Jonathan Ortmans

Building One Global Entrepreneurial Ecosystem

Month: March 2009

Reality Check: Scarce Talent

The $787 billion economic stimulus package includes largeinvestments in innovation in areas such as energy, health IT, andbroadband. Developing these new technologies will be scientists andengineers, but here’s a reality check: we don’t have enough of them.Although increasing the number of U.S. scientists and engineers is a must, in the shorter term, we need a quicker fix: more high-skilled immigration.

The U.S. has been depending on foreign graduates from our universities for much of the innovative and entrepreneurial activities in our economy (think, for example, Google, Intel, eBay,Yahoo and Sun Microsystems which we profile this week). The contribution of high-skill immigrants to theeconomy has been studied in detail. For example, a recent Harvard analysis ofthe 2000 Census shows that immigrants represent only 12 percent of thetotal workforce, but 47 percent of all scientists and engineers withdoctorates. This last proportion is likely to rise since 67 percent ofall those who entered the fields of science and engineering between1995 and 2006 were immigrants. The Small Business Administration recentlyrevealed that immigrants are disproportionately prone toentrepreneurship: they represent 12.5 percent of all business ownersand are 30 percent more likely to start a business than native citizensare. Moreover, they generate 11.6 percent of all business income in theU.S. and own 11.2 percent of businesses with at least $100,000 in sales.

Vivek Wadwha from Duke and Harvard has been pointing to these and other important trends.His research has shown that immigrants founded 25 percent of all U.S.engineering and technology companies started between 1995 and 2005,including half of those in Silicon Valley. In 2005 alone, immigrants’ businesses generated $52 billion in sales and employed 450,000 workers.Furthermore, almost a quarter of all international patent applications filed from the U.S. in 2006 named foreign nationals as inventors.Scholars Jennifer Hunt and Marjolaine Gauthier-Loiselle even argue that a 1% point increase in immigrant college graduates should lead to an increase in patents per capita of 9%-18%.

Despite the strong evidence in favor of more highly-educated immigrants, our policies have been sending the opposite signal. Currently, only 85,000visas a year are allocated to the sort of skilled workers the economy needs. If these high skilled immigrants want to stay permanently, they have to apply for permanent residency status. This can take years and cost thousands of dollars to obtain. One study found that hundreds of thousands of foreign graduates with technical majors constrained by green card and H-1B constraints might have added almost$14 billion to the nation’s GDP in 2008 and some $3 billion to the federal treasury. Unfortunately, the final stimulus bill that emerged on Capitol Hill contained a worrisome provision on immigration that would restrict financial institutions that receive federal bailout funds from applying for H-1B visas to hire high-skilled immigrants.This sends a bad signal to other sectors of our economy and couldhinder economic recovery.

Not surprisingly, high skilled immigrants and students are looking for opportunities elsewhere. A recent survey of1,224 foreign nationals who are currently studying in institutions of higher learning in the U.S. or who had graduated by the end of the 2008academic year revealed that very few would like to stay in the U.S.permanently: only 6% of Indian, 10% of Chinese, and 15% of Europeans.The U.S. faces increasing competition in the global labor market from other OECD countries, and, more significantly, from the growing economic opportunities available to university-degreed professionals in their home countries.

It is unfortunate that the debate on immigration has so far focused primarily on low-skill immigration. The evidence above shows what is at stake. We hope to alert policy makers about this pressing issue on April 6th when we hold our next PolicyDialogue on Entrepreneurship briefing. Vivek Wadhwa, Tim Kane from the Kauffman Foundation and Amir Hudda, a technology entrepreneur, will discuss how friendlier immigration policies today can help heal our economy (more details on registering for this event at www.publicforuminstitute.org/pde).

Job generation and innovation are in everybody’s interest. Companies cannot wait for changes in our education system to yield results. Firms having difficulties hiring a talented workforce might decide to relocate.While we need improvements in our education system, in the short term we should welcome foreigners who look to the U.S. as a place to learn and apply their skills.

Combing the World in Search of Start-up Talent

The Obama Administration last week started a $300 billion bond-buying binge to jump start growth and announced that it will invest $15 billion in lending practices to ease the lending dry up for small businesses.  Governments around the world are trying to take such decisive and coordinated action to restore growth through consumer demand and jobs, and heads of state will gather very soon in London in an attempt to demonstrate coordinated definitive leadership to shore up confidence in markets around the world.

Readers of this column are now well acquainted with this author’s views on the central role in re-starting the global economy of those unperturbed citizens around the world who see opportunity rather than doom.  Often driven by a desired to do well and do good and an interest in not working for Wall Street’s CEOs but using them as mentors, our new generation of entrepreneurs are geared up and underway.  They are also global in their mindsets.

We should approach innovation in a similar fashion, taking steps to boost R&D and the commercialization of new technologies at home, while at the same time scouring the world to help those with the best innovative ideas, programs and policies that nurture innovation.  When the fires burn out and the market bottoms out, it will be the entrepreneurs who seed the new ideas and jobs from the ashes.

