In order for a sustained economic recovery to occur in the US, small businesses — and the innovations that historically spring from such ventures — must thrive. That’s something on which policymakers on both sides of the political fence agree. But entrepreneur and author Henry R. “Hank” Nothhaft contends that sometimes the same government that touts the importance of small business oftentimes hinders small biz success. “I’m not for no government. I’m actually for what I call smart government,” he asserts. “In terms of the small businessman or entrepreneur, the problem that we’re dealing with is one size fits all government is what I call it.”
Nothhaft is chairman, president and CEO of Tessera Technologies, Inc., a publicly traded maker of micro-electronics solutions that enable smaller, higher-functionality devices. Prior to this, he was CEO of Danger Inc., a software company for wireless service providers that was acquired by Microsoft for $500 million. In his book, Great Again: Revitalizing America’s Entrepreneurial Leadership, Nothhaft and co-author David Kline says that for the nation to regain its leadership in innovation and entrepreneurship, five actions must take place:
Fix the regulatory process and corporate income tax rate: The government should be a partner with small businesses, according to Nothhaft. “They should change their thought process, and they should look at small businesses as a customer, not as somebody they’re taxing or regulating or however they view it,” he says. “Instead of saying ‘oh, you didn’t do this,’ and ‘I got you here,’ come in and help me. I’m going to create jobs, pay taxes. I’m going to help support programs in the community. Help me get started so I can do that.” He says the US is that it has a higher corporate tax rate than almost any developed country except Japan, which is lowering its rate. And while General Electric made headlines for its tax benefit, small businesses have no such means for getting out of paying taxes. “So if you’re a small business, you’re getting hammered,” says Nothhaft.
Restructure the Patent Office: It costs a lot of money to get a patent — and patent fees are just the beginning. There are patent attorney fees and other expenses. According to Nothhaft, it costs $38,000 dollars to get a patent issued for a small business. “So not surprisingly, over the last 10 years, the percentage of patents and the number of patents being issued to small organizations and individual inventors has fallen by one—half,” he says. He cites a law was passed by the federal government in 1999 in which patent applications — and their associated inventions — are made public after 18 months. “Anybody that wants to look at that can have the right to look at the patent application. So now all these offshore companies in particular or anyone that wants to get access to my technology.”
Initiate smart polices to retain growth industries: As new innovations are created — such as those in the clean tech area — the US can capture and retain more of those jobs by establishing policies conducive to the success of those industry and their supply chains, says Nothhaft. “All these industries create an ecosystem associated with them, and they create incremental jobs. Once the base industry goes offshore, you lose the ecosystem,” he contends. “We may be benefiting by some royalties or licensing fees, but all the high-paying, high-tech manufacturing jobs that would have been middle class-creating jobs and a path into the middle class and beyond in America are creating the middle class in China.” He also recommends that when legislators look at new regulations, they consider the disproportionate impact policy often has on small businesses and consider carve-outs.
Increase funding for programs that support science, R&D: The government played a significant role in creating some of the technological breakthroughs of the last 50 years through the Defense Advanced Research Agency. “Over time, the amount of money we’re spending in R&D has dropped precipitously and the types of programs that are being funded are more development for very near-term projects, and quick payoffs,” says Nothhaft. “I’m advocating that we go back to era where the programs that the government funds are over the horizon, breakthrough research-type projects that wouldn’t be funded by corporate America and let corporate America fund the 10-year or less horizon projects.” He says that as those breakthroughs occur, if smarter policies are in place, the US will keep some of those high-tech manufacturing jobs in the states.
Ease immigration rules: “We educate a lot of foreign students here, and then we don’t allow them to stay here even though they’re qualified to do jobs here. So we educate these people, and we force them to go back,” says Nothhaft. “Once they’re back in their home country, they’re not coming back because there are too many opportunities over there.” He says that when combined with established foreign-born entrepreneurs sometimes deciding to go back home to a more business-friendly environment, it creates what he dubs a brain drain. Says Nothhaft, “They can go back home, get land grants, tax incentives, outright grants, loans, whatever it takes, tax holidays, to create businesses back in China or wherever. First we’re draining the students after we educate them, and we’re now bleeding the experienced entrepreneurs who are going back home as well.”
Nothhaft is optimistic that some of these things can be implemented. “There is a change of mindset that’s starting to occur because we have an emergency occurring in the US, and it’s called we’re spending more than we’re taking in at the government level, and that’s forcing everybody to rethink how we’re running the country,” he says. “Regulate the ones that need to be regulated, and regulate them more effectively than you’re doing, but give small businesses a chance to flourish. Keep that in mind. One size fits all government does not work.”