Expect governments, which are often viewed as most effective when they stay out of the business sector’s way, to get a renewed look in 2015. They are actually vital to nurturing and protecting entrepreneurs, one of their most important engines of economic growth and job creation.
Countries around the world are discovering that the regulatory environment plays no small role in innovation. Policies, for example, that protect industries can demotivate both entrepreneurs from investing in their ideas and large firms from investing in R&D. The deck looks stacked against them, and who can blame them?
Here, then, are some of the ways we see governments helping entrepreneurs create opportunity — and the all-important jobs — in the year ahead:
Strengthen and invest in education systems. Innovation requires a well-educated, competitive labor market, brimming with both skills and ideas.
Encourage business to connect with global, cross-border markets. Entrepreneurs that consider the largest possible market for their goods or services will be the ones to watch. Now with the advent of the “sharing economy,” everything can be shared or borrowed via online apps from accommodation (Airbnb) to cars (Uber and Lyft) to videos (YouTube). Global markets can be dominated almost overnight — with very little required in way of logistics or expensive overhead.
Cultivate confidence in capital markets. Governments are responsible for creating conditions that attract foreign investors. Adopting a financial reporting language that can be understood by investors around the world will go a long way to ensuring a common language. The reform provides a vehicle for tapping international capital flows that can benefit business activity and home and boost growth – especially when attracting capital for IPOs.
Simplify procedures and requirements. Burdensome processes can create roadblocks that increase the cost of doing business. This is an entry barrier for many beginning and growing businesses. No government can afford this during a time of lukewarm recovery or high unemployment.
Champion robust R&D programs. These are especially beneficial in the increasingly active areas of energy (clean tech), health care and scientific research.
Allow for failure. If an attempt at innovation or a new business startup does not succeed, does the tax code allow for the business to write it off? Entrepreneurs often fail once, before they hit it big; for example, GoPro camera founder Nick Woodman is upfront about his first business failure.
Encourage sound public/private partnerships. It only behooves the government, universities and the business sector to work together in the spirit of innovation. California’s Silicon Valley is a now legendary example of how these three coalesce to attract a critical mass of talent, capital and opportunity. Russia, Israel and the UK are also coming up in the ranks by demonstrating similar pockets of cooperative success.
Make the tax framework friendly to innovation. Different countries will develop different approaches that can include tax credits for new workers, immediate expensing of capital assets and making tax credits available to lenders to lower the cost of finance.
Rethink immigration policies. Support G20 multilateral visas so talented people have many places-to-work options. Promote immigrant entrepreneurs by linking them to funding institutions and business incubators. Relocation funding support for inbound startups is also needed.
In all my years of working closely with global entrepreneurs, I’ve learned that no single stakeholder can be counted on to develop all of the elements required for a successful entrepreneurial ecosystem. It is essential for regulators and businesses to encourage venture capital and other sources of funding. They must also create intellectual capital through partnerships with leading universities and research centers. Innovators must be supported by fair and pro-growth tax and legal systems. Finally, legal, accounting and banking advisers must understand and adapt to the needs of entrepreneurs.
Commentary by Maria Pinelli, global vice chair of strategic growth markets at Ernst & Young Global.
Image Credit: CC by photologue_np