E-Government Can Help Entrepreneurs Cut Through Red Tape

Mar 16, 2012Blake Falk

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a proposal to create a one-stop resource that would ease the regulatory burden on the recovery's real job creators.

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a proposal to create a one-stop resource that would ease the regulatory burden on the recovery's real job creators.

"We know the startup sector is important, and it is sputtering." So said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, at the Conference on Small Business and Entrepreneurship During an Economic Recovery. Although recent employment reports have signaled improvement in the labor market, with the unemployment rate falling to 8.3 percent and jobless claims tumbling, a closer inspection of underlying trends concerning new business creation is troubling. As Lockhart noted, between 1992 and 2005, the rate of new business creation outpaced the rate of exit by about two percentage points, providing a net increase in employment. However, with the onset of the Great Recession, the relationship between these two metrics was overturned. Business failures rose sharply while the rate of establishment fell from 870,000 a year in 2006 to 720,000 in 2010, signaling a reversal in new business and employment trends.

Given the current momentum in the labor market, some question if new business creation is truly vital for the recovery. With established companies currently sitting on record cash reserves worth nearly $2 trillion, it would seem that they already have the resources to reduce unemployment considerably. However, new business creation during and after the recovery must recuperate for more reasons than simply job numbers, even though businesses with fewer than 50 workers are the largest employers in the nation and have consistently led payroll gains during the recovery. Federal Reserve Chairman Ben Bernanke stated that beyond playing an "important role in fueling past recoveries," new businesses help drive innovation, provide an economic alternative to those facing income instability, and "help sustain the vitality of the neighborhoods" in which they are located. The recovery is not just clawing out of the hole created by the financial crisis of 2008, but rebuilding a new base from which sustained, dynamic, and meaningful employment and economic growth can occur. New business creation therefore remains a crucial component of the economic recovery.

But what tools are likely to affect this positive and sustained momentum? Certainly cyclical unemployment, symptomatic of the Great Recession, is the main contributing factor to the dismal employment situation. However, permanent change in the labor market in the wake of the financial crisis must come in the form of changing its structural inefficiencies. One such change that will reduce unemployment during and after the recession is reforming and simplifying the process of founding a business. Even if one has the necessary capital, the current bureaucratic obligations of formally starting a business are demanding.

Without the services of a lawyer, prospective new business owners must often navigate the red tape of permits, incentives, and regulations of multiple city, state, and federal agencies. Requiring a significant investment of time and effort on the part of the entrepreneur, the current process of establishing a new firm should be made more time efficient. The structural barrier to new businesses created by these regulatory hurdles can and should be fixed -- not only for the sake of the recovery, but for future job growth, since these restrictions will not disappear when the recovery ends.

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From a simple accounting perspective, "the cost disadvantage on small business in each sector is driven largely, but not entirely, by compliance with environmental regulations and with the federal tax code." Complying with these regulations is more difficult for smaller businesses because they possess reduced economies of scale relative to larger ones and consequently stretch their human capital thin. This burden is especially severe on small firms in the manufacturing sector, with the estimated cost per employee being 118 percent and 151 percent higher than medium and large-sized firms. Given that manufacturing is currently "supporting first quarter overall growth in the economy " and "driving the economy forward," this regulatory strain on new manufacturing businesses relative to larger manufacturing firms may be injuring the momentum manufacturing has provided during the recovery.

Beyond accounting costs, the time costs of setting up a new business cannot be monetized. However, given that new businesses have very limited resources with regards to legal and administrative burdens, there are indirect economic impacts of time and lost productivity due to the multiple tasks required. For instance, a new restaurant owner in New York City who "wants to serve alcohol and have a pool table [...] needs no fewer than 11 city permits and licenses." Determining which agencies he or she must contact, as well as the different permits, incentives, and certifications he or she must complete presents a legal quagmire for entrepreneurs. This difficulty is largely due to the hundreds of new and sometimes contradictory rules agencies issue each year, meaning new business owners are tasked with legal burdens on top of the stresses of establishing a new business.

So how can these structural inefficiencies be remedied? One proposed solution is to create a single location from which all permits and forms for new businesses can be obtained across all local, state, and national agencies. This singular resource will steeply reduce the time commitment of retrieving and returning the forms for entrepreneurs. Given the proliferation of web-based processes and the movement to an Internet society, this one-stop location for new business owners need not be a brick-and-mortar establishment. Instead, it can take the form of a one-stop website, accessible at all times from anywhere.

