[Joint House and Senate Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 114-454
ENCOURAGING ENTREPRENEURSHIP: GROWING BUSINESS, NOT BUREAUCRACY
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HEARING
BEFORE THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
JULY 12, 2016
__________
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Daniel Coats, Indiana, Chairman Patrick J. Tiberi, Ohio, Vice
Mike Lee, Utah Chairman
Tom Cotton, Arkansas Justin Amash, Michigan
Ben Sasse, Nebraska Erik Paulsen, Minnesota
Ted Cruz, Texas Richard L. Hanna, New York
Bill Cassidy, M.D., Louisiana David Schweikert, Arizona
Amy Klobuchar, Minnesota Glenn Grothman, Wisconsin
Robert P. Casey, Jr., Pennsylvania Carolyn B. Maloney, New York,
Martin Heinrich, New Mexico Ranking
Gary C. Peters, Michigan John Delaney, Maryland
Alma S. Adams, Ph.D., North
Carolina
Donald S. Beyer, Jr., Virginia
Brian Neale, Executive Director
Harry Gural, Democratic Staff Director
C O N T E N T S
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Opening Statements of Members
Hon. Patrick J. Tiberi, Vice Chairman, a U.S. Representative from
Ohio........................................................... 1
Hon. Carolyn B. Maloney, Ranking Member, a U.S. Representative
from New York.................................................. 3
Witnesses
Dr. Tim Kane, Economist and Research Fellow, Hoover Institution,
Stanford, CA................................................... 5
Mr. Tom Walker, President and CEO, Rev1 Ventures, Columbus, OH... 7
Mr. Jamie Richardson, Vice President, Government, Shareholder and
Community Relations, White Castle System, Inc., and Chairman,
Ohio Restaurant Association, Columbus, OH...................... 9
Ms. Carla Harris, Chair, National Women's Business Council, Vice
Chairman of Wealth Management and Senior Client Advisor, Morgan
Stanley, New York, NY.......................................... 11
Submissions for the Record
Prepared statement of Hon. Patrick J. Tiberi, Vice Chairman, a
U.S. Representative from Ohio.................................. 24
Prepared statement of Hon. Carolyn B. Maloney, Ranking Member, a
U.S. Representative from New York.............................. 24
Prepared statement of Dr. Tim Kane............................... 26
Prepared statement of Mr. Tom Walker............................. 33
Prepared statement of Mr. Jamie Richardson....................... 40
Prepared statement of Ms. Carla Harris........................... 49
Questions for the record and responses for Ms. Carla Harris
submitted by Rep. Carolyn B. Maloney........................... 55
ENCOURAGING ENTREPRENEURSHIP: GROWING BUSINESS, NOT BUREAUCRACY
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TUESDAY, JULY 12, 2016
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The Committee met, pursuant to call, 2:01 p.m. in Room 216
of the Hart Senate Office Building, the Honorable Pat Tiberi,
Vice Chairman, presiding.
Representatives present: Tiberi, Hanna, Grothman, Maloney,
Delaney, and Adams.
Senators present: Klobuchar.
Staff present: Breann Almos, Ted Boll, Doug Branch, Whitney
Daffner, Connie Foster, Harry Gural, Colleen Healy, Karin Hope,
Matt Kaido, Brooks Keefer, Christina King, Yana Mayayera, and
Brian Phillips.
OPENING STATEMENT OF HON. PATRICK J. TIBERI, VICE CHAIRMAN, A
U.S. REPRESENTATIVE FROM OHIO
Vice Chairman Tiberi. The hearing today will come to order.
Good afternoon. I would first like to thank Chairman Coats for
giving me the opportunity to hold this hearing, and along with
his staff in helping to prepare for today's hearing on the all-
important subject of entrepreneurship and its importance to our
economy. He, unfortunately, had another commitment this
afternoon but turned the gavel over to me for what I expect to
be a very thought-provoking conversation about how we encourage
entrepreneurship.
Entrepreneurs put ideas into action, and the businesses
they create make up a major component of America's economic job
growth engine. Entrepreneurship also contributes to our
standard of living. By boosting job creation, entrepreneurship
drives economic growth, offers consumers better goods and
services, and allows Americans to move up the economic ladder
through their own innovations.
America was once considered by far the best place for
someone venturing out on their own. It was a place for taking a
risk to build something new, to improve the lives of all
Americans. And in places across the country, that is still the
case, as you will hear from our witnesses today.
However, our current economic recovery has been relatively
slow, and certainly geographically uneven. In my home State of
Ohio, as Mr. Walker will testify, Columbus has enjoyed great
success in attracting new businesses and encouraging
innovation.
Other parts of the State, however, including many rural
areas, Appalachia, have not recovered from the Recession.
Overall, we have seen a decline in the rates of start-up
companies and an increase in the average age of companies
compared to previous decades.
It is our role as federal policymakers to foster a free
market economy in which Americans enjoy ample opportunities for
employment, and we must not forget that the private sector is
the true driver of economic growth. Government cannot tax and
regulate its way to American prosperity.
Every day, entrepreneurs launch new companies and decide
where to place their headquarters. Those who incorporate here
will face the highest corporate rate in the developed world,
while those who structure to pay individual tax rates will
grapple with mind-numbing complexity and tax rates that have
risen substantially during this Administration.
Our uncompetitive tax code makes America less attractive as
a place to do business. As if taking a risk on the success of
an idea were not challenging enough, today's entrepreneurs also
face a series of government-imposed market barriers. These
include banking regulations that make it harder to get
financing, and harder for community banks to operate and make
loans.
Archaic licensing and permitting rules, and complex labor
and health requirements, each of these requires using precious
resources often to hire professionals just to help navigate
through all of it.
As our witness, Andrew McAfee said in a previous hearing on
automation, entrepreneurs are facing an increasingly dense
thicket of things that an employer or worker has to confront
before they can start something up. And it looks like more and
more people are saying I'm just not going to bother with it.
A friend of our family in Columbus, Ohio, an Italian
immigrant, started a family-owned business over 40 years ago.
He has told me more than once that given the regulatory burden
today that he faces he couldn't start a business that he
started 40 years ago. The mandates, the regulation, the risk-
to-reward, the gap is too high. That is not what you like to
hear from a successful entrepreneur today.
We must continue to focus on ways to reduce the barriers to
innovation, giving entrepreneurs the tools they need to
succeed. That does not come from picking winners and losers
with direct subsidies or carved out tax breaks. Instead, that
comes from preserving competition, removing restrictions that
only serve to protect established companies, and hinder
startups with new ideas.
We also need to remove barriers for those who want to
invest in entrepreneurs and startups. My bipartisan
legislation, the Investing In Opportunity Act, will make it
easier to invest in areas that need it most: communities, rural
and urban, that need help.
Congress should boost entrepreneurship by reducing the
thicket of bureaucracy that is strangling private initiative.
It is my hope that here in America we can retain a strong
entrepreneurial spirit rather than cause it to wither away.
At this time I would like to recognize Ranking Member
Maloney for her opening statement.
[The prepared statement of Vice Chairman Tiberi appears in
the Submissions for the Record on page 24.]
OPENING STATEMENT OF HON. CAROLYN B. MALONEY, RANKING MEMBER, A
U.S. REPRESENTATIVE FROM NEW YORK
Representative Maloney. Thank you. Thank you so very, very
much, Vice Chairman Tiberi, and thank you, too, Chairman Coats
for calling today's hearing. And thank you to all of our
panelists.
