How Start-Ups Can Save the World… or At Least Aid the Economic Recovery Effort

If you haven’t heard (though I’m sure you have), the Great Recession is still lumbering on. Despite the lack of Midwestern Farmers moving west to find work, many analysts are making comparisons to the Great Depression of the 1920’s with the high unemployment rate and seemingly endless string of economic defeat. Analysts, economists, politicians and investors wait with bated breath for the release of unemployment figures for some sign of improvement. Unfortunately, the rate continues to hover around 9%.

The best possible way to tackle this problem would be to increase core, private job growth. While monetary injections via government projects can work, they are not sustainable; you can only pave the 101 so many times before people begin to think those in charge have lost it. April saw a huge spike in jobs, but they were mainly created through public spending. Thus, they are unsustainable in the long run. The lack of job security means many will be saving those paychecks, instead of running out to buy new clothes, cars and gadgets, denying consumer spending a much-needed influx of cash.

Start-ups, not public projects, are what the government should be focusing on. Whether it is through tax incentives, fund availability, or simply by stepping back and letting great ideas grow, uninhibited, into great companies, the United States’ government is remiss in overlooking the start up. It is understandable why they have chosen this path, as the tech boom of the nineties soon did a nosedive and brought a lot of money down with it, but we have learned from our tumultuous relationship with start-ups. We’ve changed. Give us another chance!

VC’s, a usual source for start-ups, have begun to scale back their investments, merely due to the risk involved. We are in a recession, as I am sure political pundits will remind us day after day after day after day… after day. This presents a delicious opportunity for government organizations already focused on small business. Take the SBA, for example; an excellent little program that ensures loans banks give to small businesses. Expand that program! It only takes a little bit of money to really help out a start-up. If the money is spent wisely, and not on every frivolous idea to be placed on the loan officer’s desk, it can go a long way to create new jobs in the private sector. The SBA, or something like it, could even be tweaked to include angel investors and venture capitalists. For a little bit of insurance, the government could rely on the keen mind and expertise of established investment professionals who have years of experience with start-ups.

America is a far cry from a second or third world country, but we can learn from the programs that have been proven to work in impoverished areas. Micro-loans help people help themselves, which is something that politicians on both sides of the aisle are always clamoring about. Peter Cohan, in an excellent post on Forbes, wrote that America should be made more palatable for entrepreneurs from China or India. I completely agree; an easing of the immigration process, coupled with accessible loan programs, means we maintain an advantage over other countries. In a research paper out of Duke and University of California Berkley, it was shown that one key founder in 25% of tech start-ups between 1995 and 2005 was foreign born. Few of these founders came stateside to create a company; more often than not, they were looking for an education. But why kick out people with great ideas once that education is over?

Recognition used to be all America needed, but with the internet nearly tearing down market borders completely, the Land of the Free needs some more free enterprise. Start-ups offer a solution to our economic troubles. Sustainable, private companies can help to lower the unemployment rate on a long-term scale. A lower unemployment rate means happy newscasters telling happy consumers and investors to go out and spend. As long as we are careful, and watch out for another tech/housing/consumer-spending bubble, start-ups may offer an end to the Great Recession.