I post today from Cape Town, South Africa, from the MIT Global Startup Workshop.  In a previous article (A Bright Beacon in the “Shining City on the Hill”), I have argued that we should export our knowledge about entrepreneurship and innovation. Just because new ideas are developed elsewhere does not mean that the U.S. cannot derive benefits from them. All countries, including rich ones like the U.S., can expect to be better off if there are more skilled people working to advance the technological frontier (see Good Capitalism, Bad Capitalism, page 256).  At the same time, U.S. leaders should strive to maintain an innovation leadership position and an attractive entrepreneurial environment. Unfortunately, a recent ITIF report highlighted that the U.S. is lagging behind in innovation policy. To stay ahead, we need to be open to sharing and learning from emerging best practices in other countries.

We need global entrepreneurs who see market opportunities beyond the artificial grid of national boundaries. We should engage with innovation models everywhere in the world and sharing and learning about different startup incubators’ practices. Surprisingly, there are few known, successful start-up incubators around the world. Some are private and others public, and, others partnerships. While some of incubators in the U.S. have received much praise, we have a lot to learn on the effectiveness of the different types of initiatives, as well as new models such asproof of concept centers. Simply put, there are many pathways to innovation to learn and discover. This week, I will be engaging in exactly this learning here in Cape Town.

Another interesting related effort is the Kauffman Foundation’s Global Scholars Program. This program gives select young engineering, science, and technology scholars from other countries the opportunity to study entrepreneurship in the U.S. The Scholars come here to exchange ideas with American researchers, students, business founders, and policymakers. They gain insights into our innovative and entrepreneurial environment, taking that knowledge back home as they start their ventures. They become our future partners no matter where they eventually reside. Those who engage with the Global Scholars during their visit gain exclusive insights into the entrepreneurial resources and practices that characterize the Scholars’ home countries. It’s a productive give-and-take of ideas.

We need more of such transnational dialogues. Only by reaching out can we be a magnet for entrepreneurial ideas and increase our competitiveness by developing stable markets overeas. While all politics may be local, innovation is global.  Only by approaching entrepreneurship and innovation from a global perspective can we develop the best start-up incubators and innovation models at home.

Innovation at Risk

One of the few effective government programs to support innovation is at risk. The language authorizing the Small Business Innovation and Research (SBIR) program is set to expire on March 20, and so far, disputes have hampered a reauthorization resolution. What is at stake? Millions of jobs and technological innovations that contribute to national defense, the environment, and health care, among many other areas.

Recognizing that the risk and expense of conducting serious R&D efforts are often beyond the means of many small businesses, SBIR has been channeling since 1982 a small portion of the federal R&D funds to these firms. SBIR reserves a minimum of 2.5 percent of R&D dollars for firms with fewer than 500 employees to conduct research that will enable them to bring technological and scientific breakthroughs to the marketplace.

SBIR rightly targets the entrepreneurial sector because that is the source of most radical innovations. Since its enactment, SBIR has allowed thousands of small businesses to compete for federal R&D awards during their critical startup and development stages. We have benefitted from the commercialization of breakthrough innovations, such as needle-less insulin patches, unmanned aviation, a promising malaria vaccine, and new way to use ultrasound rather than x-rays to detect breast cancer, through SBIR grant recipients like Amgen, Vanu, Qualcomm and Symantec.

Disputes over the issue of whether venture capital backed-firms can be eligible for SBIR funding have blocked efforts to pass a new SBIR reauthorization. We need to solve these issues quickly to ensure that SBIR funds are available to innovative entrepreneurs this year. Unfortunately, hurdles to the program have also come from other developments in Congress. The Senate Committee on Small Business and Entrepreneurship has had to ask the Department of Health and Human Services (HHS) to meet the statutory requirement for small firms now that the American Recovery and Reinvestment Act exempted $8.2 billion allocated to the National Institutes of Health (NIH) from the small business requirements of the SBIR at NIH’s request.

At a time when ambitious innovative firms constitute the lifeline of our ailing economy, cutting even such relatively small support is not prudent. We need to support them to ensure that they continue to create high-quality jobs and cutting-edge technology that reaches the public.

Global Smarts: Cue the Innovation Generation

If you ever pick up the Wall Street Journal, you have probably seen a series of IBM Smarter Planet advertisements.  These intrigued me and I clicked further.  The innovators behind the Smarter Planet campaign want to improve highly complex global systems by connecting solutions. With the message that getting smarter is possible across all our systems, they are looking for more efficient systems for electricity grids, water and waste management, roadways, health care and many other operations that impact our quality of life.  After being focused by weeks of heavy headlines on economic recovery, I found IBM’s message of being smarter energizing.

As Friedrich Hayek said “Society’s course will be changed only by a change in ideas.”  What can be most interesting about these times is the new global scale of innovation.  What was once a smaller world of people confined by geography and cultures is now a world of young media-savvy, fearless, informed and networked people. A new generation of creative people around the world is emerging as the solution designers for our most pressing global challenges and it is they who will innovate us out of this recession.