The United States is the most creative, innovative country
in the world. We have the world's best research universities,
its deepest financial markets, and we remain a magnet for the
world's talent.
If we leverage these assets, there is no doubt American
innovators and entrepreneurs will continue to lead the world in
years to come.
New businesses are the lifeblood of our economy. Some
startups go on to become big businesses worth billions of
dollars. Others stay small but play a vital role in helping
their founders achieve the American Dream while creating jobs
in their communities.
However, data show that new business formation in America
has been slowly declining for decades. One reason for this is
the enormous and growing power of extremely large corporations,
many of which have swallowed their competitors. This makes it
much harder for new entrepreneurs to break into markets.
Another reason is that the middle class, which has long
fueled entrepreneurship in our country, has seen its economic
foundation chipped away for decades.
A third reason that entrepreneurs face a difficult
environment is the fallout from the catastrophic financial
crisis under George W. Bush. The Recession hit aspiring
entrepreneurs hard. Bank lending and other sources of financing
dried up, and new businesses had an even harder time finding
customers.
Fortunately there are signs that these trends have turned
around. The U.S. recovery is the envy of the world. Since 2012,
more businesses have opened than have closed. Bank lending to
small businesses has ticked up, and the Jumpstart our Business
Startups Act, signed by President Obama in 2012, is now helping
to facilitate crowd funding.
Last year, the Kauffmann Foundation's Index of Growth of
Entrepreneurship posted its largest year-over-year increase in
a decade. These are all good signs, but it is clear that there
is room for improvement.
My Republican colleagues often attribute declining startup
rates to the regulatory policies of the Obama Administration.
They are misguided. The decline has been going on for decades
under both Democratic and Republican presidents. In fact,
President Obama has issued fewer regulations than President
George W. Bush did through the same point in his presidency.
Moreover, it is unclear whether trends in regulations and
in startup formation are related at all. As Dr. Kane writes in
his testimony, a study by economists at George Mason University
found that industries with more regulations actually have more
startup activity.
In addition, a recent report by the Economic Innovation
Group found that just 20 counties were responsible for half of
the net increase in new business establishments from 2010 to
2014.
Nine of the 20 counties with the strongest new business
growth are in the 10 states ranked by the Mercatus Center as
having the most burdensome regulations. None of them are in the
10 states ranked as having the least burdensome regulations.
Make no mistake, we should carefully review regulations to
make sure that they are serving the best interests of American
families. Surely there are regulations that could be
streamlined or improved to reduce the impact they have on new
businesses.
The private sector, government, and academia can each play
a role in laying the groundwork for entrepreneurship and
innovation.
In my home District in New York they are working together
to help create Cornell Tech on Roosevelt Island. It will be a
world-class campus for applied science and engineering,
bringing together innovators, entrepreneurs, and investors.
Visionary projects like Cornell Tech can help serve as a
catalyst to speed the movement of promising new discoveries
from the lab through development and into manufacturing. These
partnerships can also help our workforce develop the education
and skills needed to innovate and build businesses.
I want to close by highlighting another area of real
promise: entrepreneurship among women and in communities of
color. Between 2002 and 2012, the number of women-owned
businesses grew more than two-and-a-half times faster than the
national average.
The number of businesses owned by women of color grew even
faster than that. We need to build on this success and break
down barriers so even more women can start and grow their own
businesses.
Again, I thank Chairman Coats and Vice Chairman Tiberi for
holding this hearing, and I look forward to our witnesses'
testimony, and I yield back. Thank you.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 24.]
Vice Chairman Tiberi. I would like to thank the Ranking
Member. And I would like to introduce our panel of witnesses
who are here today. We appreciate you being here, all four of
you.
Dr. Tim Kane is an economist and research fellow at the
Hoover Institution at Stanford University. In addition to his
research role, he is at the Kauffman Foundation and the
Heritage Foundation. Dr. Kane has served twice as Senior
Economist here at the Joint Economic Committee. Dr. Kane co-
founded multiple software firms, and his startup enonymous.com
was awarded Software Startup of the Year in 1999. Dr. Kane
earned a Ph.D. in Economics from UC San Diego, and is also a
graduate of the U.S. Air Force Academy.
Welcome back, Dr. Kane.
Mr. Tom Walker is President and CEO of Rev1 Ventures, a
Columbus, Ohio, based venture development firm. Mr. Walker
previously served as the CEO and President of I2E,
Incorporated, an Oklahoma-based not-for-profit that focused on
promoting entrepreneurship. He is an advisor to the National
Angel Capital Association, an Adjunct Professor of
Entrepreneurship at the University of Tulsa, and is a reviewer
for the Kauffman Foundation's E-Venturing Initiative. He holds
a Bachelor's Degree in Mechanical Engineering from the
University of Oklahoma, and an M.B.A. from Oklahoma City
University. Welcome, Mr. Walker.
Mr. Jamie Richardson is a Vice President of Government and
Shareholder Relations for White Castle, a fourth-generation-run
family-owned business. He serves on the Board of Family
Enterprise USA, the National Council of Chain Restaurants, and
the Ohio Restaurant Association where he now serves as its
chairman. He holds an M.B.A. from Ohio Dominican University,
and is a graduate of Siena Heights University with a Degree in
Business Administration. Welcome, Mr. Richardson.
And our final witness is Ms. Carla Harris. Ms. Harris was
appointed by President Obama to chair the National Women's
Business Council, and also serves as Vice Chairman of Global
Wealth Management, and is a Senior Client Advisor at Morgan
Stanley. Ms. Harris also serves as Chair of the Morgan Stanley
Foundation and sits on the boards of a number of nonprofits.
She holds an M.B.A. and an Undergraduate Degree from Harvard.
Thank you for joining us, Ms. Harris.
So I will start from my left. We will turn to Dr. Kane as
the first witness, followed by Mr. Walker, Mr. Richardson, and
Ms. Harris.
Dr. Kane, you are recognized for five minutes.
Can you turn on your microphone?
STATEMENT OF DR. TIM KANE, ECONOMIST AND RESEARCH FELLOW,
HOOVER INSTITUTION, STANFORD, CA
Dr. Kane. How's that? Thank you.
Chair Tiberi, Ranking Minority Member Maloney, and members
of the Joint Economic Committee:
Thank you for inviting me to testify. I am Tim Kane, a
Research Fellow at the Hoover Institution, a nonpartisan
research institute at Stanford University. I represent my own
views.
Entrepreneurship remains poorly understood by economic
theory, but it is well understood by farmers, struggling small
business owners, and idle workers with big dreams. With my time
I would like to connect three points of data--I'm sorry, three
points using empirical data.
Point number one is that the U.S. economy has been
experiencing a great acceleration, along with Mrs. Maloney's
point this has extended back half a century. Each period of
recovery during these last 50 years has been slower than the
past, a trend that transcends political terms of Presidents and
partisan majorities here in Congress.
In the first figure I show the average annualized growth
rate of GDP and its components, and I am only counting data
here for the expansionary periods, leaving out the recessions.
This yields five expansions.
Each expansion trough and peak is determined by the
Business Cycle Dating Committee at the NBER, and of course
those expansions are different lengths of time. For example,
the 1980s expansion started in the first quarter of 1983, and
lasted until Q-2 of 1990, for a total of 30 quarters. The late
1970s expansion lasted only 19 quarters, whereas the 1990s
expansion was 39 quarters long.