One model for a one-stop website is New York City's NYC Business Express. Spearheaded in 2006 by New York City Mayor Michael Bloomberg, NYC Business Express offers "clear, focused content where traditionally there was an overload of information." Establishing a business was compared to finding "five needles in 35 haystacks" due to the significant number of city, state, and federal regulations and agencies a business owner in New York City must interact with. However, the NYC Business Express website hosts upwards of 20 different city agencies' permits, incentives, licenses, and payments that can be retrieved online at any time. The website also walks new business owners through the process step by step in a manner customized to the entrepreneur's line of business. As a result, the previously tedious and deterrent process of establishing a new business in New York City is now compared to someone handing "you the five needles you need and they're categorized, labeled, and come in a leather-bound carrying case with clear instructions on how to use them." This time-saving service has led to more than 22,000 accounts being logged on the site as well as cities like Boston, Newark, Portland, and San Francisco, which have reached out to New York City to create similar websites of their own.

The time-based restrictions of establishing a new business are structural inhibitors to new business creation, but sites similar to the successful NYC Business Express can reduce such barriers. Since the tedium suffered by new business owners is nearly universal, these one-stop sites also need to be widespread in order to reduce structural barriers to a significant degree. NYC Business Express is a successful beginning, but time inefficiencies have not been resolved elsewhere. As these one-stop websites spread, they will reduce structural inefficiencies and permanently drive the dynamic process of new business creation that is crucial not only to the recovery, but to all future job growth.

Blake Falk is a Roosevelt Institute | Campus Network member at the University of North Carolina at Chapel Hill where he studies mathematical decision sciences and economics.

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How a Simple Tax Credit Can Save the State of Michigan

Mar 15, 2012Adam Watkins

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a tax break plan for Michiganders burdened by student debt that would stop the state's brain drain and give a much needed boost

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a tax break plan for Michiganders burdened by student debt that would stop the state's brain drain and give a much needed boost to its economy.

Michigan lawmakers are failing the state's college students. Once a strong supporter of public universities, Michigan is now one of four states that allocate more money for corrections than to higher education. This decline in support for state universities stems from multiple years of poor choices made by lawmakers in Lansing. Faced with yearly fiscal shortfalls, state legislators were forced to cut the budget to make up for the deficit. Higher education suffered the most, as its budget was repeatedly slashed, ultimately losing nearly 30 percent of its funding in the past decade. Faced with difficult choices, legislators took the path that was politically easy, but it was a path that has and will continue to be detrimental for students and the state of Michigan.

While most other sectors of the budget are funded mainly through taxpayers, state universities are fortunate to have other significant revenue sources, making it relatively easy for the state government to relinquish the burden of funding these important institutions. The unintentional result of shifting the cost has been a drastic increase in tuition levels, causing the burden to fall to the students. As the state reduces funding for higher education, universities raise tuition to maintain the quality of education. In raw numbers the current average cost of in-state tuition is $10,416, more than 28 percent higher than just five years ago.

There are several apparent ways the higher tuition is affecting students. The most obvious is in the rising levels of student debt in the state. The average student graduates with $25,000 in debt. Other students are choosing not to go to college at all because of the expense. Public education is suddenly becoming out of reach. Both lawmakers and university officials are in agreement: the rising cost of a college education is detrimental and unfair to students. Politics, however, continues to prevent progress.

The state of the tuition debate has devolved into a blame game between legislators and the universities. University officials say that as long as the state keeps reducing funds, tuition must increase in order for the institution to continue to educate at its full potential. Legislators say that universities should focus on reducing costs and use higher education funding reductions as a way to pressure universities to be more efficient. To the universities' credit, efforts have been made to keep costs under control. The University of Michigan, for example, has eliminated over $200 million from its expenses by reducing energy costs and student services. Michigan State University has cut academic programs, and Eastern Michigan University recently cut 70 staff positions and froze wages. Cost cutting measures are at the point where universities are forced to choose between quality and affordability. Budget constrained lawmakers, however, continue to cite inefficiencies to justify cuts, and the finger-pointing continues as students are caught in a situation that only continues to worsen.

Another bystander that is negatively affected by the rising cost of college is the state of Michigan. Still recovering from a nearly decade-long recession, Michigan is struggling to diversify and enhance its economy. Meanwhile, students are leaving the state in droves, creating a vacuum of human capital. With few economic opportunities and high levels of debt, students have no incentive to remain in the state and are instead seeking employment opportunities elsewhere. Nearly 50 percent of students leave the state after graduation, giving Michigan one of the highest migration rates for young adults. Michigan is caught in a vicious cycle where highly educated graduates leave the state to find jobs, and in turn businesses decide not to invest in Michigan because of lack of human capital. The state cannot expect a powerful economic recovery without high-skilled labor.

