woman leaning against a brick wall in a white jacket

A note from our editor, Elizabeth MacBride:

Entrepreneurs create the economic future. So which kinds of entrepreneurs, working on what kinds of companies, do we want to finance? Do we seek to create the next Google, or do we want a thousand  restaurants to reopen on our street corners? Venture capital is apt to finance the former. Community banks are apt to finance the latter.

These questions are top of mind as debate starts in earnest this week around the $1.9 trillion federal stimulus package. For the long-term economic health of the country, few questions are more important than how we rebuild our infrastructure for funding small businesses.

How do we get capital into rural communities, second-tier cities, communities of color – and into the hands of women entrepreneurs – who are today creating most of the new companies? (As an aside, the simple idea of setting aside time, starting today, for the smallest entrepreneurs to move to the front of the PPP application line was brilliant).

The question of broad reforms is obviously on the minds of smart people in the administration, including Don Graves, nominee for Deputy Secretary of Commerce, reportedly one of the prime movers behind a re-authorization of an Obama-era program called the State Small Business Credit Initiative. That program sent $1.5 billion to the states to increase capital to small businesses. The Biden Administration would increase that to $10 billion. Should we be doing this on autopilot? That’s a big question.

Under the Obama Administration, states decided to use about two-thirds of the money for lending programs mostly through community banking and finance institutions, and a third of the money for venture capital programs. The original SSBC program was never evaluated for its effect on jobs or company creation, only on whether it leveraged capital (it did), according to Eric Cromwell, whose firm, Cromwell Schmisseur, worked with others to do the evaluation. The change to the Trump Administration may have been one reason for the lack of follow-up.

I’ve seen a lot of economic development people get laser-focused when it comes to what they call a tech economy (what they really mean is software). Silicon Alley … Silicon Slopes … Silicon Salt Mines … Googles and Amazons are our inevitable future, so the only chance is to make sure the next one is yours, and not the next state’s.

But the future of our business and our economy is not inevitable, and the firehose of government finance and regulation is one way we shape it.

Do we want software innovation, which adds convenience to our lives but likely destroys more jobs than it creates? Venture capital was designed to produce those companies. Do we want DeepTech innovation in, say, biotech or energy, which will require more grants up front and a longer-term time frame? Maybe jobs aren’t the central concern at all. Do we want innovation of another kind, the kind that grows on street corners in a thousand small restaurants and shops and employs a lot of people? Community finance needs to be restored, in that case, and directed toward New Builders.

When it comes to finance, it’s all about who builds wealth at the end of the day. Is it those who already have it, or those who don’t, or both? That, in turn, determines what kind of society we live in.

This story and others on New Builders Dispatch are made possible by a sponsorship from the Ewing Marion Kauffman Foundation. The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that provides access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity – regardless of race, gender, or geography. The Kansas City, Mo.-based foundation uses its grantmaking, research, programs, and initiatives to support the start and growth of new businesses, a more prepared workforce, and stronger communities. For more information, visit www.kauffman.org and connect with www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.