people, generating annual world sales of $2trn. This production is equivalent to the eleventh-largest economy in the world.

Nevertheless, it is argued that the rates of return reported in table 1 are quite low. Collectively, they indicate either that most research by most universities has very little commercial value, or that the commercial potential is there but is far from being fully realized.

There is the problem of what is termed back-door commercialization where one research team found that almost 38% of the more than 5,800 patents in their sample were not assigned solely to the university, even though it was a term of employment.

The authors also raise the efficiency of Technology Transfer Offices in commercialization.

Research productivity in one particular field where university research is amply supported by the federal government—pharmaceuticals—has been declining.

Finfacts article: US Food and Drug Administration approved as many drugs in 1950 as it did in 2008

Finfacts article: Innovation: Ireland's 'smart economy' strategy, universities and free-lunch entrepreneurship

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