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The issue of the "brain drain" and the rising cost of college, as suggested already, are linked. High levels of debt and the poor economy have created conditions where students are forced to leave the state, subsequently hampering Michigan's recovery. Frustrated with the political bickering and lack of innovation among lawmakers, I, along with other members of the Roosevelt Institute | Campus Network's Economic Center at the University of Michigan, sought to create a policy that would provide a solution to these two important issues.

In our initial research, we came across a program called Opportunity Maine. This program, implemented by the Maine legislature in 2008, involves providing a tax credit for students who graduate from Maine universities and remain in the state after college. Businesses that take on the payments for employees' student loans would also qualify for the tax credit. The goal of Opportunity Maine was to address the issue of the "brain drain" affecting Maine at that time. The program was passed in the state legislature with broad bipartisan support.

With Michigan suffering from the same issues, we took the central principles of the program and created a policy proposal arguing for a tax credit incentivizing any student graduating from Michigan universities to stay in the state. With high levels of student debt, the tax credit not only motivates students to stay in Michigan, but would also help those who are suffering the most from the cost of college. The tax credit would make college more affordable for students from low and middle-income backgrounds, and thus significantly reduce the cost barrier to a good education. More graduates remaining in the state would raise the supply of human capital in Michigan, attracting businesses to the concentration of a highly qualified workforce. The additional provision allowing businesses to qualify for the tax credit if they take on employees' student loans is a further advantage for both students and businesses. The provision represents a strong incentive businesses can use to attract qualified workers. Implementing this tax credit program would represent a milestone for the state's effort to rebuild the economy. The incentives of the tax credit will create an environment favorable to attracting new business. Most importantly, students will receive guaranteed long-term financial support to tackle student loans.

Another positive feature of the tax credit is that it will pay for itself in the long run. As more graduates stay in the state and businesses expand their operations in Michigan, the income from the expanded tax base will cover the cost of the tax credit. These revenues will ensure the continued use and success of the tax credit program.

Recognizing the economic implications of this solution and the immense benefit students and the state of Michigan would receive if the tax credit would be implemented, we have taken action to make our idea heard. We have made two trips to speak with legislators in Lansing and received positive responses about our proposal. We are currently working with supportive legislators to have our policy drafted as a bill. In addition, we plan on reaching out to the Business Leaders for Michigan, which is an organization composed of major executives of Michigan's top businesses and universities. The organization has recently expressed concerns about the state's divestment in higher education and pressed the need for a highly educated workforce in the next decade. We feel that our policy will provide the solution that the Business Leaders for Michigan desire.

Michigan can no longer sustain this lack of funding for higher education. Students continue to suffer and the economy continues to be stifled as a result of the cuts to state universities. But a solution does exist to solve these issues -- one that is cost effective, innovative, and simple. One that will help the students that need the most support and help Michigan in its economic recovery. We will continue to press Michigan legislators to support our proposal -- a proposal that will ensure a brighter future for students and the state of Michigan.

Adam Watkins is the director of the Roosevelt Institute | Campus Network's Economic Center at the University of Michigan.

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The Next Round of Quantitative Easing Should be a Debt Jubilee

Mar 14, 2012Ben Mabie

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a proposal to lift debtors' overwhelming burdens in order to boost the economy and give them more autonomy.

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a proposal to lift debtors' overwhelming burdens in order to boost the economy and give them more autonomy.

On March 1st, the international Occupy movement held a day of action targeting the privatization of education. Students at the University of California, San Diego occupied the Chancellor's Office and released a comprehensive series of demands. Boston students rallied at the capitol building, demanding a reprioritization of public education. Over 80,000 students in Quebec went on strike. At my own school, the University of California, Santa Cruz, a student strike effectively shut down the campus. Four days later, thousands gathered at the California capitol building, taking the rotunda in a scene reminiscent of Madison, Wisconsin a year ago, before being evicted by state troopers. But what lingers once the days of action have settled is a burdensome debt. Since 1978, tuition at U.S. colleges has increased 650 points above inflation, contributing to the nearly $1 trillion in total student loan debt.

Debt loads are high on many Americans' minds. The Federal Reserve Bank of New York reported that total household debt nearly tripled from $4.6 trillion in 1999 to $12.5 trillion in 2008. Though the figure has since fallen to $11.5 trillion as of the first quarter of 2011, it still an impressive figure. "From 1997 to 2007," writes the Wall Street Journal, citing Federal Reserve Data, "household debt ballooned to 66 percent of economic output to 98 percent." Three-quarters of this debt is from mortgages. Student loan debt has also ballooned to nearly three times that of the home mortgage debt during the Clinton administration.

