22 September 2012

High Schools as Hot Beds of Entrepreneurial Activity

If we took entrepreneurship as seriously as we did football, unemployment could now be at 6.4% instead of 8.1%.

 The essence of Republicans’ economic policy, characterized by Paul Ryan’s plan to lower capital gains tax to 0, is that jobs aren’t being created because we don’t have enough capital, enough investors willing to risk their money.

The essence of the Democrats’ economic policy, characterized by the call to spend more on education, is that jobs aren’t being created because we don’t have enough knowledge workers ready to compete in the global economy.

It could be that more capital would make the difference. If the problem is as simple as insufficient capital, though, it makes it tough to explain why Bernanke’s creation of billions hasn’t created more jobs. Or why companies are sitting atop of trillions. Or why private investors seem more adept at creating bubbles than jobs, bidding up the price of existing assets as varied as gold and real estate but less often creating sustainable new businesses.

It could be that education, the creation of more knowledge workers, would make the difference. It doesn’t explain why the underemployment rate of recent college graduates has been close to20% in recent years and unemployment rates for college graduates remains among the highest it has ever been.

It seems to me that the real job creators are not the professors turning out new college graduates or portfolio managers with handfuls of cash. More graduates and more capital seem ineffectual at creating jobs. (Not that both wouldn’t be handy once we were.)  

Entrepreneurs create jobs and any community intent on creating jobs faster than productivity gains, globalization, and market shifts destroy them would do well to adopt policies that encourage entrepreneurship.

There are a hundred things we could do to encourage entrepreneurship. I’d like to just focus on one thing, one thing that could have a huge ripple effect. It would mean taking entrepreneurship in our high schools as seriously as we do football.

Every year, about 350,000 high school kids start playing football. Meanwhile, every year about 350 men join NFL teams, becoming professional players. So, about one-tenth of one percent – 0.1% - of high school players eventually turn pro.

Think about all the hours of practice, coaching, and play that go into the creation of these 350 new pros. There are, of course, far more reasons for high school football than to simply create a few hundred new stars. These games give kids a chance to be engaged in ways that classes might not, enhance our sense of community, and teach kids broader skills about cooperating to compete and competing to cooperate, discipline, effort, tapping inner reserve, humiliation, exaltation, being cheered and being booed, fitness, and focus.

Entrepreneurial contests could do all that too  – and create jobs. Maybe millions of jobs.

Given high school level entrepreneurial contests could include young women, we might get 700,000 high school kids each year to compete in this world, about double the number who each year choose to play football.

Entrepreneurial contests could include the same kind of training and coaching as football, but have a different focus. Kids might compete on business plans or product design, or cost reduction ideas or on marketing or advertising campaigns. They might even start actual businesses.

Let’s say that that the same percentage of the kids competing at the high school level went on to become “pros” at the same rate as football players. That is, this sort of practice and awareness and the combination of luck and opportunity for hidden talents to emerge resulted in similar 1 in 1,000 of high school kids who went on to become successful entrepreneurs. Assuming double the participation rate of football, this would mean the programs would eventually produce about 700 new, successful entrepreneurs per year.

Further, let’s assume that success put entrepreneurs in the top one-tenth of one percent of firms, firms that created an average of 400 jobs. The result would be about 280,000 new jobs per year.

Now, stay with me here, if each of those ventures were viable for about a decade, the net effect after that first decade would be about 2.7 million extra jobs.

Peak unemployment in the last decade was 15.4 million, the unemployment rate hitting 10% that month (October of 2009). At its best, the number of unemployed was only 6.7 million, unemployment hitting 4.4% that month (October of 2006). A program that created an additional 2.7 million jobs would have lowered the unemployment rates in those months to 8.3% and 2.6%. Assuming an additional 2.7 million jobs, last month the unemployment rate would have been just 6.4%.  Among other things, it’s easy to imagine that incomes would have gone up rather than down in the last decade in such a scenario.

Obviously these numbers assume a sort of domino effect that’s fairly optimistic, which means that reality could be even more impressive.  James Fowler of UC San Diego has studiedsocial contagion and concluded that your friends’ friends’ friends influence your happiness, the likelihood that you’ll suffer from obesity, smoke, drink, or even be altruistic. So if communities begin to focus as much on the entrepreneurial skills of their young as they do their football ability - covering this in newspapers, having pep rallies, coming out in the hundreds to watch competitions -  think what that might do to behavior in the community. Might not a 40 year old father get inspired by someone’s business plan, changing how he runs his business? Couldn’t a 30 year old woman decide to start a business after hearing the 23rd 17 year old explain how to profit from changing demographics?

I think that corporations could do the most to make more employees more entrepreneurial, transforming the rate at which equity and jobs are created. But it’s not just corporations that could change. To repeat, there are at least a hundred things communities could do to encourage entrepreneurship.

And once communities become more entrepreneurial, we’ll need more capital. We’ll need more knowledge workers. But it’s entrepreneurs who will create the jobs; at this point in our economic development, the capital and knowledge workers just follow the parade, they no longer lead it. Maybe one way to get this parade moving faster would be to take entrepreneurship as seriously as we take high school football. It seems less risky and expensive than cutting tax rates in the midst of chronic deficits, or expecting kids to take on ever larger student loan debt. And it has incredible promise.

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