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The Jobs / Capital Mismatch: Financial Regulatory Chokeholds on Economic Growth
Nov 17, 1999

A fundamental mismatch exists between capital and the sources of job creation. Entrepreneurs often need to find external funds. Financial technologies and market-based public policy innovations have focused on connecting entrepreneurs and high-growth firms to investors. Unfortunately, these initiatives have been blocked by a series of restrictive regulatory rules. The basic dilemma is clear: Growth emerges from a relatively small set of entrepreneurial, high-growth firms. Small firms are often crowded out of capital markets by large firms.

The growing importance of institutional investors vis-a-vis commercial banks can lead to less funding for entrepreneurs and small firms unless new financial innovations can be applied to all firms regardless of size.