Five Things the Government Can Do to Boost Innovation and Entrepreneurship

It is generally agreed that the best way for Western economies to compete with China and India is on innovation not cost. What steps can the Government take to improve innovation? Here are some practical suggestions.

1. Make it as easy as possible to start a new business. Most radical innovations come from start-ups and we need a lot more of them. It is already reasonably easy to start a new business in the USA or UK. However, we could further reduce administration and tax on new businesses e.g. no corporation tax for the first two years trading.

2. Increase the availability of loans for small and medium sized enterprises (SMEs). At the moment many smaller enterprises cannot raise the finance they need to expand. Banks are keen to rebuild their balance sheets and are unwilling to make loans. We need to encourage venture capital funds, business angels and banks to invest in or lend to start-ups and smaller enterprises. This is risky so the government can help lay-off some of the risk.

3. Tilt higher education towards Science. Somehow our country has lost faith in Science. The media is cynical about Science in general. It is no longer seen as something that can solve problems and make life better. We need to rediscover the belief in Science and Engineering displayed by our predecessors. Many valuable high-tech start-ups come out of PhD studies or University research departments. We should encourage more bright students to take degrees and further degrees in Science based subjects. We should say that a degree in Physics is more valuable than a degree in History. One way to tilt the playing field would be to make tuition fees lower in science and engineering courses and higher in arts subjects.

4. Invest in Infrastructure not consumption. Much government spending is wasteful or goes into welfare or consumption. This leads to immense pressure to cut government spending but increased spending on infrastructure would be an investment for the future and could spur high-tech developments in the private sector. We need better transport systems, highways and railroads, cleaner energy supplies and better communications networks. These can all be prompted in full or in part by government and they can generate business for small and large companies.

5. Buy more from small companies. Public sector spending is huge but relatively little goes to very small companies because the procurement processes are so long and convoluted. If government allocated a proportion of its spending for SMEs and start-ups then that would channel some much needed business to this sector and help it to grow.

We need more innovation in all parts of the economy including large corporations and the public sector. However, we should start with the SME sector. Over a period theses proposals would encourage more start-up businesses and more high-tech businesses. This will help fuel entrepreneurship and innovation.

Paul Sloane writes and speaks on innovation. He is the author of The Innovative Leader.

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