Posted on February 29, 2008

Entrepreneurially Driven Growth Key to Formation of Business Clusters, Report Finds

Creating the next Silicon Valley, Research Triangle, or other successful entrepreneurial business cluster calls for economic development policies aimed at fostering entrepreneurially driven growth, a new report from the Ewing Marion Kauffman Foundation argues.

Although they used to be proponents of so-called "smokestack chasing," in which a variety of tax and business incentives are offered to encourage targeted business relocations, many economic development officials now focus on replicating the economic benefits of business clusters designed to promote entrepreneurship. The report, Entrepreneurship and Urban Success: Toward a Policy Consensus (27 pages, PDF), examines the best approaches to creating these clusters and sheds light on the connections between entrepreneurial activity and urban economic success.

The report reviews areas of government policy that can affect entrepreneurial activity, including education, local crime and infrastructure policies, physical infrastructure spending, general and targeted aspects of the tax code, and targeted spending on entrepreneurial activities. While the effectiveness of any single policy approach in creating entrepreneurial activity is relatively modest, the report finds that streamlining local regulatory approvals and discouraging progressive taxation at the state and local levels could contribute to the creation of high-tech entrepreneurship clusters.

The report also urges economic development officials to consider additional investments in local schools, limiting the enforcement of non-compete clauses in business contracts, developing citywide Wi-Fi centers, and quality-of-life policies designed to make their areas more attractive to potential entrepreneurs.

"Policy-makers at local and state levels increasingly recognize that entrepreneurship is the key to building and sustaining their economies' growth," said Robert Litan, vice president of research and policy at the Kauffman Foundation. "Although this is a seemingly obvious proposition, it represents something of a departure from past thinking about how local, state, or regional economies grow."