Startup Creation in US Largely Independent of Public Policy?

By March 05, 2014

Focusing public policy efforts on encouraging entrepreneurship, whether through local public funding of support for innovation or the presence of government-funded research universities in the region, is not having any observable effect on startup creation in United States metropolitan areas, a recent report finds.

How effective can government policies really be when it comes to fostering entrepreneurial growth? With the many programmes being run and the range of tools now available to young entrepreneurs, there would appear to be widespread support and encouragement for those looking to start a business. But what effect is this actually having at the local level? This is a basic question raised by researchers at the Kansas-city based Kauffman Foundation in their recent paper Beyond Metropolitan Startup Rates: Regional Factors Associated with Startup Growth . They conclude that there are few significant factors which the public sector can affect when it comes to encouraging entrepreneurship. This is however a statistical study and great care should be exercised before taking these conclusions as a basis for entirely dismissing the usefulness of public policies in this field.

Lack of any discernable correlation between company creation and public policy

The Kauffman Foundation researchers focused on pulling together the raw data available on a number of public policies designed to boost entrepreneurial growth across the United States, and comparing this with actual business creation rates. They concluded that every initiative they looked at which was designed to stimulate growth had no observable effect on the number of startups created. Even specific programmes at US universities appear to have no impact on the regional business creation process. Similarly, the presence of major technology companies might well help to boost business creation in the specific tech field, but does not seem to have any direct impact on other sectors. What the researchers did find to be a significant factor was that metropolitan areas with high population density tend to have higher entrepreneurial rates. A reading of the Kauffman report would therefore suggest that all endeavours to create a ‘startup spirit’ by setting up agencies that seek to bring together companies, universities and support from public funding are doomed to failure. Even those cities and regions that enjoy substantial venture capital and the availability of other investment vehicles do not necessarily show a higher business startup rate.

Graduation rates the most significant factor

The Kauffman researchers thus present a statistical picture which fails to spot any quantitative correlation between specific public support for business creation and actual entrepreneurial growth. This does not of course necessarily mean that there are no qualitative effects.  Public policy efforts are first and foremost about offering young entrepreneurs help and support so that the startup they have created can survive and thrive.  Moreover, education – not specifically at research level but at a more general level – which falls within the remit of the public authorities, does appear to be a significant factor for business creation.  The study shows that while metropolitan areas with more college graduates tend to produce more startups, a higher proportion of young people completing their high school studies will further increase the startup rate in a given metro. Moreover, while the report seems to recognise that the desire to set up one’s own company is a highly personal decision which it can be difficult to influence, it is nevertheless true that the success of a business often depends upon having a supportive ecosystem. The Kauffman authors end by calling for new tools to be developed to make a more granular assessment of regional factors and how they affect startups and the entrepreneurial culture across the United States.

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