Currently the U.S. is in the 27th quarter of expansion,
which looks like there is another recession coming soon. Each
expansion is slower than the one before. This was a surprise.
The growth rate was 4.5 percent during the late 1970s, and the
same during the 1980s expansions.
The 1990s expansion saw a slightly slower growth rate, 3.8
percent per year, then 2.8 percent from 2002 to 2007. And in
the current era, this expansion has an average GDP growth rate
of 2.1 percent per year. These are the good times.
Now Americans can feel the slowdown, and they are looking
to us with questions I wish I had easy answers for you. These
growth rates count only real GDP, meaning after correcting for
price inflation, and these past 50 years have been marked by a
technological boom like nothing in human history. Food is
cheaper and safer. Mortality is lower. Material quality of life
is better in almost every way. Yet growth is slowing.
A common reaction to the current slowdown among my fellow
economists is that this is an illusion of demographics. This is
incorrect. My second figure merges government data with
government population data over the past 50 years. The average
yearly growth rate of GDP per capita peaked at 4.15 percent per
year. Now, 1.4 percent per year.
If this trend continues--and I am not saying it will--the
U.S. economy will stop growing in the year 2030. I believe the
trend can be reversed, and a rebirth of the American economy
should be the government's top priority.
Point number two is that the dynamism of the U.S. economy
has been slowing for decades. Figure 3 shows the percentage of
U.S. firms that are startups. During the Carter Administration
it was roughly 14 percent of U.S. companies. Today it is 8
percent. And this has not rebounded during the recovery years.
With the decline in startups there has been a decline in
gross job creation and destruction. A study I published back in
2010 found that in most years startups created 100 percent of
all net new jobs. Research by John Holtwanger, Steven Davis,
and other economists associate the dynamism slowdown with
reductions in productivity, real wages, and employment.
Now I should emphasize, immigrants are a vital source of
entrepreneurial talent. Research shows that immigrants to the
United States are significantly more likely to create new
startups than native-born workers.
Weak startup dynamism highlights a labor market problem.
Government is discouraging entrepreneurship. It is passive,
maybe unintentional, but the institutional hostility to
entrepreneurs is very real.
Again, I do not think this is just because of the Obama
Administration; it is a trend that goes back in time. But I do
think this is the primary cause. It is government regulation.
Point number three: Taxes are more complex. Regulations are
thicker. Employment law is more dangerous. More than one in
three workers today needs a government license to work,
compared to 1 in 20 in the 1950s. Occupational licensing not
only hinders employment levels, but hinders occupational
mobility. And has been criticized by liberals and conservatives
alike, including the Obama Administration.
The country is hamstrung by laws that are effectively anti-
work. The highest marginal tax rates are not faced by CEOs and
hedge fund managers, but by single working mothers. It is the
entrepreneur, not the corporate executive, who faces real
risks. And until workers and entrepreneurs are given an
environment that rewards work and smart risk-taking, there can
be no solid recovery.
Thank you.
[The prepared statement of Dr. Kane appears in the
Submissions for the Record on page 26.]
Vice Chairman Tiberi. Thank you, Dr. Kane. Mr. Walker, you
are recognized for five minutes.
STATEMENT OF MR. TOM WALKER, PRESIDENT AND CEO, Rev1 VENTURES,
COLUMBUS, OH
Mr. Walker. Chairman Tiberi, Ranking Member Maloney, and
members of the Joint Economic Committee:
Thank you for the opportunity to provide testimony today
regarding encouraging entrepreneurship growth. My name is Tom
Walker and I'm CEO of Rev1 Ventures located in Columbus, Ohio.
Today I would like to visit with you about a very
successful approach to creating high-growth startups in the
country, and will target specifically Columbus, Ohio.
Rev1 Ventures is a seed-stage investor that combines
investment capital and strategic services to help entrepreneurs
build great companies. We are a true public/private partnership
created as a 501C3, focused solely on that mission: How can we
help high-growth entrepreneurs create businesses in our
backyard that can thrive for years to come?
We know that connecting and leveraging the assets in our
backyard can have a tremendous effect if you connect them to
entrepreneurs, and then help them start their companies. And
that has been our focus.
In Columbus, we have a strong mix of assets. We have
terrific research institutions in the Ohio State University,
the nationwide Children's Research Institute, Battelle Memorial
Institute, and the Ohio Health Network, as well as a tremendous
corporate base: 14 Fortune 1000s, and then a whole host of
companies a tier below that are just very significant.
As the 15th largest state, Ohio benefits from a strong and
growing economy. Back in 2012, the assets were strong but the
startup economy was not. The Columbus region was not on the map
for generating new businesses.
If we fast-forward to 2016, in just a few years we have
accomplished what some regions have taken decades or more to
do, receiving national validation in that time frame. In fact,
Columbus is ranked number one region in the country in 2016 for
scaling startups on a per capita basis, and the fastest growing
city for startup activity in 2015. And Columbus ranked number
four in the U.S. for growth entrepreneurship in 2016's overall
Kaufman Index.
Rev1 was recently named the most active venture investor in
the Great Lakes Region between 2012 and 2015 by Pitchbook, and
just a few weeks ago See The Inside ranked Rev1 as the number
one investor in Ohio.
We are on pace to generate a $2 billion economic impact to
our region just through the startup companies that we are
helping to launch.
So how did we do this? Well, the State of Ohio has had a
very aggressive and very innovative program called ``The Ohio
Third Frontier Program.'' And that program provides state
matching dollars to the private sector for starting new seed
funds for the sole purpose of providing services to new high-
growth startups in that region.
Rev1 is fortunate to be able to access those state dollars,
but it encourages us to bring in private match to accomplish
the mission that we work so very hard on. The centerpiece of
our strategy is connecting those assets in our backyard that I
mentioned previously.
So how can we work to bring the successful corporate and
research base to bear to help the entrepreneurs and the startup
community?
We then provide startups world-class mentoring, capital,
and access to customers. We then invest in the brightest
opportunities to attract talent and capital to our region.
As an example, through innovation partnerships like the
Ohio State University-Nationwide Children's Research Institute,
and Ohio Health, we are helping spin out more technology
opportunities into the marketplace that are based on federal
research dollars. So we are really starting to move the needle
in commercialization in our region.
So the Federal Government can be a catalyst for momentum in
this area. Entrepreneurs need help. The private sector will not
bear 100 percent of the cost for a region to scale and be
competitive. So public sector has to invest where it can be a
catalyst.
There is a dramatic gap in capital and support for startups
outside a region such as Silicon Valley, New York, Boston, and
Austin. As we have proven in Ohio through the Ohio Third
Frontier Program, there are proven ways that government can be
a catalyst for new company startups and growth by providing
early stage capital and services that attract matching capital
from angels, venture capitalists, and corporations.
The Federal Government has done this before. The State
Small Business Capital Incentives Program, SSBCI, through the
Treasury Department, helped regions raise capital that could
not otherwise access. SSBCI no longer exists, but it is
something the Federal Government could explore doing again.
If Congress were to pursue this type of program, we would
suggest following best practices of states such as Ohio that
use a proven stringent metrics that can show a return on
investment and access to private sector dollars.
A few final thoughts on areas of federal policy this
Committee may wish to consider:
The U.S. should maximize federal investment in research
dollars to incentivize development of new businesses. The
Committee should explore innovations based on federally funded
research to include some portion of the scoring process focused
on commercialization of technology. Continue to evaluate and
make less bureaucratic the FDA approval process for medical
technologies. These companies face a unique set of challenges
in garnering federal approval through the FDA before getting
their products into clinical trials, and ultimately to the
marketplace.
