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Remarks at Kauffman Foundation, States of Entrepreneurism Address

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Tuesday, January 19, 2010

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Secretary of Commerce Gary Locke
Remarks at the Kauffman Foundation States of Entrepreneurism
Washington, D.C.

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Good afternoon. Thank you, Carl, for your insightful remarks.

And thank you to our host the Kauffman Foundation, which has been a great partner to the Commerce Department on a variety of important issues.

Like all thriving partnerships, the one between Kauffman and Commerce is effective because many of our goals are closely aligned.

Kauffman’s chief priority is the promotion of entrepreneurship. Commerce—in this time of great economic difficulty—is concerned above all else with creating more jobs for Americans.

And there is simply no better vehicle for job creation than fostering entrepreneurship.

Entrepreneurs create approximately three million jobs a year.

And as Carl mentioned earlier: Over the last three decades, startups—firms less than five years old—have accounted for nearly all increased employment in the American private sector.

As America continues to work through this exceptionally trying recession, we can look back on our history and say with confidence that we will get through it—and when we do, entrepreneurs will be leading the charge.

At a time of constrained credit and uncertainty, you might think now is the wrong time to launch a business. But over the last century, American entrepreneurs have concluded exactly the opposite.

IBM, Disney, CNN, Microsoft, Whole Foods and Genzyme are just a handful of this country's bellwether companies that were founded during times of great economic difficulties.

With this history in mind, the Obama administration is making the promotion of entrepreneurship a critical component of its economic recovery agenda.

So, how do we create the right conditions for our entrepreneurs to thrive?

To begin with, we've got to start promoting the right kind of risk. America has always celebrated those pioneers who were willing to mortgage their houses, work 100-hour weeks and throw caution to the wind in the pursuit of an idea. That story is at the very heart of America’s economic success.

But over the last few years, we fell in love with another type of risk that extolled short-term thinking and speculation.

Instead of working to engineer a breakthrough technology or build a great company; too many of our brightest minds were busy engineering credit default swaps.

America can’t afford to inflate another bubble that enriches a select few while putting everyone else in peril. We know how that story ends.

Instead, we need to encourage the right kind of risk-taking—the type of risk-taking that allows successful entrepreneurs to build companies and discover technologies that allow people around the world to live wealthier, healthier and more productive lives.

And over the last year, the Obama administration has implemented a series of policies that will empower the private sector and entrepreneurs to do just that.

For example, the Recovery Act the President signed last year had a key provision enabling the Small Business Administration to increase loan guarantees from 75 to 90 percent on their biggest loan program and also to waive a variety of borrower fees. Since the signing of the Recovery Act, SBA loan volume is up 60 percent.

In addition, the President’s 2010 budget included a provision to reduce to zero the capital gains on investments in small or startup businesses. It also included a measure to make the research experimentation tax credit permanent.

But even as we have striven to empower entrepreneurs with improved tax policies and more generous loan programs, we know that we need to do more.

We must also create a better ecosystem for innovation.

I’m talking specifically about improving a public and private research and development system that simply does not efficiently:

  • Create the right incentives or allocate enough resources to generate new ideas;
  • Develop those ideas with focused research;
  • Connect those ideas with entrepreneurs who can turn them into businesses that can create good jobs.

Although we look to entrepreneurs to build our companies, we know that historically, the first kernel of an idea for a new technology or invention was often spawned in a vast network of public and private sector research labs.

Massive federal spending in areas like defense, energy and aeronautics, which might have been too risky for private investors, helped spin off countless private sector innovations.

We may have seen the Internet come of age in Silicon Valley, but it first came to life in the labs of the Defense Advanced Research Projects Agency. The folks at Tempur-Pedic have given us mattresses that make us feel like we're sleeping on a cloud, but they are using technology that was first developed by NASA.

Meanwhile, we had well-funded private research operations at companies like AT&T through Bell Labs and Xerox, that pioneered everything from semiconductors to cellular phones.

But both of those engines of research innovation are running on fumes.

Take for example, Bell Labs, which had 30,000 employees nine years ago. Today, under its current owner, Alcatel-Lucent, Bell Labs has just 1,000 employees.

And even as overall spending in corporate R&D has increased, more of it has been focused on short-term applied work -- and more of it is happening outside our borders.

American manufacturers, for example, are now expanding their foreign research and development spending three times as fast as their domestic spending.

Or look at federal government research. As a share of GDP, American federal investment in the physical sciences and engineering research has dropped by half since 1970.

Fortunately, President Obama has grasped the urgency of the problem.

Overall, the President’s Recovery Act included $100 billion to support groundbreaking innovations in diverse fields from healthcare IT and health research, to smart electricity grids and high speed trains.

And last spring, the president went before the National Academy of Sciences and committed to devote more than three percent of America's GDP to research and development, which would represent the biggest such investment since John F. Kennedy’s administration.

These are huge steps, but they can only be viewed as the beginning.

Because the second problem with our innovation system is that even in areas where we are allocating enough funding for R&D, we’re not doing a good enough job getting these ideas into the marketplace, particularly through entrepreneurs.

For much of the last century, the way we moved federal R&D out of our labs and into the marketplace worked well enough.

We’d give billions of dollars to the Defense Department to develop new military applications or to NASA to develop new space technologies, and eventually that work would find its way to private sector innovators and entrepreneurs who saw commercial opportunities.

To paraphrase the old line from Field of Dreams, the attitude was basically: “If we fund it, the entrepreneurs and venture capitalists will come.”

It wasn't a terribly efficient system, but for a time, it didn't really matter, because the United States was the unquestioned leader in innovation. From World War II on, there was barely any world-changing technology that wasn’t first pioneered in the United States.

But those days are over—and today, too many of our research ideas never make it out of the lab, and if they do, they get lost in the “valley of death,” where a high-risk idea doesn't have the resources or the funding to make it to market.

The United States has not adjusted to a new global marketplace where foreign countries and foreign companies have the ability to outpace their American counterparts.

It’s not tenable for the United States to continue with the status quo. In a world where innovation is critical to U.S. competitiveness, we must do everything in our power to optimize commercialization that stems from our nation’s vast research investments.

This is an issue where the Commerce Department is working hard to find solutions.

Last fall, we launched the Office of Innovation and Entrepreneurship, whose mandate is to drive policies and programs that help entrepreneurs translate new ideas, products, and services into economic growth, and to accelerate technology commercialization of federal R&D.

And today, I want to announce that on February 24, this Office will host a forum with university leaders and key stakeholders on the roles of universities in innovation, economic development, job creation, and commercialization of federally funded research.

I am very much looking forward to hosting this meeting with many important stakeholders, including our friends at Kauffman.

Ultimately, I hope to hear about collaborative steps the Department of Commerce and the Administration can take with universities and industry to achieve the nation’s innovation and entrepreneurship goals.

Because although I believe this administration has a valuable role to play in promoting entrepreneurship and the commercialization of new technologies, we don’t have, nor should it seek to have all the answers.

As has always been the case, we will look to America's entrepreneurs to help chart the path back to prosperity.

And I’m looking forward to hearing more about what the Obama administration can do to provide the push.

Thank you.