The Roosevelt Institute is publishing a series of policy papers tackling the trends and challenges that will sculpt our economy over the coming decades. Roosevelt notes that too frequently reactionary politicians take short term policy approaches to issues that require a more thoughtful, long term approach. To provide perspective, Roosevelt has convened a group of thought leaders to dissect the future American economy, one that is being quickly altered by the technology, the internet and instantaneous communication.
As part of the Next American Economy Project, Dr. Richard Swart, a leading researcher of crowdfunding and disruptive finance, presented his perspective on the challenges that confront us and what needs to be done to address these hurdles.
Swart notes, “the outsized success of Silicon Valley has led to the widespread misperception that entrepreneurship is alive and well in the United States. Sadly, this is far from the truth. Every month in the United States, more businesses close than are created. The rate of entrepreneurship has been in steady decline for more than a decade and, that decline is steepening..”
One of the most pressing causes of this phenomena is lack of access to capital. If you cannot raise funding you cannot launch a business. It is as simple as that.
Swart explains the tepid IPO market has been “stifled by ill advised regulations”. He says the total number of listed companies on US exchanges has been in decline. Meanwhile exchanges in the UK and Asia are experiencing “substantial growth”.
It is a truism that job creation is driven by smaller firms. Swart states that Fortune 500 firms are “net job destroyers” as they offshore and rationalize operations. Yet policy makers largely fail to act on these facts. Risk and entrepreneurship are the foundation of economic growth yet as a society we are becoming more risk averse.
Bill Gates is widely quoted saying “We need banking, but we don’t need banks”. Today a growing number of non-bank options are emerging. Crowdfunding, marketplace lending (peer to peer lending), and other financial innovations are replacing traditional capital providers – leveraging the internet to provide greater efficiency to the capital markets.
The roadblocks to entrepreneurship must be torn down. Disruptive finance can accomplish this – alongside some enlightened policy.
Read Dr. Swart’s thesis below.
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