Letter to Obama RE Patent Reform

Letter to Obama RE Patent Reform

Wall Street Journal

A Labor Day Message for President Obama

We know that job growth comes from start-up companies, not established ones. Why not make life easier for them?

By HENRY R. NOTHHAFT

Dear Mr. President,

As you spend this Labor Day preparing your speech to the nation on job creation, I urge you to avoid ideologically loaded programs like a new stimulus that probably won't get through Congress, and instead focus on a few practical, low-cost measures that we know will create lots of jobs quickly.

Despite all the hand-wringing and inaction over jobs the last three years, job creation itself is actually no mystery. We know how jobs are created, and by whom.

We know, for starters, that 100% of net job growth in the U.S. comes from entrepreneurial start-ups, as a Kauffman Foundation report documented in 2010. If you took start-ups out of the picture and looked only at large or incumbent businesses, job growth over the last 35 years would actually be negative. In the words of Kauffman's Tim Kane, "When it comes to U.S. job growth, start-up companies aren't everything. They're the only thing."

So if we all know this, Mr. President, why aren't you doing everything you can to nurture start-ups and make it easier for them to access capital, grow and hire people so they can develop the breakthrough products, services and medical advances that drive our national prosperity?

Earlier this year, you convened a summit of 20 of the nation's top CEOs to discuss ways to create more jobs. Shortly thereafter you appointed General Electric CEO Jeffrey Immelt to chair your new jobs and competitiveness council.

I'm sure that Jeff Immelt is an excellent CEO. It took more than a little skill, after all, for GE to avoid paying even a penny of tax on $150 billion in revenues. But he and his fellow Fortune 100 CEOs don't know much about job creation. In fact, they're a "who's who" of outsourcers of American jobs. Over the last 10 years, U.S. multinational firms cut their domestic work forces by 2.9 million while boosting hiring abroad by 2.4 million.

The fault here is not yours alone, Mr. President. When it comes to job creation, Washington is afflicted with a totally bipartisan cluelessness. For every Democratic Congress that passes a health-reform bill with new 1099 tax reporting requirements that impose heavy new costs on small businesses, a Republican-led Congress passes a Sarbanes-Oxley law that forces small firms to shoulder the onerous costs of new accounting rules meant to stop fraudulent behavior by big businesses. This despite the fact that small businesses pose zero risk to the economy.

Unfortunately, Mr. President, the only thing that Sarbanes-Oxley stopped was the ability of start-ups to pay the vastly increased costs of going public, thus crippling the IPO market and job creation (92% of which occurs after an IPO, according to the National Venture Capital Association). It certainly didn't stop Wall Street banks—all of whom were compliant with Sarbanes-Oxley—from recklessly sinking the economy in 2008.

Thankfully, you signed a law in April repealing those new 1099 rules. But now it's time for you to make an even bigger break with our nation's disastrous one-size-fits-all regulatory policy—a policy that makes no distinction between the big businesses that need to be regulated and the small start-ups that need to be liberated.

I urge you to seek an exemption for small job-creating start-ups from the more onerous Sarbanes-Oxley rules, at least until they reach $500 million in revenues. This will help to revive the feeble IPO market, and job creation with it.

You and your Republican opponents could also spur job creation by withdrawing your support for a patent-reform bill that puts the needs of big technology firms ahead of the real job creators—entrepreneurial start-ups—and that continues to divert hundreds of millions of dollars annually in patent-office user fees to other purposes, like the Census.

By treating the patent office as a petty-cash drawer, Congress has starved it of funds and created a backlog of 1.2 million patent applications waiting for examination. Your own patent office director, David Kappos, says this backlog has cost the nation "millions of jobs."

As I noted in an article last year with retired chief judge Paul Michel of the U.S. Court of Appeals for the Federal Circuit, which handles patent appeals, simply clearing the patent backlog could create up to 2.25 million jobs by 2014. And it wouldn't cost the taxpayer a dime, since the patent office is the only self-supporting agency of the federal government.

Finally, Mr. President, why are we the only major nation on Earth that refuses to offer tax and other incentives to manufacturers who set up shop here? Every other nation in the Organization for Economic Cooperation and Development does so. They know that manufacturing is the greatest economic force multiplier in the world, creating up to 15 jobs outside manufacturing for every position on the shop floor.

None of these measures requires bleeding the treasury. None is political. And all of them will work—quickly—to create literally millions of new jobs.

Mr. President, there's still time for you to kick-start the engine of job growth. All you need to do is listen to the voices of entrepreneurs who create those jobs.

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