Ambassador Gardner’s Remarks at the EU SME Envoys Assembly

Good morning, Daniel, Kim, Daniele, Antonio, SME Envoys, Ladies and Gentlemen.  Let me note what a pleasure it is to share the stage with Daniel Calleja.  Daniel and I first met in Brussels 20 years ago, when he was Chief of Staff to Commissioner Oreja and I was working on EU affairs in the White House. It has been a pleasure to reconnect.  Daniel is a trusted interlocutor and the U.S. Mission enjoys a very positive and warm relationship with our colleagues at DG Enterprise.

As someone who has spent most of his adult life living and working in Europe, I believe that small and medium sized enterprises are the key to growing the European economy and to addressing high youth unemployment. I also believe that SMEs are key to America’s long-term economic prosperity. Small firms account for 63 percent of the new jobs created in the U.S. between 1993 and mid-2013. Although a SME is defined in the U.S. as a business that employs fewer than 500 people (ten times greater than in the EU), enterprises with less than 20 employees account for nearly all small businesses in the United States.

I intend to focus my remarks on three issues: first, how the U.S. policy environment contributes to SME growth; second, how the U.S. Government assists SMEs; and finally how the Transatlantic Trade and Investment Partnership will benefit SMEs.

The U.S. Economic Policy Environment

So how have U.S. federal government policies contributed to entrepreneurship and SME growth in the United States? In several ways, even though the creation and incorporation of businesses are governed by the 50 States.

Bankruptcy law is one of the key factors in creating an environment that allows for failure and learning. “Failure is feedback” is the mindset of highly successful entrepreneurs who view their first, second, or even third start-up as feedback on what they did wrong and what they did right to get their plan to succeed. It is imperative that governments foster an environment where failure isn’t the same as disaster.

In the United States, it is relatively easy for individuals to file for bankruptcy and, as a consequence, have their debts completely discharged while keeping a portion of their assets. This means that the price of failure is not so high as to discourage entrepreneurs from taking the risk that is associated with starting a new venture. Perhaps even more importantly, bankruptcy carries relatively little social stigma in American society.

Immigration is another way in which the United States has promoted entrepreneurship.  By allowing talented peopled to immigrate to the United States or remain there after completing a higher education, the U.S. has created an environment that has allowed SMEs to flourish.  According to the Immigration Policy Center think tank, immigrants contribute to the United States’ economic growth and competitiveness by earning degrees in science, technology, engineering, and mathematics fields from U.S. research universities.

By allowing these talented people to stay in the United States and by allowing other similarly talented people to immigrate to the U.S., we help ensure that American business has large talent pool from which to draw.   Indeed, from 1995-2005, fully one-half of the CEOs of high tech business in the United States were immigrants. This includes thousands of companies – Google, Yahoo, and eBay – companies that are still driving the U.S. economy today.  Immigrants in the United States also contribute to the country’s innovation economy by earning patents on new research, products, and ideas.

According to the Partnership for a New American Economy, 76 percent of patents awarded to the top ten patent-producing U.S. universities in 2011 had at least one foreign-born inventor.  Mindful of the fact that many of the people with skills live outside our borders, President Obama has said immigration policy is an “economic imperative” as it will keep the United States more competitive in the global economy.

The United States also promotes innovation and entrepreneurship through the Bayh–Dole Act of 1980, which was passed by the Congress to help promote the commercialization of technology that was developed through the use of federal grant money by allowing researchers and small businesses to retain the patent rights to any inventions that result from the use of federal grant money.   It is the Bayh-Dole act that is often cited as the catalyst for the growth of the American high-tech and biotech industries.

The Small Business Administration & other federal support

Having good policies in place is just one piece of the puzzle.  It is also very important for governments to look at ways in which they can support entrepreneurship and SME growth.

Similar to the European Enterprise Network, the U.S. Small Business Administration – commonly referred to as SBA – conducts robust training and counseling programs that provide the business fundamentals that help take these companies to the next level in terms of growth and management.

