A good op-ed from the Lexington Herald-Leader on the importance of entrepreneurship to the economy:
In 1994, the secretary of Kentucky's Economic Development Cabinet traveled around the state to discuss the newly released Strategic Plan for Economic Development. While addressing civic leaders in Henderson he said, "Although personal income has grown in Kentucky, the state average is still just 83 percent of the national average."
Last week, the Cabinet launched a series of public forums to update its strategic plan for economic development, which is timely because in 2010 Kentucky's per capita personal income was 82 percent of the national average.
Is this an indication that Kentucky's economic development efforts have failed?
No. Instead, it is an indication that other states are working hard to develop their economies and that extraordinary actions are required to leapfrog ahead.
Innovation, as measured by the number of patents issued to its citizens, is widely regarded as a measure of a state's entrepreneurial energy. Research finds that innovation, along with education, has a significant impact on a state's per capita income.
A study by the Federal Reserve Bank of Cleveland shows that states which spawn innovation, as measured by patents, can reap economic rewards that endure for generations. The authors conclude, "A state's knowledge stocks (as measured by patents and education levels) are the main factors explaining a state's relative per capita income."
In other words, Kentucky's much lower-than-average patent stock, along with lagging educational attainment rates, are why the state's per capita income has been languishing at just over 80 percent of the U.S. average for the last 40 years.
Unfortunately, regardless of how we slice it, Kentucky does not measure up with respect to innovation and entrepreneurship. For nearly a half century, Kentucky, which ranked 41st in 2009, has lagged behind the U.S. average as well as the surrounding states in the number of patents for invention.
On the 2010 Milken Institute's State Technology and Science Index, which purportedly measures a state's capacity to harness and nurture its innovation assets, Kentucky ranks 47th. In terms of a more basic measure — business startups —the Kauffman Index of Entrepreneurial Activity shows that nationally in 2009, "0.34 percent of the adult population (or 340 out of 100,000 adults) created a new business each month."
The top states are Oklahoma and Montana with 470 per 100,000 adults starting a new business each month, but residing in the bottom quartile is Kentucky with an estimated value of 250.
Comparing Kentucky to the nation and top-performing states engenders entrepreneurial envy, innovation angst and a sense of lost opportunity. But a considerable amount of latent, perhaps yet unexplored, entrepreneurial energy exists in Kentucky.
Survey results showed in 2008 that among Kentuckians who had never started a business, about 25 percent had at least considered it. This estimate has been between 25 and 40 percent going back to 1996 — suggesting both the existence of a smoldering ember of entrepreneurial energy as well as the lack of tinder to spark a flame.
With a quarter of Kentucky adults revealing a capacity for entrepreneurship, given the right combination of facilitating circumstances, entrepreneurial opportunity could play a vital role in Kentucky's economic future.
Moreover, research confirms what common sense suggests, that the intellectual prowess found at the nation's universities has tremendous innovation and commercial potential, but there is also a strong sense that much of this potential goes unrealized. What Thomas Edison famously said decades ago is equally true today, "the value of an idea lies in the using of it."
Policies and practices to facilitate the commercialization of university research should be at the center of Kentucky's economic development strategy. Universities have a responsibility as well. Many have embarked on innovation-based programs that promote entrepreneurial activities.
The College of Communications and Information Studies at the University of Kentucky is launching iNET (Innovation Network for Entrepreneurial Thinking) that brings students, faculty, and local enterprises together in innovative ways to create new sources of wealth.
iNET is also sponsoring a new study to audit the entrepreneurial assets of the state with the goal of mapping and then developing what are termed "Regional Innovation Ecosystems." When fully operational these innovation ecosystems can become economic drivers for their local communities (think Silicon Valley, Boston, and Austin).
Imagination, intelligence, and tenacity can transform a great idea into a thriving business or a global enterprise, but entrepreneurial success is a function of many factors — such as adequate financing, a good support structure, and favorable timing. In the churning world of small business, however, firms come and go as quickly as the Greek God of opportunity, Kairos, whose ephemeral presence offers a fleeting chance of success to those prepared to grasp it.
By creating the conditions that widen the window of entrepreneurial opportunity we can help create what has eluded Kentucky for so long, a robust environment where entrepreneurial ideas regularly become commercialized innovations.