And finally, continue to monitor the recent federal changes
to the U.S. patent system. One of the biggest threats to
entrepreneurs and those who invest in them is adequately
protecting the intellectual property of startup companies, and
also continuing to make the process more streamlined.
Chairman Tiberi, and Ranking Member Maloney, and members of
the Committee, thank you very much for your time.
Vice Chairman Tiberi. Thank you, Mr. Walker, for your
testimony. Mr. Richardson, you are recognized for five minutes.
[The prepared statement of Mr. Walker appears in the
Submissions for the Record on page 33.]
STATEMENT OF MR. JAMES RICHARDSON, VICE PRESIDENT, GOVERNMENT
AND SHAREHOLDER RELATIONS AT WHITE CASTLE SYSTEMS, INC., AND
CHAIRMAN, OHIO RESTAURANT ASSOCIATION, COLUMBUS, OH
Mr. Richardson. Chairman Tiberi, Ranking Member Maloney,
distinguished members of the Committee:
Thanks for this chance to testify today on behalf of White
Castle and the National Restaurant Association. I am Jamie
Richardson, Vice President of White Castle, and also Chairman
of the Ohio Restaurant Association.
As a family-owned business celebrating our 95th birthday, I
would like to tell you today that White Castle's growth has
continued uninterrupted. I would like to tell you that, but I
cannot. In fact, White Castle's growth has halted.
In 2012 when I testified before the House Oversight and
Government Reform Committee on the Affordable Care Act, we had
408 White Castle Restaurants. Today, we have 390.
While other factors have taken a toll, it is the mounting
uncertainty and the collective effect of a legislative and
regulatory regime hostile to job creation that is bringing us
to a standstill. We are not alone.
More than one in five restaurant operators report
government is their number one biggest challenge, a higher
proportion than the economy. This doesn't just discourage the
risk taking needed for entrepreneurship, it crushes it in the
cradle.
Restaurants provide incredible careers, and we are
employers-of-choice for people looking for flexible work
schedules. Despite our appeal, our industry runs on narrow
margins, averaging just 4 to 6 percent before taxes. We are a
driving force for entrepreneurship. Where a favorite family
recipe that becomes an inspiration for the next successful
dining destination, and we are a driving force for innovation,
and for preparing today's employees for a changing workplace
and the promise of tomorrow.
White Castle's founder, Billy Ingram, had two key
entrepreneurial ideas that were pretty radical and risky in
1921. First, happy employees make happy customers. And second,
we have no right to expect loyalty except from those to whom we
are loyal.
Ninety-five years later, these principles shape all we do,
driving incredible employee and guest devotation. In fact, more
than one in four of our 10,000 team members has been with us 10
years or more. The average tenure of our restaurant general
managers is 21 years. Yet, along with restaurants throughout
the country, we face debilitating regulatory barriers and
burdens, and unprecedented economic challenges.
I could give you dozens of examples. I'll concentrate on
just two.
First, the Affordable Care Act requires offering full-time
team members defined in the ACA as employees working 30 hours
or more per week, health care coverage or face potential
penalties.
The ACA's definition of full-time employment is 30 hours
per week and is out of step with the traditional full-time
employment standard of 40 hours per week. Many employees in our
industry are already losing wages and hours due to the law's
perverse incentives, especially part-time employees who until
now were those working below the traditional 40 hours per week.
One of the attractive benefits for restaurant employees had
been flexible scheduling. Employees can adjust their hours to
suit their personal needs, and even pick up additional hours to
earn extra income when desired. Part-time jobs with flexible
scheduling are appealing and often critical for students,
single parents, and those struggling to balance a wide range of
commitments.
Harmonizing the ACA definition of full-time employment with
the traditional 40-hour-per-week standard would benefit
employees through more hours and income.
Secondly, the Department of Labor recently published new
overtime regulations in effect this December, adding to the
uncertainty, ever-expanding federal regulations have created
over the last five years.
When combined with ACA rules and regs, this is a vicious
one-two punch for employers. The overtime regulations will have
a negative impact on restaurant workers everywhere now
benefitting from the advantages of exempt status. Non-exempt
employees often have less workplace autonomy and fewer
opportunities for flexible work arrangements, career training
and advancement than their exempt counterparts.
For restaurants, the proposed minimum salary level
represents an out-sized income for entry-level managers. The
increase would be too large for many employers to absorb, so
some employees would be dragged back to an hourly rate.
This change to non-exempt status can lead to fewer
opportunities for career advancement. Changing to non-exempt
status requires employers and employees to watch the clock.
Employees near 40 hours in the week may need to skip additional
training or other career-building opportunities because the
employer isn't able to pay overtime rates for that time. This
squashes creativity and entrepreneurial spirit.
Finally, the Department has given the impression salaried
employees feel taken advantage of by virtue of their exempt
status. In reality, where we live and work and raise our
families, employees often view reclassification to non-exempt
status as a demotion. Exempt status is a symbol of success and
hard work.
We are both proud and grateful for the responsibility of
serving America's communities, creating jobs, boosting the
economy, and satisfying customers. Enterprising restaurants are
committed to working with Congress to find solutions fostering
job growth and truly benefitting our communities.
Thanks again for the opportunity to testify before you
today, and I look forward to your questions.
Vice Chairman Tiberi. Wow, four minutes and fifty-nine
seconds. That's pretty good.
[Laughter.]
Thank you, Mr. Richardson. Ms. Harris, you are recognized
for five minutes.
[The prepared statement of Mr. Richardson appears in the
Submissions for the Record on page 40.]
STATEMENT OF MS. CARLA HARRIS, CHAIR OF THE NATIONAL WOMEN'S
BUSINESS COUNCIL, VICE CHAIRMAN OF GLOBAL WEALTH MANAGEMENT AND
SENIOR CLIENT ADVISOR AT MORGAN STANLEY, NEW YORK, NY
Ms. Harris. Vice Chair Tiberi, Ranking Member Maloney, and
distinguished members of the Committee--oh, sorry. I'll try
that again.
Vice Chair Pat Tiberi, Ranking Member Maloney, and
distinguished members of the Committee, thank you for inviting
me to speak on behalf of the National Women's Business Council
before the Joint Economic Committee for today's hearing.
My name is Carla Harris, and I am the Presidentially
appointed Chair of the National Women's Business Council. The
Council is a nonpartisan federal advisory council created to
serve as an independent source of advice and counsel to the
U.S. Small Business Administration, Congress, and the White
House on issues of impact and importance to women business
owners, leaders, and entrepreneurs.
Women-owned firms represent an important segment of the
business sector. As of 2012, women-owned businesses comprised
36 percent, or nearly 10 million of the country's privately
held businesses.
These firms generate over $1.4 trillion in sales and employ
over 8 million people. Between 2002 and 2012, the number of
women-owned firms increased at a rate of two-and-a-half times
the national average.
Employment in women-owned firms grew at a rate of four-and-
a-half times that of all firms, and the growth in revenues
generated by women-owned firms paralleled that of all firms.
Some of the most dynamic changes since the 2007 Survey of
Business Owners can be witnessed as already referenced for
women of color, especially black and Latino women. For example,
in 2007 there were about 900,000 black-owned women businesses.
Now they stand strong at over 1.5 million, and represent almost
60 percent of all black-owned businesses.
