by Doug Wilson, Featured Contributor
THERE IS NOTHING original in this article. Information from various sources is quoted to frame this important issue for thought and discussion.
Background
- “The U.S. now ranks 12th among developed nations in business startup activity, behind Hungary, Denmark, Finland, Sweden, Israel and Italy. “
- For the first time in 35 years, American business deaths exceed business births
“Dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued.” The drop has been widespread including high tech. If left unchecked, this trend “implies a continuation of slow growth for the indefinite future.”
- “Brand new companies added 2.34 million jobs in 2010, compared to an average of about 3 million a year dating back to 1977.
- Since 2009, we’ve averaged 7.8 start-up jobs per 1000 Americans, compared to 10.8 during the Bush years and 11.2 during the Clinton administration. “
What are the drivers of the decline of entrepreneurship?
- Consolidation of businesses in some sectors.
- The nation’s aging population may have less tolerance for entrepreneurial risk.
- People entering self-employment are probably doing it to meet personal needs, which is not surprising in a down economy. But they are not creating businesses that will be growth-oriented and employ others.
- Government policy is heavily weighted against entrepreneurship.
- The rapid expansion of government regulation in recent decades, and tax policy that complicates business development and growth, have certainly played a role as well, economic policy analyst Anthony Kim of the Heritage Foundation suggests.
- “High tax rates and a tax code that is burdensome for both individuals and businesses clog America’s economic arteries, hindering vibrant entrepreneurial growth,” Kim writes.
- “Last year, Congress and President Obama instituted 13 tax increases, including raising the top federal individual tax rate to 43.4 percent. America has the highest corporate tax rateamong industrialized nations and further challenges business competitiveness in the international marketplace by taxing the foreign earnings of its businesses.”
- For smaller and start-up businesses, the costs of compliance with punishing regulatory and tax regimes can be crippling.
Is There A Solution?
- “Millennials have the best shot at leading an entrepreneurial recovery.
- They grew up in the digital age, have had more exposure to entrepreneurship and have higher levels of education than previous generations.
- By 2020, they will also represent the largest age segment of the U.S. population.”
(Ewing Marion Kauffman Foundation study)
The Reality
- “The rate of business formation by Americans ages 20 to 34 has fallen sharply since 2010
- Millennials aren’t starting nearly as many new enterprises today as baby boomers were creating when they were the same age.”
American Business Today
As Jim Clifton of Gallup writes: “You will often hear sources say there are 26 million businesses in America. This is misleading:
- 20 million of these reported “businesses” are inactive companies that have no sales, profits, customers or workers.
- The only number that is useful is the number of current operating businesses with one or more employees.
- There are only 6 million businesses in the United States with one or more employees. “
Source: American Entrepreneurship: Dead or Alive?
Are We Working On the Wrong Problem?
- “We have misdiagnosed the cause and effect of economic growth;
- We have misdiagnosed the cause and effect of job creation.
- The more we execute on our leadership’s erroneous belief in innovation, the more our engine stalls out.
- To get back on track, we need to quit pinning everything on innovation, and we need to start focusing on entrepreneurs and business builders. And that means we have to find them.“
Source: American Entrepreneurship: Dead or Alive?[message type=”custom” width=”100%” start_color=”#D8D8D8″ end_color=”#D8D8D8″ border=”#BBBBBB” color=”#333333″]
Questions for Consideration:
Is America strangling its future business growth?
If yes, what is the root cause?
If yes, how can this cause be corrected?
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This discussion is critically important and I wish to add a few considerations which have not been previously articulated.
1.Corporate attorneys in the US kill startups which represent potential competition
2. Pharmaceutical companies in the US use small changes to apply for and enforce 20 year patent protection to the basic patent. In this way pharmaceutical innovations are squelched
3. Network effects: the slower modalities of cable companies result in the US having a slower Internet than S.Korea. Our own technology is used to trump progress.
4. The combination of oligopoly and monopoly and the reduced enforcement of anti-trust provisions while maximizing the political influence of multinationals does much to create a plutocracy where there should be a more democratic or republican US. Republican used to stand for anti-aristocratic. So much for that.
5. Princeton University studies have concluded that the US is s plutocracy.
6. As Piketty says in Capital in the Twenty-First Century, a growing inequality leads to the loss of faith in our political institutions which in turn leads to instability. The resulting ecosystem does not encourage entrepreneurship.
7. 24% of the new businesses in the U.S. In 2014, were started by immigrants, many of them Latinas. We need to think about this as we consider a rising anti-immigrant attitude in the US.
8. Finally, the Brookings Institute which is not exactly a left wing incubator, has found that new business starts declined significantly in the last 10 year in the US.The factors listed above all contributed to this and I would like to add my own view which is that it has been found and elaborated by Wharton that critical to the growth of startups is the nurturing that older, wisened and experienced entrepreneurs provide. This is popularly called coaching. The millennials and young technological whipper-snappers of today do not value age and the attendant wisdom. As a result, a lot of startups do not benefit from the wisdom and nurturing of the elderly and die.
That’s about all I could think of right now.
William
You add many excellent points. There are a few underlying caues to this problem which result in many symptoms. The key is to identify and solve the root causes ,not chase all the symptoms.
Thank you for reading my response Doug. Now, if you can only understand it. I am not suggesting that we chase symptoms. I am suggesting that there are solutions to these issues once we understand their causes. Deep knowledge is needed to solve these problems and the nurturing which my generation provides will be key to the success of your generation’s ideas.