Ideas are abounding, but Thomas Edison reminded us the “value of an idea lies in the using of it”. We must now encourage more young entrepreneurs to translate their potential into success. The 2007 Harris Interactive Youth Pulse revealed that 40% of 8-21 year-olds in the U.S. have or want to start their own business. Moreover, 37% want to invent something. Young innovators are eager to develop new ideas by starting a new firm or by contributing to existing business’ entrepreneurial approaches. People are inspired by things like Smarter Planet and people like Kevin Rose (digg) or Mark Zuckerberg (Facebook) who PDE profiles this week.

My recent experiences in Nigeria, Ghana, India and Kenya supported the 2007 Gallup Poll results on the entrepreneurial drive in these countries. In Nigeria, 67% say that they have thought of starting a business. Almost half of Nigerians said they actually plan to start a business in the next 12 months. In Kenya, Zablon Karingi Muthaka received at 27 years of age the Entrepreneur of the Year Award fromYouth Business International (YBI). Zablon runs Beta Bins Waste Management throughout his local community, a slum on the outskirts of a Nairobi slum. He expressed his entrepreneurial spirit: “I want to be the Bill Gates of the waste management and environmental conservation industry.” In 2008, then 29 years-old Ramu Uyyala from India received the YBI award for his growing plastic bag recycling business, M.R. Plastics. And finally, don’t forget the “Bill Gates of Ghana,” Herman Chinery-Hesse, who is an early investor in Internet cafes and founder of one of the nation’s first and largest software companies, SOFTtribe.

Not surprisingly, last November over 3 million young people participated in over 25,000 activities in exactly 100 countries during Global Entrepreneurship Week. The Week inspired young people around the world to explore their entrepreneurial and creative potential to solve problems.  More importantly, the Week connected young innovators from different cultures around the world to share their innovative ideas on how to tackle today’s key challenges.

We need more young people who have confidence in themselves and believe that being a smarter planet is the way forward. This morning, the Global Entrepreneurship Congress will assemble in Kansas City a powerful coalition of leaders from 52 countries to explore new ways to inspire the next generation of entrepreneurs to unleash their ideas, take action and help jump start growth.  The Global Entrepreneurship Congress symbolizes the beginning of the campaign work ahead for thousands of organizations around the world who will host Global Entrepreneurship Week 2009 from November 16-22, 2009.  A global campaign for its day that mines the best ideas and inspires action.

Our global economy needs a massive infusion of new ideas.  Driving these ideas will be legions of courageous and creative entrepreneurs like Herman Chinery-Hesse who can create jobs, save economies, but most importantly offer us some better ways to be a “smarter planet”.

A Bright Beacon in the “Shining City on the Hill”

Although the reputation of the U.S. has gone through some bumpy air of late, we have consistently been held in high regard for our entrepreneurial prowess and culture.  Even during these times of great economic stress, we are flooded with enthusiastic visitors from overseas (both in person and on-line) searching to understand and replicate the ecosphere that has fostered so much job creation and growth.

This is a key foreign policy card for America now that the world has given America a new chance to prove it is still the shining city on the hill by providing leadership during a deep global recession. During her confirmation hearing, Secretary of State Hillary Clinton stressed the importance of America’s “smart power” tools and this has been backed up in the President’s budget released this week. I can’t think of a better tool in our smart power chest than our ability to teach entrepreneurship. Using our country’s understanding about high growth entrepreneurship can help us achieve our foreign policy objectives from fighting the war on poverty to national security.

Incorporating entrepreneurship into existing programs should not be a challenge. In fact, foreign officials have long been visiting and consulting with our most important entrepreneurship powerhouses from MIT on the east coast and Stanford on the West coast to the Kauffman Foundation in America’s heartland.  The Kauffman Foundation, for example, has become a magnet for global leaders seeking to build innovative growth economies with proven programs and robust research on most key issues ranging from how to help those all important high growth entrepreneurs who attract capital and create jobs to which public policies and programs best encourage entrepreneurial innovation.

As Carl Schramm, President of the Kauffman Foundation has been advocating for some years now, using entrepreneurship as a smart power tool requires improving the American economic model for development assistance. The “Washington Consensus” has failed to reproduce a key element of the U.S. economy, entrepreneurship. He is right – we cannot approach economic development in a piecemeal fashion.  New firms do not appear as a natural by-product of having free-market institutions. They are the result of an innovation ecosystem, a concept that unfortunately has not had a place in the traditional development models.

Recently, the State Department has begun recruiting 4,250 federal workers to serve in the Civilian Response Corps. The corps will comprise personnel in fields such as public health, law enforcement, engineering, and economics. The fiscal 2009 omnibus appropriations package (HR 1105) calls for continued support for this initiative. Having our best experts dedicated to helping build economies by promoting new concepts in entrepreneurship advancement abroad is a first step toward using American expertise in entrepreneurship to achieve our foreign policy objectives.

In light of the global economic uncertainty, it is more important than ever for the U.S. to invest in programs that foster an entrepreneurial environment worldwide. Jump-starting growth will require understanding and building effective entrepreneurial systems across countries. Entrepreneurship across the globe should translate into partnerships, commercial relationships and jobs, not to mention, into solutions to our global public relations problem and the innovations and answers that our globe’s entrepreneurs bring to so many of the challenges of the 21st century.

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