Blog Post

AEIdeas

The decline in business startups may not be news to my readers, but these charts and stats from Gallup (h/t to John Dearie) are still startling to me:

— The U.S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does. — American business deaths now outnumber business births. The U.S. Census Bureau reports that the total number of new business startups and business closures per year — the birth and death rates of American companies — have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying. — Until 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number suddenly turned upside down. There has been an underground earthquake. — Business startups outpaced business failures by about 100,000 per year until 2008. But in the past six years, that number suddenly reversed, and the net number of U.S. startups versus closures is minus 70,000.

The analysis from Gallup CEO Jim Clifton goes on to argue that governments around the world have placed to much emphasis on innovation and too little on entrepreneurship: “Our leadership keeps thinking that the answer to economic growth and ultimately job creation is more innovation, and we continue to invest billions in it. But an innovation is worthless until an entrepreneur creates a business model for it and turns that innovative idea in something customers will buy.”

I don’t think that’s quite right, or at least it’s kind of fuzzy. I think Clifton confuses basic scientific research and invention with economic innovation that generates consumer-relevant value. It is often the entrepreneur that turns the former into the latter. We need more of both. We need more ideas and more startups to run with them, especially startups that can become big, profitable employers. More exploration and exploitation. And when it comes to that, the U.S. is still a leader. No large economy generates more high-impact entrepreneurs that America’s. (There is also an important difference between entrepreneurship and self employment.) But we could do better. And if we want to have a dynamic economy that generates sustainable growth and good jobs, we must. Here is some good stuff on entrepreneurship from an interview with Erik Brynjolfsson and Andrew McAfee, authors of The Second Machine Age:

Erik Brynjolfsson: We think the best way to try to find the new jobs is to crowd source this question, and that means throwing it out to hundreds and thousands, millions of entrepreneurs, who are going to try lots of different things. Some of them are going to fail spectacularly, but we’re hopeful that some of them will hit upon new ideas that I haven’t thought of, and that you haven’t thought of, and that President Obama hasn’t thought of, that will turn out to be the big growth industries of the next decade. Andrew McAfee: We spent a lot of time on entrepreneurship in the book, not because some entrepreneurs get spectacularly wealthy and we love plutocrats, but because entrepreneurship is how job creation and economic growth actually happen. It’s not a centralized activity. It’s a very decentralized one. Erik Brynjolfsson: It’s not that we think everyone’s going to become an entrepreneur, or even a personal trainer. It’s that entrepreneurs are the ones that invent and discover the new industries. Ninety percent of Americans used to work on farms, remember, back in 1800, and it was 42 percent in 1900, but Henry Ford, Steve Jobs, Bill Gates, and lots of other people, helped invent whole new industries that we couldn’t have conceived of at that time. We’re hopeful that there will be a next generation of entrepreneurs that will help invent the new industries. … There’s definitely a role for government as a catalyst today, just as there was in the first machine age, but ultimately, the bulk of job creation, and the bulk of innovation, is likely to come from the private sector, or from partnerships between the government and the private sector. That’s why we’re in favor of creating platforms for entrepreneurship and doing things that will boost job creation throughout the economy, not just in government programs. here’s definitely a role for government as a catalyst today, just as there was in the first machine age, but ultimately, the bulk of job creation, and the bulk of innovation, is likely to come from the private sector, or from partnerships between the government and the private sector. That’s why we’re in favor of creating platforms for entrepreneurship and doing things that will boost job creation throughout the economy, not just in government programs.

And here are a few other things I have written on the subject:

Which country has the most billionaire entrepreneurs? (And how can we get more?)

Why more entrepreneurship means less self-employment

America suffering from ‘economic calcification’ – JP Morgan

Where are all the startups? More on America’s economic calcification

Crony Capitalism Needs a Kick in the Keister

Fighting the Crony Capitalist Alliance

Is regulation choking small business formation?

Do we want a dynamic, sustainable US economy? Here are 3 key steps to take