Since 2007, black women-owned firms have added over 71,000
jobs to our economy, while black men-owned firms have added
almost 11,000 jobs. Latino-owned businesses increased at even
greater numbers. In 2007 there were fewer than 800,000 Latina-
owned firms. Now there are nearly 1.5 million.
These numbers demonstrate that women-owned businesses are
thriving, thanks to a combination of supportive initiatives and
policies, and a strong entrepreneurial spirit.
However, inequities and disparities still exist that
inhibit many women-owned firms from reaching their full
economic impact or scaling effectively. All of us here today
can agree that we want regulations as efficient and effective
for our small businesses, including those that are women-owned,
to continue to start, sustain, and grow as a strong force in
our economy.
We often describe our work at the National Women's Business
Council as divided among four pillars, which include data
collection and analysis, access to capital, access to markets,
and job creation and growth.
Commonsense regulation plays a role in each and any of
these areas. Today I specifically focus on access to capital
and job creation and growth by describing how women and others
stand to gain from full transparency in the areas of
marketplace lending, as well as minimized or consolidated
regulation in the area of occupational licensing.
Most importantly, however, we want to acknowledge the value
of early and frequent involvement of women business owners and
all stakeholders in developing and refining regulation.
Access to capital continues to be a challenge for too many
women. NWBC's work focuses on changing the infrastructure and
on increasing and improving resources so more women can access
the capital they need to start and grow their businesses.
Per Council research, on average men start their businesses
with nearly twice as much capital as women. Babson College has
concluded that the lack of sufficient capital funding for women
entrepreneurs will cost the economy nearly 6 million jobs over
the next five years. So it is in the best interests of the
economy and the country to understand any barriers to these
firms' success.
Fortunately, the marketplace is responding to the
challenges that women have faced in accessing capital in the
form of both loans and equity investments. Thanks to great
innovation in the capital space with crowd funding, peer-to-
peer lending, micro financing, and more, women have greater
opportunities to pursue and raise the capital that they need.
Beginning with an examination of debt, it is important to
understand that women business owners take traditional business
loans far less frequently than the overall population of
business owners. Beyond the Community Advantage Program, the
SBA Micro Loan Program, which is the largest single source of
funding for micro finance institutions in the United States, it
provides direct funding to qualified community finance
organizations who then issue the loans to borrowers.
Women entrepreneurs have historically been underserved by
lending institutions, so these programs, as well as private
marketplace lenders, are stepping in with capital and technical
assistance, enabling strong performance by these women's
businesses by increasing their available capital, included in
the lower dollar values commonly sought by women business
owners.
With respect to equity, I would be very pleased to take any
questions from the Committee on this topic, but I will move on
out of respect for time.
With respect to occupational certification, there are
important reasons to require licensure. We want to assure
consumers protection just as we would like qualified
individuals to have a competitive edge. However, as already
referenced, the costs associated with obtaining a license may
serve as a barrier to women starting businesses in these
industries, as well as their ability to hire qualified
employees.
Women business owners stand to benefit from reasonable
regulation that minimizes financial barriers to launching and
growing enterprises.
I thank you for the opportunity to testify, and I look
forward to your questions.
[The prepared statement of Ms. Harris appears in the
Submissions for the Record on page 49.]
Vice Chairman Tiberi. Thank you, Ms. Harris.
Mr. Richardson, many adults, including myself, got their
start in your industry. My first job was at McDonald's. I did
about everything you could imagine there. But it was a great
experience because I learned life lessons, starting with
showing up on time. The customer is always right. Personal
responsibility.
And it seems to me that one of my concerns with respect to
your testimony regarding the cumulative regulatory burden, as
you put it in your written testimony, is that there are, at
least anecdotally, fewer and fewer of these entry-level jobs.
When I go into a restaurant, I don't see as many 16-year-olds
working those jobs.
And so, you know, people like me who worked when I started
at 16 at McDonald's, and then a gas station pumping gasoline,
which is not happening anymore either, I could save a little
money for college. Without these opportunities, it seems also
to me that there are fewer chances that that person might have
a career in industry, have an opportunity to manage that
restaurant, maybe someday own that restaurant.
So we talk about social regulations that attempt to
regulate our quality of life. As someone who has been in this
industry for a while, my question to you would be: How do the
regulations that you mention in your written testimony--and you
specifically mention the Affordable Care Act, you mention the
Department of Labor, NLRB--how do they hurt White Castle's
specific ability to hire that 16- or 17-year-old, that high
school student, vs. 25 or 30 years ago where maybe you hired
more of them?
Mr. Richardson. Thank you, Chairman Tiberi. For White
Castle, as a family owned business, we have always been the
heart and soul of the neighborhoods where we live, work, and
raise our families. And so today we are a part of urban
neighborhoods around the country. We are in 12 markets. And for
us that employment opportunity we are able to provide is a path
to prosperity for so many.
I mentioned that more than one in four of our team members
have been with us 10 years or more. Sometimes folks come in and
want to work for a weekend, or a month or two, and they make it
a career.
So I think for us the biggest barrier is especially those
regs that interfere with our ability to give people that
opportunity. So for instance the Affordable Care Act and the
new definition of full time as 30 hours really puts a barrier
between us and our employees in terms of not allowing us to
give them the hours we would want to be able to give them.
Secondly, with the overtime reg, that is really tough
because those people who want to move up--our general managers
are very entrepreneurial. They are involved in community. They
are volunteering at the local food bank, or the local YMCA,
because they want to be part of that fabric of community.
So for us the tough part is to look and see the unintended
consequences of regs that prevent us from hiring people in the
neighborhoods where we want to provide the most employment.
Vice Chairman Tiberi. And you have had that happen? That
exact effect has happened?
Mr. Richardson. We--the day the Affordable Care Act passed,
we had 408 restaurants. Today we have 390. The math has changed
dramatically in terms of our costs. Restaurants typically run
on very narrow margins. White Castle, we put a lot of money
back into retirement benefits, and health care benefits we've
offered since 1924. We run on narrower margins, candidly.
Our typical profit margin in a good year is 1 to 2 percent.
So when you start to elevate costs, there are not too many
pennies left over, a half-penny or whatever it may be. So that
is the real barrier and pressure we feel.
Vice Chairman Tiberi. Mr. Walker, what do you see as the
greatest impediment to starting a new business?
Mr. Walker. Thank you for that question. I see it twofold.
It is access to capital and talent. And a lot of times if you
have the capital, you can find the talent. And in this country,
for the high-growth startup, technology-based companies, it
takes risk capital. So these companies are not bankable, so
they can't go to a bank and acquire a loan. They take either
angel investment, which is investment from high-net-worth
individuals, or venture capitalists.
Well the venture capital industry is really concentrated in
roughly five markets in the United States, seeing roughly more
than 90 percent of the dollars every year. So if you are in a
region outside of one of those five cities, it is really very
difficult to access the venture capital that is required.
And we are also seeing now there are fewer venture firms
today than there were 10 years ago, and there are more going
out of business than are being created. So it is getting harder
and harder for venture firms to raise the investment dollars to
put into these startup companies that create jobs and high-
growing companies.
Part of that problem relates back to Sarbanes-Oxley and the
constraints placed on the IPO market, because that is where
startups get the returns back to the investors. So it is sort
of a vicious cycle. But that is why you are seeing now across
the country in more and more regions that cities are creating
initiatives to create seed capital programs, and public/private
partnerships, much like Rev1, so they can start those companies
in a home-grown effort.