These debt levels are dangerous because they drown consumption. Americans, now paralyzed by a fear of debt, are spending and investing less than they did during 2005. The Wall Street Journal highlighted how "two-thirds of Americans polled online in July by the research firm Absolute Strategy Research said they planned to either reduce their debt within a year or stop borrowing altogether." The phenomenon cannot be reduced to less access to capital: this hesitation even comes from workers with excellent credit. Workers are contracting demand as they shift from spending to saving.

Students have recently catalyzed around a particular demand: debt abolition. The idea of comprehensive debt forgiveness is not new; in fact, some anthropologists suggest that it is the original revolutionary platform. In times of ballooning wealth inequalities and economic stagnation, demands for a Jubilee, a cancellation of all debts, grow with striking poignancy.

That's a good place to start in addressing our current problems: immediate relief to debtors. We need another round of quantitative easing that distributes cash to debtors based on a progressive scale of debt held relative to income. (The Fed should accompany this debt relief with its usual purchase of bonds, as it's essential that the monetary policy trigger an inflationary currency while interest rates sink, so that debtors are aided further.) I'm far from sage enough to specify an amount of capital to plunge into the economy, but the higher the amount of debt abolished, the more fruitful the results.

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What makes quantitative easing different from other forms of monetary policy is the direct injection of capital into the market by way of purchasing financial assets, or in this case, debt, from private pocketbooks and portfolios. QE3, targeting debt held by private individuals, should electronically distribute cash to debtors. In order to get a loan one often needs a bank account, so the Federal Reserve will have somewhere to inject the fresh currency. The Bank of England's exposition on this relatively new form of monetary policy "does not involve printing more banknotes. Instead, the Bank buys assets from the private sector...and credits the seller's bank account." The central bank simply creates "new money electronically by increasing the balance on a reserve account." If it can be done by "crediting the accounts of the companies it bought it from," then it can do the same to private individuals who hold debt.

In the case of a QE3 Jubilee, the Fed wouldn't be purchasing a bond or stock, as is typically the case. Instead it would be buying up private debt -- but while banks and other loaning institutions hold the debt itself, QE3 would distribute money to those who owe. Why give the money to debtors instead of creditors? There are both economic and political reasons. First, economic: if trends hold, the additional cash will aid savers, incentivizing them to spend more, raising aggregate demand. The only alternative is that debtors defy current trends and spend anyway, which seems unlikely.

Additionally, there are positive externalities of this monetary approach. Quantitative easing both lowers interest rates and prompts inflationary trends. Both conditions aid debtors in their struggle for relief. Expected inflation usually leads to rising interest rates, further burdening debtors, but the Federal Reserve's lowering of interest rates will obstruct such reactions. The more financial assets the Federal Reserve purchases, the more complete the process of debt forgiveness will be. Aiding debtors also gives them more leverage over creditors, which may force banks into restructuring privately held debt. Banks will want the influx of cash to pay off the assets they hold, encouraging them to court debtors with deals.

There are also political reasons for mass debt forgiveness. We've long been experiencing an increased privatization of our lives. Educational privatization began with the massive contractions in state subsidization of public universities. Students, unable to come up with the money for tuition, took on loans. Student loan debt has deterred thousands from entering college and is informing what students study in school and what kind of work they do. Debt is what we accumulate when our substance and savings are not enough, but it puts us in the hands of private entities, i.e. banks. Mike Konczal of the Roosevelt Institute once wrote that it is the job of government to maximize the autonomy of its subjects. The government has an obligation to end this reliance on private actors.

A debt Jubilee at least temporarily removes debtors' decisions from the whims of the market. It gives them space to practice economic autonomy. In light of the privatization of our decisions, this should be held as an important victory. "Economic development" may mean developing economics that emancipate people's lives and decisions from an economic calculus.

Ben Mabie, a first year student in proletarian studies, started a chapter of the Roosevelt Institute | Campus Network at the University of California, Santa Cruz last fall.

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We Need Millennial Optimism and Innovation to Revitalize Our Economy

Mar 13, 2012Erika Solanki

money-question-200To create a real recovery, we need to move beyond tired, rehashed economic doctrine and draw on the best ideas of the next generation.

money-question-200To create a real recovery, we need to move beyond tired, rehashed economic doctrine and draw on the best ideas of the next generation.

Even after our recent economic downturn, the United States is the world's largest national economy, with a nominal GDP estimated to exceed over $15 trillion in 2011, comprising almost a quarter of the nominal global GDP. In the fourth quarter of 2011, the real GDP increased an aggregate 2.8 percent, up from the 1.8 percent increase in the third quarter. But despite the acceleration in growth at the end of 2011, the real GDP of the domestic economy increased in aggregate only 1.7 percent in 2011, compared with an increase of 3 percent in 2010.

