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Spotlight Interview with Susan Gates

Susan M. Gates is a senior economist at RAND with a special interest in entrepreneurship, public-sector leadership, and strategic workforce management. She is the Director of Kauffman-RAND Institute for Entrepreneurship and Public Policy in the RAND Institute for Civil Justice and co-editor (with Kristin Leuschner) of In the Name of Entrepreneurship? The Logic and Effects of Special Regulatory Treatment for Small Businesses. Susan's current research is focused on understanding the relationship between entrepreneurship and the U.S. health insurance system. She has a Ph.D. in Economics from the Stanford Graduate School of Business.

Supporting Entrepreneurship

What sorts of things are being done "in the name of entrepreneurship?"

Policymakers are often eager to enact policies to support small businesses and entrepreneurs. In many cases this takes the form of special regulatory treatment. Small businesses may be exempted from some aspects of regulation entirely or given extended deadlines for compliance with new regulations, as is the case with Section 404 of the Sarbanes-Oxley Act. In some cases, special policies have been designed specifically to benefit small firms, such as state small-group health insurance mandates or government contracting set-asides. Typically, these policies apply to all firms that fall below a certain size threshold (say, 10 employees).

Are these policies working?

Some individual businesses are benefiting from some of these policies. However, our research found that, to a certain extent, policies that are being touted as helpful to small businesses and entrepreneurs are not having the intended effect, whether because the policies tend to benefit larger businesses as much as or even more than small businesses or because the policies fail to meet their objectives entirely.

Can you point to any examples of small business policies that have missed the mark?

State health insurance mandates were designed specifically to expand small businesses' access to health insurance, but all evidence suggests they have not succeeded on that score. Moreover, our research indicates that many small firms in states with such mandates tended to add an employee or two to avoid having to purchase insurance in the more highly regulated market. In other words, many small businesses found the mandates undesirable and sought to avoid them.

How do you explain these outcomes?

One problem is that policies aren't always targeted appropriately to the varied needs of small businesses and entrepreneurs. Most exemptions or other forms of special treatment are based on a simple size threshold: businesses with fewer than "x" number of employees get the special treatment; those with more than "x" number of employees do not. There's an assumption that all businesses below the threshold are the same, when, in fact, firms of the same size can be very different, both in their business focus and their plans for growth.

What policies might promote the development of high-growth potential companies?

It's important to look beyond regulatory thresholds and exemptions, because they don't help prepare small, high-growth businesses for the moment when they will eventually need to comply with regulations. Policies that strive to assist small businesses in understanding and eventually complying with regulations may be much more useful in the long run for high-growth potential companies.