One of the key challenges for SMEs is access to capital.   One novel way in which SBA responds to that challenge is through its Small Business Investment Company (SBIC) program.  SBIC is a multi-billion dollar program founded in 1958; it consists of privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses. The U.S. Small Business Administration does not invest directly into small business through the SBIC Program, but rather provides funding to qualified investment management firms with expertise in certain sectors or industries.

Last year, SBA provided (through this program) over 2 billion dollars in new loan commitments and financed 1,068 small businesses; of these 30 percent were in low-to-moderate income neighborhoods or were minority- or women-owned businesses.  Some of the our most successful corporations – including Apple, Sun Microsystems, AOL, and FedEx for example — received financing from the program during their early stages of growth.

Another innovative SBA program encourages domestic small businesses to engage in federal research and development that has the potential to be commercialized. The program enables small businesses to explore their technological potential and provides the incentive to profit from its commercialization. This program targets the entrepreneurial sector because that is where most innovation and innovators thrive. The program funds the critical startup and development stages and encourages the commercialization of the technology, product, or service, thereby stimulating the U.S. economy. Companies funded under the program have enhanced our defense, protected our environment, advanced our health care, and improved our ability to manage information and manipulate data.

Access to finance is not enough to ensure that a new business succeeds.  There is a multitude of issues that a new business must consider.  Recognizing the valuable role that a mentor can play in the life of a new entrepreneur, SBA has developed a partnership with a national network of seasoned business executives, that serve as mentors for SMEs that need help in developing business plans, marketing strategies, and other tools that they need to build successful businesses.

The Federal Government also uses set aside programs to help support the viability of SMEs.  Every federal government purchase anticipated to be valued from $2500 to $100,000 is automatically set-aside for small businesses as long as there are at least 2 companies that can provide the product/service.  Contracts over $100,000 can be set aside if enough small businesses are able to do the work. Contracts over $500,000 have to include a small business subcontracting plan so that small businesses can get work under these large contracts.

These are just a few examples of how the U.S. Small Business Administration and the entire federal government support SMEs.

T-TIP

I would like to close my remarks with a brief comment on how the Transatlantic Trade and Investment Partnership (T-TIP) will benefit SMEs on both sides of the Atlantic.  There are millions of small manufacturers and producers in Europe and the United States. They produce some 30 percent of goods exported from both markets as well contributing to the supply chain of large manufacturers.  As a result, SMEs are very well-placed to gain from the elimination of tariffs that T-TIP aims to achieve. In sectors where tariffs are still relatively high, those gains could be very significant. In today’s competitive global marketplace, even small increases in a product’s cost due to tariffs can mean the difference between making and losing a sale for SMEs. In some cases, the removal of tariffs could allow SMEs to sell their products across the Atlantic for the first time.

In addition, small businesses on both sides of the Atlantic can be disproportionately affected by non-tariff barriers, which can take the form of requirements applied at the border or “behind-the-border” barriers such as the certification of testing laboratories. Compliance with such measures can be challenging and resource intensive.

A central shared goal of T-TIP is to yield greater openness and transparency, reduce unnecessary costs and administrative delays and promote enhanced regulatory compatibility, while meeting the levels of health, safety, and environmental protection that each side deems appropriate and achieving other legitimate regulatory objectives.  Furthermore, T-TIP aims to ensure that regulations are developed in ways that lead to more efficient, cost-effective and compatible requirements through, for example, the use of impact assessments and the application of good regulatory practices. Progress in this area will ensure that impacts on SMEs are not overly burdensome and are taken into account in the regulatory process, reduce companies’ costs, and potentially open up new markets for them, both across the Atlantic and globally.

Conclusion

I hope this event will be part of the ongoing dialogue between the United States and Europe on how we can support innovation, growth, and entrepreneurship through our support of SMEs.