May 04 2009

To Create Jobs, Incubate Businesses

There’s more to economic stimulation than bricks and mortar.
by Toby Brink

The federal government has recently invested nearly $800 billion to stimulate the economy. “Shovel-ready” projects are suddenly all the rage.

There is no doubt that infrastructure investment is important to our quality of life and to our global economic competitiveness. But is a massive investment in brick and mortar the most effective way to create new jobs during a recession?

A new study proves that business incubators need to be part of the job-creation equation as well.

According to research conducted for the U.S. Commerce Department’s Economic Development Administration, business incubators provide communities with significantly greater results at less cost than any other type of public works infrastructure project.

In the study of the economic impacts and federal costs of EDA construction program investments, researchers found that business incubators are the most effective means of creating jobs — more effective than roads and bridges, industrial parks, commercial buildings, and sewer and water projects.

In fact, incubators provide up to 20 times more jobs than community infrastructure projects (e.g., water and sewer projects) at a cost of $144 to $216 per job compared with $2,920 to $6,872 for the latter, the report notes.

So why do governments spend large amounts on brick-and-mortar projects and so little on economic stimulus efforts?

The answer is in the politics.

At city council meetings residents regularly show up to demand the installation of speed bumps, sound-barrier walls, additional stops signs and other improvements.

But how often do residents show up to demand more investment in innovation and technology?

Governments invest in infrastructure because the results are tactile and provide more immediate gratification for the citizenry. Local residents focus primarily on matters they believe directly affect the quality of life in their community. Yet quality of life is largely a function of a thriving business community. (Detroit is a good example).

Many local governments invest a disproportionately low amount on business development efforts like businesses incubation. Thankfully, Tri-Valley government officials have studied the issue carefully and made significant investments in supporting entrepreneurs in the region.

The five Tri-Valley cities (Danville, San Ramon, Dublin, Pleasanton and Livermore) recently sponsored the launch of the Tri-Valley Innovation Network, the first network committed to the success of entrepreneurs in the region. They also support the efforts of Small Business Development Center programs and local chambers of commerce to help small business thrive in the Tri-Valley.

The success rate for new entrepreneurial ventures is under 50 percent. But studies examining entrepreneurs who have had training and/or education in entrepreneurial skills consistently show a much higher success rate, as high as 80-90 percent.

The U.S. economy is driven by small business and the spirit of entrepreneurship. More than 80 percent of the Tri-Valley economy is made up of firms with one to five employees.

Facing a tight credit market and limited funding sources, many great ideas die on the vine. But who knows how many small businesses in the region could emerge as the next PeopleSoft? Ventures such as iPod, Wikipedia, LinkedIn, Flickr and Skype all emerged during recessionary times.

There are no guarantees in life or in business, but increased investment in entrepreneurship and innovation are critical to our ability to compete in a global economy.

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Toby Brink is the president and CEO of the Tri-Valley Business Council. He serves as the Tri-Valley’s citizen editorial board member. This column was originally published in the May 2, 2009 BANG-EB newspapers.