In order to achieve and maintain a positive growth trajectory, Americans are faced with two rigid options: follow a path to mediocrity that is vulnerable to pervasive global market competition, or discover unconventional strategies and innovative industries that will give the American economy a facelift. Our current generation of leaders have failed our economy. They attempted to promulgate economic growth and American prosperity, but their efforts became entangled in the politics and context of world economic integration. In the 21st century, the economic structures of developed and developing nations are hard pressed to deal with the many socio-political complications they face.

We cannot afford another generation of leaders that are merely competent managers fixated on historical circumstances. We need innovative change-makers. The breadth and depth of the issues facing our globalized economy are too time sensitive and structurally fragile. Today's policymakers seek an economic panacea in free market ideology, a notion notoriously linked to concentrated wealth, corporate power, economic inequality, and declining social mobility. Recognizing that these issues demand a response, progressives must foster democratization, inspire citizen participation, and reform government to be more responsive and accountable to the citizens. A progressive vision can rekindle a sense of empowerment, possibility, and urgency among citizens who feel discouraged when faced with gargantuan market forces and failures.

For these progressive, solution-oriented reforms, we should turn to the Millennial generation. At the Roosevelt Institute | Campus Network, we believe that public innovation will foster overall economic growth and shared prosperity for all. I've witnessed Millennials across the network creatively address problems, considering current circumstances and future obstacles while maintaining core progressive values and principles. If we succeed, our efforts will last long beyond the next presidential election -- these improvements will prove to be lasting changes that build the solid foundation for future economic reforms.

Toward that end, the policy initiatives published in this year's installment of the Roosevelt Institute | Campus Network's 10 Ideas for Economic Development, "Public Innovation for Shared Prosperity," represent some of the most brilliant ideas being put forth by Millennials across the nation.

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Blake Falk, a student from the University of North Caroline at Chapel Hill, is encouraging municipalities to employ one-stop websites that combine the functions of multiple city agencies and lower the barriers of entry to business. His plan is inspired by NYC Business Express, an e-government project launched in 2005 by New York City Mayor Michael Bloomberg that has successfully reduced the costs of starting and running a small business. Since its inception, Boston, San Francisco, and Newark have contacted New York City to assist in the creation of similar local web tools.

Emily Chakunkal, Tom O'Melia, Adam Watkins, and Seth Wescott, students from the University of Michigan, want the Michigan state government to implement a student debt forgiveness program in exchange for students to commit to residing in Michigan post-graduation. Although there are over 300,000 students in Michigan public universities, only 50 percent of these students remain in the state after college. Absolving student debt will encourage students to remain in Michigan, bringing their advanced skill sets and innovative mindsets to an economic landscape in need of rejuvenation.

Ben Mabie, a student from the University of California Santa Barbara, is insisting that the Federal Reserve should initiate QE3, a new round of quantitative easing targeted at the consumers themselves in order to combat the economic burden of household debt. In June of 2010, the United States Federal Reserve purchased $2.1 trillion worth of bank debt, but the banks were hardly the only ones burdened by debt. From 1999 to 2008, total household debt balance nearly tripled from $4.6 trillion to $12.5 trillion.

Although these are brief introductions to a few of many Millennial initiatives, it should be emphasized that writing policy is not our end, but our means to communicate the bold action our country needs to embrace. We are also undertaking more hands-on projects. Last year, the Economic Development policy center constructed a financial literacy curriculum and workshops that were disseminated among inner-city residents. This year, we've partnered with Financial Access at Birth (FAB). Sponsored by the Center for Financial Inclusion at ACCION, FAB seeks to provide a $100 savings account for every child born in the world, assign a unique biometric ID to every birth registered, and provide access to mobile and electronic branchless banking. FAB will utilize the power of incentives, technology, and scale to target and reform informal economies, and ultimately create financial and social inclusion for all. Roosevelt members have been integrated into this project in order to facilitate a more open dialogue between older generations and the Millennial generation, especially through the use of social media.

Campus Network members believe that Milennials need to create assurance, inspire resilience, and replace the skeptical conservatives driving our economic policy with progressive, exploratory thinkers. We hope this fundamental shift can begin with the proposals published in the 10 ideas series, but the momentum will be maintained by the thoughtful, action-oriented projects our members are pursuing in communities across the nation.

Erika Solanki is the Roosevelt Institute | Campus Network's Senior Fellow for Economic Development and a graduating senior at UCLA.

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