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Carl Schramm says only new businesses create jobs

by Ed Cohen

November 30, 2011

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Many people wonder why employment has been so slow to recover from the latest recession. Not Carl Schramm.

In a speech Nov. 29, 2011, at the University of Notre Dame’s Mendoza College of Business, the president and CEO of the entrepreneurship-championing Ewing Marion Kauffman Foundation said, “You want jobs? You get new firms.… If we are to resurrect this economy, the critical issue missing is new-firm starts.”

Speaking to students in the College’s Entrepreneurial Insights course, Schramm cited Kauffman Foundation research indicating that all new “net job creation” in the U.S. economy comes from firms less than five years old.  Traditionally, about 700,000 new firms are created each year in the United States, he said. During each of the past seven recessions, that total actually has been higher.

“This recession, the number has gone down,” he said. “To me, this is a crisis.”

Schramm is a prolific writer whose commentary often runs in publications such as Foreign Affairs, The Wall Street Journal and The Financial Times. He frequently appears on CNBC and Fox Business News. His two books, Good Capitalism, Bad Capitalism (with Robert Litan and William Baumol) and The Entrepreneurial Imperative, are considered international classics for their insights into economic growth.

The author laid much of the blame for the current U.S. economic woes on Keynesian economic theory that promotes government spending to stimulate the economy during downturns. He complained that economists talk about alternate approaches, but, “Every time we have a recession … [they] ‘go home to mama,’” meaning a fallback onto the Keynesian approach of more government spending in the hope of putting people back to work.

“How’s that working for you?” he asked, referring to continued high unemployment.

Schramm also criticized government policies that, he said, protect big, established businesses at the expense of smaller entrepreneurs. He would have allowed the bailed-out auto makers General Motors and Chrysler to fail in 2009, for instance, in the belief that smaller, more efficient, more inventive enterprises would have taken their place, he said.

Schramm had harsh words for several other groups, including U.S. government policy makers in charge of economic aid to developing countries. He said the aid too often goes to support centrally planned economies instead of the free-market, entrepreneurial system that he credits for the growth of the U.S. economy. He said he thinks current existing policies are “fundamentally racist” because they assume the U.S. system wouldn’t work in an underdeveloped country.

The foundation CEO also chafed at politicians and university presidents who, in commencement addresses, tell graduates that the best of them will pursue a career in public service or, in Schramm’s words, “work for the government.” Schramm said he finds that “morally reprehensible” because he thinks new businesses do far more than government to promote the general welfare.

Schramm said people today celebrate individual entrepreneurs such as the late Apple co-founder Steve Jobs as “iconic super boys,” but they need to understand that new-business creation is basic and critical to the entire economy.

“These are the firms that actually are responsible for creating jobs,” he said. “When we see this number falling off, this is a crisis. There won’t be jobs.”

Entrepreneurial Insights is a fall lecture series and course of Notre Dame’s Gigot Center for Entrepreneurial Studies. It features entrepreneurs, investors, innovators and business leaders who offer their experience and advice in areas critical to the creation of new ventures, the ongoing viability of existing business, economic growth, and the betterment of society. For more information about the series or the Gigot Center visit http://business.nd.edu/gigot_center/