But we still see a dramatic lack of capital to help grow
these companies to scale.
Vice Chairman Tiberi. So related to that, in Ohio, if you
take our State of Ohio, Columbus clearly has had more growth in
startups than other parts of the State, and there are clearly
other parts of the State, Appalachian areas in eastern Ohio,
cities that have a rich history have struggled much in recent
years like Youngstown. In your opinion, why has that been
uneven? Why is it more difficult to start a startup in a City
like Youngstown or Appalachia vs. a city like Columbus? What's
the differentiating point?
Mr. Walker. Traditionally in the U.S. high growth startups
create in and around urban areas. So you're seeing a higher
growth rate in those kinds of startup companies in larger
cities. There is access to more resources, service providers,
talent, those types of things. So that is one impediment.
The other is it is difficult to find access to capital in
some of these smaller markets.
Vice Chairman Tiberi. Thank you.
Ms. Maloney, you are recognized for five minutes.
Representative Maloney. First of all I thank all of the
panelists. And building on Mr. Walker's statements, also a lot
of startups start where there are universities where there are
research dollars. And you noted in your testimony the
importance of federal dollars for initial research to then
start new industries and to move forward.
I do want to note, with all of our difficulties and
challenges, all economists have noted that after the Great
Recession America bounded back faster than any of our
competitors, our allies, or others that were hit by the Great
Recession around the world. And part of it was because of our
ability to continue to try new approaches to solve problems and
move forward.
We have created over 14.7 million new private sector jobs
since February 2010 under President Obama. And there was a 74-
month stretch of private sector job growth at one point, the
longest in the history of our country.
So there is a great deal to be proud of in our country,
also. I would say we lead the world in many areas, and one of
them is certainly in business leadership and innovation. And we
certainly need to continue that.
One of the biggest threats we face in that area is the
cutback in federal funding for research. So much of what we
have created has come from that initially. Private sector
businesses can't afford to invest in that necessary research.
I was struck very much, Ms. Harris, by your statement
that--and really some of the research that we've done on this
Committee--that so many new businesses are founded by women,
and particularly women of color have gone out and started new
businesses.
And I would like to ask you why you think that is? Is part
of it the glass ceiling, that they reach the glass ceiling and
there is no other place to go within the, quote,
``establishment,'' so they move out and start their own
business and go forward? But we have done other studies that
showed we are still stuck at 79 cents to the dollar, and that
unfairness in pay then ends up in having more and more women in
poverty in older age as their pensions are lower, their Social
Security is lower, their savings are lower?
One area that we worked on with Ms. Adams and Mr. Beyer, we
did a study on how many women are on boards and found that just
16 percent of the seats on the boards are women. And this is
counter really to research we've seen actually in your firm,
Morgan Stanley, Ms. Harris, that showed that when there is a
more diverse board, particularly gender diversity, that the
bottom line shows more growth and more profits.
Usually when business sees that something helps them grow
their bottom line, they jump in there and make it happen. But
we are not seeing that with women on boards, or women CEOs. The
number of CEOs has stayed primarily the same, but the people
change. But the growth of women on boards is nowhere near where
it should be. And this of course then, as you said in your
testimony, then falls over into other categories of not
participating in businesses.
And you said it carries over into investment firms. And
what can we do, Ms. Harris, do you think, to increase the
number of women who enter the management and are in a position
to affect investment decisions?
Ms. Harris. Yes. Thank you very much for the question. I
think there are three things that the industry, any industry
can do to increase the number of women in positions of
leadership.
The first thing is to be really intentional about it, and
making sure that you promote those women who are qualified that
are coming through the pipeline. And I think you need to be
intentional about filling the pipeline from entry level all the
way through, and create programs within the organizations that
will support the women's development throughout their careers,
and more importantly provide them with the sponsors that are
needed as one gets more senior.
Because as you know, once you get to a certain level it is
not just about the performance. You have proven the performance
over a number of years. But it is about having the right
sponsorship to actually get to the more senior levels. And I
think you need to be intentional about that.
The second thing is I think you need to have a measure of
accountability. Because if you are going to have these kinds of
programs, it not only flows from the top but it has to happen
in the middle. And you need to be able to make sure that
management is accountable for having a diverse pipeline.
Because once you start losing people through natural reasons,
natural attrition, you look up and then you do not have anybody
to promote to the senior levels.
And the last thing is that you need to be consistent.
So intentionality, accountability, and consistency is what
you need in these firms if you want to make sure that you get
senior people to the top. And once you get senior people to the
top, you will be able to attract even more talent that is
diverse like that top management.
So that is my opinion.
Vice Chairman Tiberi. The gentlelady's time has expired.
Representative Maloney. My time has expired.
Vice Chairman Tiberi. Senator Klobuchar, you are recognized
for five minutes.
Senator Klobuchar. Thank you very much. Thank you to all of
you on a very important topic today. I think about our small
and big businesses. Target actually started out in Minnesota as
a dry goods store. Best Buy started out as a startup stereo
store called Sound of Music--not the movie. And 3M started out
way up in Duluth. So we have a lot of entrepreneurship in our
State, as well as small businesses as small businesses.
So I guess the first one of you, Mr. Walker. In your
testimony you talked about the Ohio Frontier Program, which is
a state bonding program that invests in startups. I think a lot
of the good ideas that we have seen in our State and across the
country comes from the states.
Could you describe that for us?
Mr. Walker. Yes. Thank you very much for that question. The
Ohio Frontier Program is a state program that is voted by the
people. It's a bond program, and those dollars are targeted
towards the creation of high growth, high-tech startup
businesses and creating the seed capital infrastructure.
And the way it works is, nonprofit private companies such
as Rev1 throughout the state can compete for those dollars, but
you compete on a matching with private-sector dollars one-to-
one.
So, for example, in Columbus, we have nearly 50 corporate
partners that fund our operation. And for every dollar they
provide us, I am able to go to the Third Frontier at the state
level and match those dollars. So for a small nonprofit like
ourselves who are trying to start as many companies as we can,
that provides ample resources for us to provide support
services for those startups, as well as seed capital. And in
fact we have utilized those dollars to become one of the most
active seed investors in the Great Lakes Region.
Senator Klobuchar. Thank you. And along those same lines,
Ms. Harris, do you want to talk about the importance of the SBA
Intermediate Lending Program, or any other lending program for
businesses making less than $200,000?
Ms. Harris. Yes. I think there----
Senator Klobuchar [continuing]. Less, sorry.
Ms. Harris. Yes. There are other programs that I think
should be supported, including peer-to-peer lending. Firms like
Lending Club, Prosper Funding Circle. Women-focused investment
firms, as well as crowd funding. And then lenders with new
scoring methodology.
Senator Klobuchar. Thank you. And a little different topic,
and that is something we will be, I'm hoping, working on next
year again, and that is immigration reform.
People do not always think about it as an economic issue,
but it is one in many ways. Seventy of our Fortune 500
companies are headed by immigrants. The figure a few years back
is that 200 of these companies were formed by immigrants or
kids of immigrants. Twenty-five percent of U.S. Nobel Laureates
were born in other countries.
Could--any of you can address this, but the importance of
comprehensive immigration reform from a business innovation
standpoint. Dr. Kane, you are smiling. I don't know if that's
good or bad for me.
