The following is one of a series of blog post that were written while I was in China in the spring of 2009 as part of my Eisenhower Fellowship. If you have interest in China’s culture I think you will enjoy this series.

A Subtle Priority

At almost every meeting when the topic of technology entrepreneurship has come up there has been a mention of Tsinghua University.  Whether the impact of the alumni network or research and development it is clear that Tsinghua is the center of the country’s technology development effort. 

After leaving a meeting at the University’s startup incubator which had over 400 companies under 7 million square feet, we decided to walk around the university.  I had heard over and over that the university is the most difficult in the country to get into with only a very small percentage of those that apply receiving admission.  As I walked I noted how that it was a nice yet typical college campus with relatively small three story granite buildings.  The walk ways were lined with trees and there were several grass area to lounge.   

As we strolled through the campus I noticed that large industrial buses were continually coming into the campus.   As I watched the parade of buses and hundreds of people unload from the buses I asked the escort what was going on.  She replied that they were tour buses.  Tsinghua University is one of the largest tourist attractions in the country. 

I was surprised at first.  There were certainly more attractive and historic places within Beijing.  But as I was thinking about the explanation I started to realize that the buses were full of families with young children, many of which were as young as five years old. They had come from all over the country. Often traveled for days in pack buses to see and pay respect to the institution that was educating the country’s best and the brightest. 

The power and implications of this cultural norm is compelling.  It embeds a priority in the nation’s youth while at the same time providing a visual tangible path to success and a better lifestyle.

There is significant debate taking place about the future of our country, and the role of government. This healthy debate is focusing more and more on our national debt – by Republicans and Democrats alike. At the top of the list is “Where are the jobs?” As an Eisenhower Fellow, I was fortunate to have an opportunity to study economic development and job-creation across the globe. As an entrepreneur who built a business from the ground up, I learned important lessons how the policies and decisions of our elected officials affect the economy and one’s ability to create jobs.

Let’s simplify this issue. Jobs come from economic growth. Economic growth comes from increased productivity. Increased productivity comes from innovation. Since jobs come from innovation, the real question is how do we stimulate innovation? Once this becomes our focus, the argument becomes much clearer.

Reading the front pages of the business sections, you would think that GE and Exxon run our economy. While these large organizations certainly play an important role, the U.S. Census Bureau clearly indicates that the bulk of new jobs are created by firms with less than 20 employees. From 1990 to 2003, small firms (fewer than 20 employees) accounted for 79.5% of new net jobs.

Not only are small businesses generating jobs at an amazing rate, they are a powerful source of innovation and patent activity. Small firms’ patents tend to be more significant than the patents of large firms, outperforming them in a number of key metrics, including growth, citation impact, patent originality and patent generality. The metrics have been validated and shown to correlate with increases in sales, profits, stock prices, inventor awards and other positive outcomes. This suggests that, in general, patents of small firms are likely to be more technologically significant than those of large firms. This fact is even more remarkable when R&D budgets are taken into account. Small high-tech businesses generate five times more patents per R&D dollar than large businesses.

In order to rejuvenate our regional and national economy, it is critical that we nurture, attract and maintain innovative small companies. This can be accomplished by creating an environment that encourages calculated risk taking and provides economic incentives that will attract innovators. If you were going to start a business, would you pick Pennsylvania who has a combined tax rate approaching 50% and capital gains of 15%, or Ireland who has a tax rate of 12.5%, or Singapore who has 0% capital gains?

While the national tax rates are a macro issue that can only be addressed by Congress, I believe there are a number of things we can do locally to ensure that our region is competitive in this global environment.

1) It is critical that we nurture, recruit and maintain the best talent. We arguably have the best university system in the world right here in southeast Pennsylvania. We need to create economic incentives that reward people for staying in our region and creating jobs. One idea by Bob Adelson of Osage Ventures is tax incentives for excess properties that could be used to provide low-cost housing for individuals starting companies in the region. Another idea is to utilize student loan reductions to provide motivation for young entrepreneurs to start their companies in Pennsylvania.

2) We must develop partnerships with other regions from Tel Aviv to Singapore that ensure we are the landing ground for technology companies, while at the same time provide our small business community access to global markets.

3) We need to ensure that there are ample investment dollars accessible to small businesses and technology start-ups. Singapore has a proven model that allows Angel Investors to double their capital by providing matched state funds to companies creating jobs in the country.

4) We need to incentivize our local universities and colleges to spin off job-creating companies. Studies show that local colleges and universities receive over $940 million in funding for research and development from the local, state and federal governments. It is vital that these funds target job-creation strategies, such as technology-transfer out of the universities and into private industries.

These are only a few suggestions on how we can create a regional economic development plan, and individuals from both sides of the aisle have many more. Regardless of party, we can all agree that we need policies that will support innovative, job-creating companies to build a brighter future for our region and our nation.