Saturday, December 6, 2008

Public Infrastructure and Entrepreneurship

As a political progressive in a entrepreneurial industry I am often frustrated by the myopic, Republican "small business" and entrepreneur faction continually beating the facile drum of tax cuts and small government. This is counterproductive to the noble venture of entrepreneurialism.

This morning I was heartened and inspired by Barack Obama's public works and infrastructure pledge.

Nothing could be better for long term economic growth and continued American leadership in innovation than a broad range of infrastructure improvements. Think of it as outsourcing your costs, focusing on your core business proposition, getting a subsidy and a research grant all in one.

Consider this, according to McKinsey: "Health insurance expenses are the fastest growing cost component for employers. Unless something changes dramatically, health insurance costs will overtake profits by 2008." If employers didn't have to worry about paying and administering employee health-care plans, you would not only have more free cash to go around, but you would have more attention to devote to excelling at your business's core competency. What's more, employees and entrepreneurs who were secure in health coverage that was not tied to their employer would be much more willing to take a flier, start a company, or even merely create more liquidity in the labor pool by reducing the transaction costs of switching jobs.

How about investment in education? Toyota, renowned for business process acumen, prefers to site new factories in Canada instead of the Southern United States not only because of the healthcare advantage, but also because of the education advantage - better educated and trained workers lead to a long term productivity and quality advantage.

This same effect has been well documented at a larger scale in descriptions of the concentration of innovation, wealth creation, and education in the coastal cities of the United States West coast, and Northeast, like Richard Florida's various Creative Class work.

Not coincidentally, it is these same cities that invest the most in public infrastructure. Just for instance, despite substantial room for improvement, voters in Seattle uniformly pass each new parks and school levy that shows up on the local ballot.

Which brings us to transportation infrastructure. No one benefits more from better transportation than businesses. If employees have low-stress commutes (reading on the train, etc.), they are liable to be more productive, and generally appreciate their current 'life situation' more than if they have to fight an hour of aggressive traffic. Obviously, traffic delays have a huge opportunity cost in terms of employee time as well, even leaving aside environmental externalities. If you deliver physical goods to customers, getting purchased items delivered faster and at lower cost is central to delighting your customers. And this leaves out public investment in faster and more extensive broadband infrastructure to grease the wheels of more and richer internet services.

Moreover, public focus and investment in kick-starting cleantech and green energy innovation will give the next wave entrepreneurial innovation and wealth creation the same catalyst that the cold war and defense spending contributed to the genesis of silicon valley.

Nothing short of a 1999-style IPO market could be better for entrepreneurialism than Obama's public infrastructure investment plan.

1 comment:

Isabelle Ayel said...

You are perfectly right but unfortunately public investments are financed by...YOU via taxes. If you pay and every employee in a state pay more taxes for more public investments, you will commute without stress but you also will shop without stress because nobody will be able to shop a lot because of low income and saving due to increasing taxes. See example of France (unemployement is 9% to 10% since 30 years due to 55% of tax charges over income).