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Entrepreneurship and Health Care

August 19, 2009 By Lee Egerstrom, Economic Development Fellow
Want to bring a new product to market and start and operate your own business? You might want to check out what the cousins are doing back in the "old country," or contact Minnesota's AURI.

The latter is Minnesota's Agricultural Utilization and Research Institute, scattered at campuses, laboratories and offices around the state. Now 20 years old, AURI offers scientific assistance to prospective entrepreneurs through product research and market analysis.

That's one enormous boost for local entrepreneurs. It doesn't solve everyone's problem, however, no matter the good ideas people might have for new products and new businesses.

Let's look at the new business problems facing Americans all across the nation, including Minnesotans; ponder a major reason why the "American Dream" is dying in America, and then look at how AURI offers help to those willing to buck national trends.

America's Small Business Sector
Bloggers are tearing up cyberspace commenting on new economic research showing the United States far behind other industrialized countries in small business enterprises, based on shares of total employment. Mass media has nearly ignored the work of the prestigious think-tank, the Center for Economic and Policy Research in Washington, D.C., despite how the center's research intersects with economic stimulus and business development policies.

The report, An International Comparison of Small Business Employment, was issued on Aug. 4. It found the U.S. has the second lowest share of self-employed workers (7.2 percent) of the 22 richest democracies, has the third lowest share of employment in small manufacturing businesses (11.1 percent), and has the second lowest share of computer-related service jobs in firms with fewer than 100 employees.

Luxembourg finishes below the U.S. in small business manufacturing and in the self-employment rate. No offense to beautiful little Luxembourg, but that micro-nation's data really shouldn't count. Wealthy Luxembourgers are too busy handling their global investments to work a shift at the plant.

A steady decline in American manufacturing is well documented as we've evolved in recent decades into becoming the world's consumers, or residual market for everyone else's excess production capacity. What is shocking is how far out of step we are in computer-related services employment; we tout our prowess with cutting edge technologies from California's Silicon Valley to Minnesota's Medical Alley.

Health Care Costs
John Schmitt, senior economist at CEPR and author of the center's report, puts his finger squarely on the major impediment for starting and operating a business in America.

"In the rest of the world, entrepreneurs who want to start a new business don't have to think twice about where they and their employees will get health insurance," Schmitt said in releasing the report. "In the United States, talented people thinking about starting a new business often have to choose between following their dream and going without health insurance."

Schmitt and researchers for the report found that high health care costs discourage small business formation while start-ups in other countries use government-funded health care systems.

Fifty years late, federal officials are trying to level the playing field for American business by considering a national health insurance option. One of the options under study involves greater use of patient-owned cooperatives. Minnesota doesn't have much sway on the broader, more European-style approaches to universal health care. But it does have the most extensive cooperative experiences in the nation and does have potential for building on those strengths for citizens, workers and entrepreneurs alike.

Minnesota 2020 will explore the latter more fully in later reports.

AURI as a Model
What does work to help Minnesota entrepreneurs ready products, establish production and marketing systems, and get launched is AURI. But only as far as its mission goes, and that is to help entrepreneurs and existing entrepreneurial companies make value added products from farm commodities and resources.

Some of the success stories from entrepreneur-AURI collaboration include products known within certain industries. Several, however, lead to consumer products more widely recognized, such as wines from several Minnesota wineries, Prairie Smoke Bar-B-Que sauce from B.O.L.T. Enterprises, Eichten's Hidden Acres cheeses and bison meat products, Sweet Cheeks Baby Food, and Papa George's incredible lower-fat sausage and meat products. One such company, BJ's Restaurant Inc., is a computer-based firm using new technology marketing methods to sell spreadable fruit products.

There are about 150 projects under way at any time, said Dan Lemke, communications director for AURI. In the current economy, entrepreneurs are showing special interest in value-added development for livestock products, for alternative fuels and wind energy, and co-product (or by-product) development, he said.

Anecdotal reports suggest entrepreneurs have difficulty finding risk capital, which is consistent with observations made earlier this year by officials of the Minnesota Inventors' Congress at Redwood Falls. But that, too, is an often-cited problem for entrepreneurs, regardless of the economic condition of the state and nation.

Going Forward
We Americans, and that includes we Minnesotans, are in a losing battle trying to invigorate the "old" economy without recognizing needs of the "new" economy that will follow this severe recession.

We can stimulate consumer spending, but except for some short-term benefits from the Cash for Clunkers program, we are not likely to see a consumer-driven spurt to either retail or manufacturing employment.

Without a universal health care system that moves insurance costs off the backs of doing business, we will continue to thwart entrepreneurial development and we will continue to encourage large manufacturers and service providers to keep out-sourcing and off-shoring work and jobs.

If we don't start creating jobs soon, we cannot expect to bring an end to the housing market and commercial real estate market crashes that threaten the survivability of our banks and financial institutions. Piling on to the sorry condition of those markets, cities such as Minneapolis and St. Paul are now adding to our economic problems with job cutbacks and less spending on programs that do generate economic activity, directly adding to more unemployment.

The effect of state and local government actions is to throw water on the stimulus fires lit by federal stimulus actions.

To break this downward spiral, Minnesota lawmakers and state officials should look at what works, like the AURI model, and explore ways to expand that to other areas of enterprise. They should also look at the condition of regional economic development funds and "angel" funds. And instead of cutting people lose from states-supported health care, they should be looking at most cost-effective ways to expand health insurance coverage for all Minnesotans.

No mention of Minnesota's controversial JOBZ program has been made here, for obvious reasons. Like the good folks in Luxembourg, entrepreneurial Minnesotans don't need tax subsidies; they need taxable incomes.

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