More on Removing Barriers

Some follow-up thoughts regarding barriers to innovation and entrepreneurship in Pittsburgh.  See this post for a first cut.

The Obama Administration came to town the other day on its "Startup America" listening tour, titled "Reducing Barriers."  The PG carried a pre-event report. Pop City published the only post-event summary that I could find online. 

Those reports highlighted three areas of concern -- at least, areas of concern that the federal government might do something about.  As Pop City wrote them up (the * notes):

* Improve access to funding by better facilitating translational research funding to help commercialize federally-funded research, reauthorize the SBIR program and use existing Small Business Assoc. to commit $2 billion of SBIC matching contributions to catalyze new early-stage investment.

[Colleagues of mine who were there took down these additional suggestions regarding SBIR/STTR:

• Reauthorize the SBIR/STTR programs
• Provide seed funding for early, not only late stage, companies (through seed grants and SBIR/STTR)
• Have SBA eliminate fees and increase loan guarantees, and evaluate its loan program requirements
• Work towards uniformity in language (i.e. definition of micro/small business) across different federal agencies]

 * Improve the patent system ensuring a steady stream of innovative products. The U.S. Patent Office is committed to hiring 1500 examiners this year to facilitate the patent process, said Teresa Rae, deputy director of the U.S. Patent and Trademark Office.

* Establish a federal immigration policy that facilitates significant international talent attraction, integration and retention and is more progressive on visas.  The "StartUp Visa Act" is the beacon here.

* Create a tax credit for angel investors.

[My colleagues' detail:

• 22 states have a tax credit offered for angel investors and individual high net worth individuals, make PA the 23rd state to do this
• Offer other tax incentives for investing in high risk early stage companies (currently, 60% of all VC funds are invested in Boston and Silicon Valley)

[My colleagues' additional notes, not included in the Pop City list:

• Create more flexibility in using federal grants (currently, most federal research grants cannot be use for translational research and commercialization, only for pure research)
• Liberalize university tech transfer policies; IP CAN be assigned from universities to companies
• Universities that incentivize innovation (MIT, Stanford, Oxford (UK), and others) assign IP to IP holding companies that can make money, then send percentage of profits on licenses directly to fund Tech Transfer offices (TTOs).
• Focus federal funding on this region.]

[And one more idea recorded by my colleagues:

• Create a clearinghouse for information relevant to all start-ups (ranging from mom and pop shops to high tech companies) on how to navigate federal, state, and local programs and process, as well as rules and regulations. Doing this by industry would be most helpful.

OK.  Well, no.  There are some good ideas and some misleading ideas.  

On visa reform for immigrants who want to bring talent and capital to innovation industries in the US:  this would be a good thing.

On streamlining support for small businesses:  this would also be a good thing.  Too many federal agencies deal with small businesses of different sizes, with different requirements, and different definitions.

On patent law:  patent reform may be a good thing for a number of reasons, but there is little evidence that problems in the patent system are hampering US competitiveness, or US innovation, or -- and this is the part that matters most at the regional level -- regional development.  The core problem in the patent area is not that American researchers and R&D units don't produce innovative products.   The core problem is too many so-called "innovations" are subjected to patenting.  That clogs the patent system, slows it down, and makes it expensive -- unduly slow and unduly expensive for the inventors who have produced genuinely innovative things (including innovative processes) and who can and will really benefit from patent protection.

On tax credits and other tax incentives for investors in high-risk companies (some sort of tax advantage for "angels" and others exists in 22 states):  This is a terrible idea.  It's a race to the bottom; it hands near-term real tax benefits to high-net-worth individuals -- who among all of the people in todays' economy who might benefit from tax breaks are least likely to need them -- in exchange for the possibility, maybe, someday, of future financial benefits to the broader economy; and it sends exactly the wrong message about opportunity and reward to the region as a whole.  VC funds are concentrated on the coasts for a variety of reasons.  Tax relief for angels is not one of them.  California's tech economy is mostly thriving -- despite a high state income tax, a screwed-up state property tax system, and a public sector (particularly schools) that is in desperate straits, financial and otherwise.

On federal funding:  The Pittsburgh region already receives hundreds of millions of dollars in federal research funding annually.  Close to $1 billion of federal money flows into Pitt and CMU alone, each and every year.  There are a lot of challenges and barriers associated with figuring out how to make useful products out of some of the basic science funded that way, but lack of research funding is not one of them.  Lack of clarity in federal policy regarding tech transfer offices is not one of them.  I have heard complaints for years from Western Pennsylvania lawyers, investors, researchers, and entrepreneurs that TTO policies and practices at Pitt, and to some degree, at CMU, are burdensome and bureaucratic.  If there are problems in the research-to-commercialization pipeline, they aren't federal problems.  They are local problems.

On an information clearinghouse:  That's a great idea.  Why wait for the federal government to build it?  Crowd-sourcing works wonders for material like this.  Anyone ever heard of Wikipedia?  How about a wiki of innovation and small business support information?

On what wasn't said, apparently:

The federal government doesn't have much of a role to play in dealing with the two biggest barriers to regional economic development.

One barrier is state law labor and employment law.  Pennsylvania still follows the common law rule that treats noncompetes as legal, so long as they are "reasonable" in length, geographic scope, and range of employment.  California law, as many people know, treats noncompetes as presumptively illegal in all but a small handful of cases, and several other states have employment law rules on noncompetes that are nearly as liberal as California's.  PA should change its law, perhaps not all the way to the California end of the spectrum, but to make noncompetes far narrower in scope, and limited primarily to truly high value employees with truly specialized training and knowledge whose development really matters to employers.  (In recent years, I've heard of noncompetes being used and enforced against hair stylists and truck dispatchers.  That's ridiculous.)   In most areas of the economy, the change would improve labor mobility -- which would help small businesses get off the ground.  If you want to start a business, you need money, and you need employees.  PA law should make both of them easier to get.

A second barrier is complacency.  As I move around the region's economy  to describe my law school's new "Innovation Practice Institute," I hear a lot of excitement and enthusiasm building around the idea that lawyers can be trained to enable innovation, and to partner with innovators and entrepreneurs, rather than act as (expensive) brakes and barriers.  At least I hear that frequently among researchers, innovators, and entrepreneurs.  Sometimes, I hear it among lawyers and among economic development consultants.  In some other quarters, I hear quiet comments:  What's wrong with Pittsburgh's innovation ecology -- just the way it works right now?  Aren't there lots of lawyers doing this stuff?  Isn't there lots of assistance for innnovators?  Lots of opportunities to showcase their ideas for prospective investors and partners?  Doesn't Pittsburgh already have, in a manner of speaking, the best of all possible (innovation) worlds?

From my point of view, the question answers itself.  But the solution lies in ourselves, not in our government.  Perhaps the best thing that the federal government can do -- often, not always -- is get out of the way, so that we can get out of our own way.

A final note for this long post:

Pittsburgh is an amazingly innovative place.  There is no shortage of innovation here, no shortage of ideas, and no shortage of innovators.  What Pittsburgh needs more of is the will to move innovation *quickly* into the commercialization pipeline.

More on that later.