Monday, July 6, 2015

By Derek Thomas

This blog post was prepared for the Indiana Assets and Opportunity Network. A collaboration between the Indiana Institute for Working Families (IIWF), Indiana Association for Community Economic Development (IACED) and Local Initiatives Support Corporation (LISC).

Included in a recent report from the Indiana Chamber of Commerce – ‘Indiana Vision 2025: A Plan for Hoosier Prosperity – was the Kaufman Index, a measure of entrepreneurship in the U.S. According to the Index, Indiana ranked 44th in 2015, up from 48th in 2014. Just 0.23% of the Hoosier adult population becomes an entrepreneur in a given month (that’s 230 out of every 100,000 Hoosier adults). The top state is Montana with a rate of 0.54%. Vermont, Alaska, New Mexico and California round out the top five, and nearly half of U.S. states have a rate of 0.30% or greater.

These measures are consistent with ‘Businesses and Jobs indicators released by the Indiana Assets and Opportunity Network. Created by Washington D.C.-based Corporation for Enterprise Development (CFED), the 15 measures are concerned, holistically, with both ownership and job quality: Indiana ranks 38th. Among other factors, only 1.37% of Indiana residents own their own small business.

In its press release, the Chamber cites a “significant decline in venture capital invested” from 2012 to 2014. Indeed, “in terms of venture capital funding, [Indiana is] 36th with per capita spending levels far below the national average,” according to a recent op-ed from Indiana University President Michael A. McRobbie, in which he cites the role that universities play in creating a stronger Indiana by attracting research dollars.

There are, however, additional ways that policymakers can create a business-friendly environment for all would-be entrepreneurs through programs such as individual development accounts (IDA) and self-employment assistance (SEA).

INDIVIDUAL DEVELOPMENT ACCOUNTS (IDA): IDAs are matched savings accounts that enable low- to moderate-income individuals to save money and build financial assets for the specified purposes of purchasing a home, paying for postsecondary education expenses, or starting a small business. Matched savings are exchanged for core financial literacy training and goal-specific training around growing assets for would-be entrepreneurs, homeowners, or students. Small business training helps recipients develop target markets; write a business plan; develop a marketing plan; and learn about small business loans and other resources for entrepreneurs. The program has a rich and successful history in Indiana. Aside from its high savings rate, 128 of the 5,657 (2.3%) accounts opened from 2009 – 2012 resulted in business start-ups, according to Indiana Housing and Community Development Authority.

SELF-EMPLOYMENT ASSISTANCE (SEA):  By removing regulatory barriers from Indiana’s unemployment insurance system, policymakers can help to unleash entrepreneurship for laid-off workers. Unlike traditional unemployment insurance in which benefits are exchanged for work-search activities, SEA participants are required to take part in entrepreneurial training (perhaps using IDA training as a vehicle?). Currently, only seven states in the U.S. have the program, but its success secured SEA a home in the bipartisan Middle Class Tax Relief and Job Creation Act. The Hamilton Project cites evidence from the “Massachusetts SEA program [that] strongly suggests that receipt of unemployment benefits combined with enterprise training can help the unemployed transition into productive employment, and can do so cost-effectively.”


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