Government’s Role in Innovation and the Growth of Business

By Ryan Santacrose
July 2, 2013
General Foundation

Cities, not the federal government, are leading the way in the economic recovery. Many cities have taken the initiative to promote economic expansion, foster the growth of their own industries, and, most importantly, create jobs. At a recent National Journal event, Bruce Katz, vice president and founder of the Brookings Metropolitan Policy Program, argued that cities are doing what the federal government cannot do. Local officials, private philanthropists, and economic development groups, such as Advance Northeast Ohio are finding creative ways to pool resources and coordinate the development of metropolitan economies. Many cities are able to identify their strengths and expand upon them in innovative ways, while the federal government must operate with a more national, and less efficient, outlook.

This inversion of economic leadership is precisely what needs to occur, according to Katz, in order to spur innovation and the growth of American business in general. Currently, the federal government is at the top of the pecking order—regulating, picking winners and losers, and acting as an overall hindrance to growth. The government, through its vast regulatory bureaucracy, has a tendency to dictate the nature and direction of businesses. Innovators, entrepreneurs, and anyone looking to expand business, must play by the government’s rules. 

For our economy to grow and fully recover, innovators and entrepreneurs must be at the forefront, leading and determining where the future of business will be. They know the game much better than the government because they’ve experienced it, created it, and lived by it. Necessarily, they must be the ones to grow the economy. To make his point, Katz quoted Dolly Parton, who once said, “Find out who you are, and do it on purpose.” Many cities have been successful because they understand what works locally and can access their resources and strengths more efficiently than the federal government. The same goes for individual businesses.

Rather than at the top of the food chain, the federal government needs to be at the bottom, acting as a support system and encouraging force. Through heaps of regulations, red tape, and a tendency to play favorites, the federal government often can discourage would-be entrepreneurs and innovators from pursuing great ideas. Instead of creating disincentives, the government should use its power to reduce them. As Edward Luce notes in the Financial Times, “Urban revival is happening in spite of Washington. But it is slower and more patchy as a result.” Innovation and entrepreneurship, like the power of cities, will always be vital to growth of the economy, but the magnitude of their impact depends on the government’s role. 

Aside from these barriers, innovators are often hesitant because innovation requires long term commitment, bold initiative, and risk-taking. The government can lessen these disincentives by utilizing its resources in a supportive, rather than excessively regulatory, manner. It can create programs that reward entrepreneurship and innovation. It can offer services to help companies grow and expand. For instance, UCLA's Export Champions Program has helped small and mid-size companies in Southern California develop export plans and break into international markets. The federal government should likely be more active in supporting programs like this, if not developing its own.  

Of course, regulation and oversight are necessary to promote fairness and protect the public interest, but any government involvement in business should be reasonable and never act as a barrier limiting economic potential. If we have a government whose goal is to encourage, not control, we will likely see more bold innovators and entrepreneurs willing to take the risks necessary to bring their great ideas to light. These bright minds should be energized by a future filled with potential and possibility, not dismayed by an array of risk and regulation. Hopefully, the government can recognize our country’s economic fertility lies in the initiative and creativity of the private sector. Innovation occurs there, and innovation grows our economy. The government can provide sustainability through resources and helpful policies, but it will never itself provide the ingenuity we need.

Washington’s role should be in service of the cities it represents, not vice versa. It should serve the innovators and entrepreneurs vital to our economy. Cities are where ideas and ingenuity come to flourish, after all, and where few should stand in the way of a brighter tomorrow.