Across the United States there is growing alarm over the declining share of new business growth, especially small business start-ups. Here in Indiana, new jobs in start-up firms averaged just under 60,000 per quarter in the late 1990s. Last quarter it was just over 30,000. The duration and depth of the decline argues that this is not a transient problem. What makes this trend more troubling is that the vast majority of job growth occurs in new, and especially small businesses. Its absence is a latent crisis in the US.

There is not yet compelling research on why this is happening, but there are strong hints that the problems are largely isolated to two factors: government regulation and capital availability. On the regulation side, Indiana is a national leader, with top rankings by the Pacific Research Institute. On the financing side, we rank near the bottom on nearly every measure. This is a significant long-term risk to the Indiana economy.

Normally, economists would be unreceptive towards policies designed to remedy investment capital shortfalls. Capital markets typically deploy resources efficiently. But, in the wake of the Great Recession and 10 years of near-zero interest rates, it is clear small businesses are having trouble borrowing. Most lending is now rationed on risk, not interest rates, and that hampers new businesses.

To counter this, Governor Pence recently proposed a long-term strategy that should help remedy the apparent problems in Indiana’s small business financing. The program details are readily available online, but let me explain the three big things I think this proposal does.

First, the proposal strengthens entrepreneurial education in K-12 and higher education. This will allow educators to focus on having students integrate their academic skills across several disciplines. Successful entrepreneurs are mostly integrators of the liberal arts, science, technology and business.

Second, this effort will integrate many other smaller initiatives across the state to improve the climate for new business startups. Indiana taxpayers and the non-profit community invest in entrepreneurship in many different ways. A statewide effort to look for best practices and support from higher education will make these more successful.

Finally, this program will bring real financial resources to the issue. Continuing the 21st Century Fund is a no-brainer, and extending the Venture Capital Tax Credit makes sense. But, the real money comes from requiring the Public Retirement System (INPRS) to make a higher share of their investments within Indiana. This is likely the most politically contentious issue as well, but for all the wrong reasons.

The Public Retirement System invests all of its available resources to grow the Fund. For more than a decade it has done so in Indiana, with great success. This proposal shifts less than 2.0 percent of INPRS investment from outside the state to Indiana businesses. Right now those investments are in equally risky assets mostly outside Indiana. This should make INPRS, which is funded by tax dollars, stronger, not weaker.

The proposal isn’t perfect. I would increase the 21st Century Fund slightly and ask universities to have more skin in the game. Still, this proposal is a rare example of a pragmatic, long-term, and bipartisan approach to boosting the Hoosier economy. It carries little risk and much promise, and we should all hope it becomes law.