Both parties stifle job creation

New research confirms that entrepreneurial startups are the sole source of net new job growth in the U.S. – literally 100 percent of it. If you took startups out of the picture and looked only at big businesses, job growth would actually be negative.

Or, as Senior Researcher Tim Kane of the Kauffman Foundation put it, “When it comes to U.S. job growth, startup companies aren’t everything. They’re the only thing.”

And yet, in defiance of all logic and common sense, elected officials and policy makers on both sides of the aisle consistently aim their job creation policies at the wrong target.

Take President Obama. Earlier this year, he convened a summit of 20 of the nation’s top CEOs to discuss ways to create more jobs. A month later, he appointed General Electric CEO Jeffrey Immelt to chair a new president’s council on jobs and competitiveness.

As one wag put it, the guest list of the president’s jobs summit was, “a who’s who of outsourcing American jobs.” And that’s no exaggeration. The Wall Street Journal reported April 19 that, “U.S. multinational corporations … cut their workforces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.”

The fault here is hardly President Obama’s or the Democrats alone. For every Democratic Congress that passes a health reform bill with new 1099 tax reporting rules that impose heavy new costs on startups and other small businesses, a Republican-dominated Congress passes a Sarbanes-Oxley law that forces small firms to shoulder the burdensome costs of new accounting rules meant to stop reckless or fraudulent behavior by big businesses that threaten the economy. This is despite the fact that small businesses pose zero risk to the economy.

Unfortunately, the only thing that Sarbanes-Oxley has actually stopped is startup’s ability to pay the vastly increased costs of going public, thus crippling the IPO market and job creation (92 percent of which occurs after an IPO). It certainly didn’t stop the big Wall Street banks – all of whom are Sarbanes-Oxley compliant – from recklessly sinking the whole economy in 2008.

The obvious solution here would be to exempt small job-creating startups from onerous Sarbanes-Oxley rules when they go public – at least until they reach a size where their job creation slows down.

Both parties also ignore entrepreneur’s unique role in job creation when addressing patent policy. We refer here not just to the fact that the House of Representatives is preparing to debate this week a patent “reform” bill of dubious value that will make it easier for big companies to challenge the validity of an entrepreneur’s patent. An even deeper problem is that Republican and Democratic congresses alike over the last 20 years have diverted almost a billion dollars in fees earned by the patent office to other uses.

Remember, the patent office is a fully self-supporting arm of the federal government, paid for by applicant fees. Taxpayers pay not a dime for its upkeep, and yet both Republicans and Democrats treat the patent office as a petty cash drawer for their pet projects. As a result, the agency hasn’t the funds to do its job properly, and startup entrepreneurs can’t get the patents they need to secure venture funding and start hiring in a timely fashion.

Ironically, the single most important reform in the aforementioned “patent reform” bill – a measure to end patent office fee diversion – may wind up on the cutting room floor because Appropriations’ Committee members on both sides of the aisle oppose it.

The cost in American jobs is enormous. Thanks to fee diversion and inadequate funding, the patent office now has a backlog of more than 1.2 million patent applications lying un-issued on patent office shelves. As even patent office director David Kappos acknowledges, the result is that “millions of jobs” are not being created.

An article that we wrote in the New York Times last year confirmed Kappos’ view. We found that simply clearing the patent office backlog would create up to 2.25 million jobs over the next three years. That makes the patent office “the biggest job creator you never heard of.”

It’s time for those who would be president, no matter their party, to step beyond the sterile left versus right divide and start listening to entrepreneurs and neutral experts about some practical measures that can kick-start job creation in the U.S. again.

Henry R. Nothhaft is an entrepreneur and the author with David Kline of the new national bestseller “Great Again: Revitalizing America’s Entrepreneurial Leadership” published by Harvard Business Review Press. Paul R. Michel is a former chief judge of United States Court of Appeals for the Federal Circuit, which handles patent appeals.