Dr. Kane. Yes, ma'am. Well, Senator, I lead an effort at
Stanford under the Hoover Institution, a journal called
Peregrine, which promotes immigration reform. We publish five
issues. We are working on a book, Assemble People Left, Right,
and Center in an expert survey. So I have much more than five
minutes to talk, but let me echo your sentiments.
I think high-skill immigrants are just great for the U.S.
economy. Research shows that. And, guess what? Low-skill
immigrants are great for the economy. I think being a nation
with the Statue of Liberty, but the rest of the world sees is
as the icon that sort of highlights who we are, for what's made
us great, and what's made us grow strong.
So I could get into more details, but I think the consensus
is that policymakers should get behind immigration reform. If I
can dig in just a little bit, I am not sure that comprehensive
is seen as a good idea anymore, but that is seen as a way that
this issue gets stuck. And if we could focus on where the
American people want Congress to go, it is to stop the talk
about deportations and stop the talk about free citizenship, to
create a legal status work visa that will bring people out of
the shadows, get them to work, allow them to start companies
and contribute to the economy.
Senator Klobuchar. Anyone want to add anything?
Mr. Richardson. From a restaurant point of view, we are
strong supporters of comprehensive immigration reform. We know
that all you need to be successful in our business is a heart
for hospitality. So we welcome new arrivals.
Senator Klobuchar. Yes.
Mr. Richardson. And if you ever want to see some fun, go to
the National Restaurant Association's Faces of Diversity
Awards. It is super cool and it just shows how hard people have
worked to our new arrivals, the impact they have on their
communities, and we are an industry of opportunity.
Senator Klobuchar. You should know, Mr. Richardson, that my
home is four blocks from a White Castle, and that's how I
always identify it for people. I go, oh, I'm four blocks up
from the White Castle.
Okay, Ms. Harris, on immigration?
Ms. Harris. Nothing to add to what's been said.
Senator Klobuchar. Okay. Well I am just very hopeful that
we can take this up again. As you know, the Senate worked hard
on this issue. I am on the Judiciary Committee, and we had both
the Chamber and the AFL-CIO, and I once did a hearing on this
Committee when Representative Brady was here, and I actually
called Grover Norquist--you'd like this, Dr. Kane, as my
witness----
[Laughter.]
Because he showed how it brought the debt down processing
immigration reform. Thank you all.
Vice Chairman Tiberi. The gentlelady's time has expired.
Mr. Hanna is recognized for five minutes.
Representative Hanna. Thank you very much. And thank you
all for being here.
The underlying theme is that there is too much regulation.
I wonder about the law of large numbers with growth, how that
plays into your statement, Mr. Kane. But there is a thing in
Congress that passed the floor with the Republican majority
called the Raines Act, if you're familiar with it, that
basically said any--we had to analyze the proposal by the
Executive Branch to see that it was cost--if it was $100
million or more, it required further investigation, that kind
of thing.
But for me that makes some sense, but not all sense,
because in an effort to create a perfect outcome a lot of times
we actually undo the very thing that we are trying to protect.
And I think that is kind of the theme here among all of you.
And I guess, you are an expert in this, can you give me a
sense of how you would see that managed? Anyone?
Dr. Kane. Sure. Just briefly, I think in some of the
testimony I heard, and I, like the testimony of all of my
fellow members here, testifiers, I think there was just great
wisdom here. And I think the continuity of identifying
occupational licensing as a barrier is one of the key
regulatory barriers.
But as much as I love venture capital, and I have received
money from venture capitalists before, and I think banking is
great, realize if we just look at historical examples going
back to the country's founding, we are an entrepreneurial
people long before there was venture capital, or modern
banking, and most people were entrepreneurs.
And I think when we look at the difference between urban
entrepreneurship and rural entrepreneurship, maybe it has
become so formalized, and that you need in all 50 states you
need to pay a fee just to exist as a small business, and I
think it is just bizarre that not one governor has seized on
that and said, you know, in our state, in our high school,
every graduate of our high school, or every 11th grader, we are
going to encourage them to start a business. And they are not
going to have to risk lawsuits. We are going to make it easy
for them.
And instead they are sort of treated as the enemy of the
working man. You know, you start a company? You must want to
oppress people. That is sort of a backwards mindset that I
think is, if I can say, anti-American or Un-American.
Representative Hanna. Sure. And a lot of it is designed to
protect the existing industry, right----
Dr. Kane. Absolutely. Absolutely.
Representative Hanna [continuing]. Whether it is real
estate, or something as simple as fingernails, and home
braiding, and things like that.
Dr. Kane. Right.
Representative Hanna. And the caveat emptor, the buyer can
manage that much better than the government. The problem is, as
you suggest, it is out of control. I am from New York, and we
have a declining population, a huge problem with
competitiveness and an aging population. And a lot of it I
think reverts back to that.
Mr. Walker, I am interested in what you might want to say.
Mr. Walker. Well I think you are spot on. I appreciate the
question. I think there are times that we try and correct one
problem, but we close the door on things that were working. So
we think about the decline in the IPO market over the past 10
years and I think many experts point directly to Sarbanes-Oxley
for those kinds of things.
I think you can look at historical economic conditions such
as the dot com bust in the early 2000s that at that time the
SBA had a venture capital program that would help create
venture firms. But because after the crash that program was
killed in terms of an equity program.
So there are times when we maybe close the door on things
that were working.
Representative Hanna. Mr. Richardson, one quick question.
The overtime rule. I think from my memory $23- to $46,000?
You're familiar with it, right?
Mr. Richardson. Yes.
Representative Hanna. Would you have been happy with
$35,000?
Mr. Richardson. You know, we submitted----
Representative Hanna. Do you know what I mean?
Mr. Richardson. We actually in our written comments
proposed $29,500. That would be inflationary.
Representative Hanna. But you are okay with the premise?
Mr. Richardson. We understand the idea there is need for
adjustment as time goes on, correct.
Representative Hanna. Thank you. Yield back.
Vice Chairman Tiberi. Alright. Mr. Grothman.
Representative Grothman. Two real quick questions because
we're voting. First of all, for any of you, just yes or no, if
we went back and put the regulatory situation where it was in
the year 2000 after 8 years of Bill Clinton being President,
does anyone think there will be any problems going back to the
year 2000? Just tear up any new, more onerous regulations since
then?
Dr. Kane. Less is more, sir.
Mr. Walker. We concur.
Mr. Richardson. Agree.
Representative Grothman. Okay, good. Well that will hold
for the new president. And the next question is for Ms. Harris.
I know we can always engage a little bit of the problem here is
that, you know, the men have it so easy and the women have it
so tough. I sometimes walk back from say something on the
Northwest side of Washington--I don't live in Washington, I
don't know whether you live in Washington----
Ms. Harris. No.
Representative Grothman. You don't?
Ms. Harris. No.
Representative Grothman. I'm going to ask you to comment,
because I think the same thing is probably true in most urban
cities. When I walk back from the Northwest side of Washington,
I bet, say when I walk back from the White House, I may see 150
homeless people preparing to fall asleep at 10:00 or 11:00
o'clock at night. And I bet out of those 150, 149 are men.
Do you care to comment on, you know, we've got to do more
to help--you know, not help the men, but could you comment on
why, if there's so many women living in poverty and so few men,
why all these homeless people are men?
Ms. Harris. Well I can't comment on why they are men, and
that might have to do with where you are walking in the city.
There might be other parts of the city where you might find
more women. So that would be a hard one for me to comment on.
Representative Grothman. Okay. Thank you.
