Why the U.S. Should Get More Credit From Entrepreneurs

Guitar maker David Berkowitz in his Washington (D.C.) workshop on Nov. 11, 2011

Photograph by Tom Williams/CQ Roll Call via Getty Images

Guitar maker David Berkowitz in his Washington (D.C.) workshop on Nov. 11, 2011

U.S. policymakers are often chided to take action—to pass immigration reform, say, or invest in math and science education—to make sure the country remains a hotbed for innovation. Critics often frame those arguments around a looming crisis where the U.S. can’t compete with rising global powers such as China and India. But new data suggest the U.S. is doing just fine promoting entrepreneurship.

Here’s an example: According to an Ernst & Young study published today, the U.S. has the best environment for entrepreneurship among 20 of the world’s largest economies. That includes top marks for access to capital, as well as “entrepreneurship culture,” and third place on education, behind France and Australia.

Where the U.S. fared less well is more instructive. Researchers used economic data and a survey of more than 1,500 entrepreneurs to calculate the rankings. Subjective responses explain why the U.S. scored poorly in the “tax and regulation” category: The country ranked 13th despite above-average scores for the ease of starting a business and total tax rate. (Business owners who complain about the complexity of the U.S. tax code can take heart in Ernst & Young’s finding that the average U.S. firm in the study spends 183 hours a year on tax issues. The average for the 20 economies studied was 347 hours.)

“U.S. entrepreneurs surveyed were more negative on tax and regulation than any other [surveyed] country, despite the fact that the nation’s overall performance is strong,” according to the study’s authors.

Meanwhile, the U.S. ranked last in a category called “coordinated support,” which entails incubators, mentorship programs, and other official government programs to support entrepreneurs. That’s not necessarily a bad thing, says Marc Andersen, who heads Ernst & Young’s international development, government, and public-sector practice. Because the U.S. has an established venture capital industry and culture of entrepreneurship, it may require fewer government programs than less mature ecosystems.

There’s another thing: The U.S. funds programs that fit the coordinated support category, says Andersen, including the Startup America Partnership and various Small Business Administration initiatives. “The government doesn’t always do a good job of telling its story,” he says.

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