We Americans pride ourselves on our entrepreneurial spirit, but the number of new business start-ups is going steadily down.
The U.S. business death rate exceeds the business birth rate. According to Gallup, the United States ranks 12th in the rate of new business start-ups, behind such nations as Denmark, Finland, Hungary, Israel, Italy, New Zealand and Sweden.
Why? I can think of several possible reasons.
- Businesses are often started by employees of large corporations who see a market niche that their employers are unwilling to try to fill. The increase in non-compete agreements makes it increasingly harder for employees to do this.
- The stagnation of the U.S. economy is self-perpetuating. Nobody will start a business unless they think people will buy its products or services. The lack of good jobs at good wages means there is less of a demand for new products.
- Because of the uncertain economy, individuals are less willing to risk their savings by investing in startups.
- The lack of a good social safety net makes entrepreneurialism more risky. In Sweden, even if your business failed, you still would not have to worry about lack of medical care or your family going hungry.
This is important. New and small businesses are local. They employ Americans. They don’t usually have the option to outsource to India or China.
Big businesses are not immortal. In the ecology of business, the dying giants are replaced, if they are replaced, by growing small businesses. Without a stream of new businesses, the economy becomes dependent on old and declining businesses, such as General Motors and Chrysler, while have to be bailed out and propped up.
I don’t think small-business subsidies and set-asides are the key to having start-ups. The best things for business startups are a high-wage, full-employment economy, an end to abusive non-compete agreements and a breakup of big-business monopolies.
How Wall Street Killed Entrepreneurs by Yves Smith for naked capitalism.
American Entrepreneurship: Dead or Alive? by Jim Clifton, chairman and CEO of the Gallup.
Has American Business Lost Its Mojo? by Thomas B. Edsall for the New York Times. [Added 4/7/20154]
Slow Business Start-ups and the Job Recovery by Liz Laderman and Sylvain Leduc for the Federal Reserve Bank of San Francisco. [Added 4/7/2015]
How Special Interests Undermine Innovation by James Bessen for Foreign Affairs. [Added 4/7/2015]