Vice Chairman Tiberi. So unfortunately we have a vote going
on, and that is why everyone has kind of left. I want to thank
you all for testifying, and I would like to say we appreciate
your time. And the record will be open for five days for any
Member that would like to submit questions for the record to
any of the four of you.
With that, this hearing is adjourned. Thanks, so much.
Ms. Harris. Thank you.
(Whereupon, at 3:00 p.m., Tuesday, July 12, 2016, the
hearing was adjourned.)
SUBMISSIONS FOR THE RECORD
Prepared Statement of Hon. Patrick J. Tiberi, Vice Chairman, Joint
Economic Committee
Good afternoon. I would first like to thank Chairman Coats for
giving me the opportunity to hold this hearing and, along with his
staff, in helping to prepare for today's hearing on the importance of
entrepreneurship to our economy. He unfortunately had another
commitment this afternoon but turned the gavel over to me for what I
expect will be a thought-provoking conversation about encouraging
entrepreneurship.
Entrepreneurs put ideas into action, and the businesses they create
make up a major component of America's job growth engine.
Entrepreneurship also contributes to our standard of living. By
boosting job creation, entrepreneurs drive economic growth, offer
consumers better goods and services, and allow Americans to move up the
economic ladder through their innovations.
America was once considered by far the best place for someone
venturing out on their own. It was a place for taking a risk to build
something new, to improve the lives of all Americans. And in many
places across the country, that's still the case, as you'll hear from
our witnesses today.
However, our current economic recovery has been relatively slow and
geographically uneven. In my home state of Ohio, as Mr. Walker will
testify, Columbus has enjoyed great success in attracting new business
and encouraging innovation. Other parts of the state, however,
including many rural areas, have still not recovered from the
recession. Overall, we've seen a decline in the rates of startup
companies and an increase in the average age of companies compared to
previous decades.
It is our role as federal policymakers to foster a free-market
economy in which Americans enjoy ample opportunities for employment,
and we must not forget that the private sector is the true driver of
economic growth. Government can't tax and regulate its way to American
prosperity.
Every day, entrepreneurs launch new companies and decide where to
place the headquarters. Those who incorporate here will face the
highest corporate rate in the developed world, while those who
structure to pay individual tax rates will grapple with mind-numbing
complexity and tax rates that have risen substantially under this
Administration. Our uncompetitive tax code makes America less
attractive as a place to do business.
As if taking a risk on the success of an idea were not challenging
enough, today's entrepreneurs also face a series of government-imposed
market barriers. These include banking regulations that make it harder
to get financing and harder for community banks to operate and make
loans, archaic licensing and permitting rules, and complex labor and
health care requirements.
Each of these requires using precious resources, often to hire
professionals just to help navigate through all of it.
As our witness Andrew McAfee said in a previous hearing on
automation, ``entrepreneurs are facing an increasingly dense thicket of
things that an employer or worker has to confront before they can start
something up . . . and it looks like more and more people are saying,
`I'm just not going to bother with it.' ''
A friend of mine in Columbus, Ohio, an Italian immigrant, started a
family owned business 40 years ago, and he has told me that he wouldn't
make the same choice today to start his business. Given all of the
government regulations and mandates, the risk to reward gap is too
high.
We must continue to focus on ways to reduce the barriers to
innovation, giving entrepreneurs the tools they need to succeed. That
doesn't come from picking winners and losers with direct subsidies or
carved-out tax breaks. Instead, that comes from preserving competition
and removing restrictions that only serve to protect established
companies and hinder startups with new ideas.
We also need to remove barriers for those who want to invest in
entrepreneurs and startups. My legislation, the Investing in
Opportunity Act, will make it easier to invest in areas that need it
most.
Congress should boost entrepreneurship by reducing the thicket of
bureaucracy that is strangling private initiative. It is my hope that
here in America we can retain a strong entrepreneurial spirit rather
than cause it to wither away.
__________
Prepared Statement of Carolyn B. Maloney, Ranking Democrat, Joint
Economic Committee
Thank you Vice Chairman Tiberi and thank you to Chairman Coats for
calling today's hearing.
The United States is the most creative, innovative country in the
world. We have the world's best research universities, its deepest
financial markets and we remain a magnet for the world's talent. If we
leverage these assets, there is no doubt American innovators and
entrepreneurs will continue to lead the world in the years ahead.
New businesses are the lifeblood of our economy. Some startups go
on to become big businesses worth billions of dollars. Others stay
small, but play a vital role in helping their founders achieve the
American Dream while creating jobs in their communities.
However, data show that new business formation in America has been
slowly declining for decades.
One reason for this is the enormous and growing power of extremely
large corporations, many of which have swallowed their competitors.
This makes it much harder for new entrepreneurs to break into markets.
Another reason is that the middle class, which has long fueled
entrepreneurship in our country, has seen its economic foundation
chipped away for decades.
A third reason that entrepreneurs face a difficult environment is
the fallout from the catastrophic financial crisis under President
George W. Bush. The recession hit aspiring entrepreneurs hard. Bank
lending and other sources of financing dried up. And new businesses had
an even harder time finding customers.
Fortunately, there are signs that these trends have turned around.
The U.S. recovery is the envy of the world. Since 2012, more businesses
have opened than have closed. Bank lending to small businesses has
ticked up.
And the Jumpstart Our Business Startups Act signed by President
Obama in 2012 is now helping to facilitate crowdfunding.
Last year, the Kauffman Foundation's Index of Growth
Entrepreneurship posted its largest year-over-year increase in a
decade.
These are all good signs, but it is clear that there is room for
improvement.
My Republican colleagues often attribute declining startup rates to
the regulatory policies of the Obama Administration. They are
misguided. The decline has been going on for decades--under both
Republican and Democratic presidents.
In fact, President Obama has issued fewer regulations than
President George W. Bush did through the same point in his presidency.
Moreover, it's unclear whether trends in regulation and in startup
formation are related at all. As Dr. Kane writes in his testimony, a
study by economists at George Mason University found that industries
with more regulations actually have more startup activity.
In addition, a recent report by the Economic Innovation Group found
that just 20 counties were responsible for half of the net increase in
new business establishments from 2010 to 2014.
Nine of the 20 counties with the strongest new business growth are
in the 10 states ranked by the Mercatus Center as having the most
burdensome regulations. None of them are in the 10 states ranked as
having the least burdensome regulations.
Make no mistake--we should carefully review regulations to make
sure that they are serving the best interests of American families.
Surely there are regulations that could be streamlined or improved to
reduce the impact they have on new businesses.
The private sector, government and academia can each play a role in
laying the groundwork for entrepreneurship and innovation.
In my home district in New York, they are working together to help
create Cornell Tech on Roosevelt Island. It will be a world-class
campus for applied science and engineering, bringing together
innovators, entrepreneurs and investors.
Visionary projects like Cornell Tech can help serve as a catalyst
to speed the movement of promising new discoveries from the lab through
development and into manufacturing.
These partnerships can also help our workforce develop the
education and skills needed to innovate and build businesses.
I want to close by highlighting another area of real promise--
entrepreneurship among women and in communities of color. Between 2002
and 2012, the number of women-owned businesses grew more than two-and-
a-half times faster than the national average. The number of businesses
owned by women of color grew even faster than that.
We need to build on this success and break down barriers so even
more women can start and grow their own businesses.
Again, I want to thank Chairman Coats and Vice Chairman Tiberi for
holding this hearing. I look forward to our witnesses' testimony.
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