A recipe for disruption

Entrepreneurship is the engine of economic growth but sadly it has been in decline. The number of new firms created each year has been decreasing for the last three decades. This means less innovation and disruptive new products. But we can reverse this trend with the following policies.

First, we should ease immigration restrictions for high-skilled workers. Immigrants have fueled innovation and entrepreneurship for generations. They are twice as likely as regular citizens to start a business and also more likely to patent new high tech technologies. Innovative companies like Google, EBay, and Apple were founded by immigrants or their children. Easing immigration restrictions will allow more potential entrepreneurs to live their dream.

Second, we should make urban housing more affordable. Cities have become centers of economic growth and innovation but are too expensive for many to afford. The solution is to increase the supply of new homes to put downward pressure on prices. Therefore, we should ease zoning restrictions and reduce red tape to allow for more buildings to be built quickly. This will allow more people to live in cities and afford to take a risk starting a new venture.

Third, we should counter policies that protect incumbent firms. Large established firms don’t like competition from new firms. They often use their economic power to lobby governments to create barriers to entry through protectionist policies. New firms and entrepreneurs usually don’t have the economic means to fight back in the political arena. For instance, incumbent car dealerships used their lobbying power to block the innovative new firm Tesla Motors from selling directly to consumers in New Jersey. Governments can counter this by creating and financing an agency to lobby on behalf of entrepreneurs. This new agency’s goal would be to help reverse the asymmetry between incumbent and new firms, and to promote an entrepreneur-friendly economic ecosystem.

The decline in new firm growth is an alarming trend. But it is reversible. Bringing in more high-skilled immigrants, making cities affordable, and countering incumbent firms’ political power are key. Enacting these policies will bolster the creative destruction that makes economies grow.

Bringing in more high-skilled immigrants, making cities affordable, and countering incumbent firms’ political power are key.

Comments

You have layed out three ingredients for the recipe of disruption. I am particularly concered with the second ingredient. Growing urban population is definitely a catalyst for economic growth, but it is also happening very quickly in some developing countries. Resources are extremely hard to lay hands on if cites keeps growning without any checks. Pollution and Water scarcity are problems faced by cities in India. Most of these cities are growing very fast. Buliding more houses may seem like a logical solution, but I fell there should be some counterintuitive solution to this. How do you suggest we strike a balance between urbanization (which definitely helps entrepreneurship and growth) and environmental concerns?

Adhavan, This is a great point. I must confess I come from an America-centric point of view on this issue, and we do not have the same pollution or water scarcity problems in our cities. In fact, urban living has even been a net positive for the overall environment in the US because urban households use less energy relative to rural and suburban households. The chart in this article highlights the different experiences we must be having:
http://www.cnn.com/2016/11/07/asia/india-new-delhi-smog-pollution/

What do you think should be done about the pollution and water scarcity problems in Indian cities? Maybe we can still build new housing stock to make cities more affordable but earmark most the housing for people developing the infrastructure to address the problems you raised?

John, the problem with Indian urban pollution and over-population is lack of planning. Most urban development projects don't see proper implementation and this leads to unplanned cities with explosive growth. In fact, the state where I come from has one of the highest urban:rural ratio in all of India. It is not something I fell has made a net postive contribution in every way. In my opnion, a very serious and stringent population control mechanism must be implemented. This is the only way the available resources can sustain a future - considerably fewer number of people in the future. I feel this is necessary if humanity is to survive on a fixed amount of water. Moreover, standards of living have to be raised, urbanization in some places means rising number of ghettos and slums as well. This must be avoided at all costs. Housing projects are a solution, but these may also mean resource burden on the land and water sources. Without populaiton control, nothing seems viable in the long run. 

 

 

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