American Economy Is Less Entrepreneurial Than Ever

U.S. Businesses Are Being Destroyed Faster Than They're Being Created

The American economy is less entrepreneurial now than at any point in the last three decades. That's the conclusion of a new study out from the Brookings Institution, which looks at the rates of new business creation and destruction since 1978.

Not only that, but during the most recent three years of the study -- 2009, 2010 and 2011 -- businesses were collapsing faster than they were being formed, a first. Overall, new businesses creation (measured as the share of all businesses less than one year old) declined by about half from 1978 to 2011.

The authors don't mince words about the stakes here: If the decline persists, "it implies a continuation of slow growth for the indefinite future."

This lack of economic dynamism, particularly the steep drop since 2006, may be one reason why our current recovery has felt like much less than a recovery. As Matt O'Brien noted on Wonkblog last week, annual job growth rates have stubbornly refused to budge above 2% for the duration of the recovery.

The authors of the Brookings study dug beyond the national numbers to look at the change in new firms at the state and metro levels and found that they generally mirrored the national trends.

I mapped the state data below. While all states showed steep drops in new firms, New York stands out for its much smaller decline in the share of new companies than other states -- only 18% compared with the 50-State average of 47.2%.

Illinois, Texas, New Jersey and Missouri round out the top five.

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http://www.washingtonpost.com/blogs...g-destroyed-faster-than-theyre-being-created/

This is sad news for the average entrepreneur. But great news for the smart entrepreneur who knows how to take advantage of it.

But online webmasters who might not be categorized as business owners from a legal standpoint do seem to be spreading like wild fire as the internet continues to grow. I wonder if this was taken into consideration with the study.

Regulation is whats holding innovation back.

Patel said:

Regulation is whats holding innovation back.

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+1. It will only get worse with time, and not only in America.
It will get better in developing countries however (aka the new wild wild west).

America is becoming a financial and entertainment|athletics hub. As the world grows more entrepreneurial, they will receive funds from the US. As foreign production|economies and currencies grow stronger against the dollar, then manufacturing jobs will return to the US as exports will become more attractive.

Then there will be a great balancing out as foreigners invest more in the US, the US invests more around the world, and everyone is one great big happy family........................................................even I don't believe me.

American people want to be executives and receive titles(CEO, CFO...), not start a little company. If they do, a viable business strategy taught in school is to build a business with the purpose of becoming a nuisance to a larger entity in the same field, with the sole objective of being bought out. People are making businesses with the sole intent of selling them, which only strengthens the larger companies who buy them out makes competition a little bit exponentially harder every year. Then, with their new money from selling their business, they enter the financial|entertainment sector, or run for office. A lot of capital leaves the US from US investors. Money has no allegiance, and the world is a business.

Technology and armament|security is the big X factor, though. The US will hold steady in supplying ways to turn the world into a fireball. Technologically, the US could position itself more attractively for the world to give their money so the US can expand on its educated know-how...or there will be a massive tech-exodus and brain drain.

I wonder what the true state currently is of banks in the US loaning money to small and developing businesses. All I see are branches and franchises everywhere, there are no independent stores, old or popping up, that I know of(except boutiques and some service industry thing like hair salons or some car dealerships, but an economy can't survive run on that).

I'm excited, are you excited?......So excited. The ones I see losing heavily in all scenarios is the American working class. Please tell me I'm wrong.

I see several issues, regulation MAY be part of it but when I press people which specific regulations hold them back now that did not exist say 10 years ago they cannot answer me.

I think the issue is the barrier to entry is very high in regards to cost.
Look at how inflation keeps going up and then look at how incomes have remained flat for 30 years. When my father came to this country he was able to work a minimum wage job and save enough money to put down on his 1st restaurant. To this day he still owns restaurants. Now a low or medium wage job barely covers the bills, let alone leave enough to save to buy a business and have a little in reserve. People can only invest if they have money to invest.

Another issue is the aggressiveness of large corporations when it comes to our elected officials. They get tax amnesty for a time, sweet deals on land and plenty of other incentives that the little guy does not get. So even if a Mom and Pop scrapes enough money together they find it difficult to offer the same products at similar prices.

now is the time to get going!

Getwhatchuwant said:

I see several issues, regulation MAY be part of it but when I press people which specific regulations hold them back now that did not exist say 10 years ago they cannot answer me.

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Well, starting and closing a business should be as easy as setting up a website. This is not the case in most of the overly-developed countries.

Off the hat: bureaucracy, accountants, employee rights, hostile tax authorities (they look at you as a criminal, and you should prove otherwise), high taxes, paperwork that takes up to 30% of the total time you dedicate to the business, banks, merchant accounts, legal charges, lawyers, and so on, and so on.

Basically, if you have a great idea, the above is most likely to fail you than not.

lancis said:

Well, starting and closing a business should be as easy as setting up a website. This is not the case in most of the overly-developed countries.

Off the hat: bureaucracy, accountants, employee rights, hostile tax authorities (they look at you as a criminal, and you should prove otherwise), high taxes, paperwork that takes up to 30% of the total time you dedicate to the business, banks, merchant accounts, legal charges, lawyers, and so on, and so on.

Basically, if you have a great idea, the above is most likely to fail you than not.

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I Understand that but I am looking for regulations that did NOT exist 10-20 years ago, as I said my father has been self employed longer than I have been alive, in fact at the ripe old ago of 71 he opened yet another restaurant last week.

I think regulation is an obstacle but the OP spoke about how we are not growing anymore, regulations existed before they exist now. Something else is at play and I gave my opinion.

Getwhatchuwant said:

I Understand that but I am looking for regulations that did NOT exist 10-20 years ago

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Decades ago(60s-70s to 80s), one used to be able to go to university, get into medical school, rack up massive debt, declare bankruptcy, have all that cleared, and then become a doctor making $200k+ while owing literally nothing. This created many of the doctors in the baby boomer generation that we golf with, and they closed off that possibility to future generations.

There was much more forgiveness back in the day than there is now because they "learned" it was no good, all while reaping the benefit, but not giving back in commensurate fashion for their wild profit.

Environmental regulations have gotten more numerous, tax laws have too, but the people who could jump into the loopholes with both feet while the getting was good did so, and it's complicated to see who's to blame.

I'm sure I'm forgetting some regulations, in corporate law, investment vs savings banks, and the financial industry's regulation I'm sure, but I'm too hungry and missed breakfast and am late to lunch.

I keep forgetting 20 years ago is 1994 lol gosh

LakeForest said:

Decades ago(60s-70s to 80s), one used to be able to go to university, get into medical school, rack up massive debt, declare bankruptcy, have all that cleared, and then become a doctor making $200k+ while owing literally nothing. This created many of the doctors in the baby boomer generation that we golf with, and they closed off that possibility to future generations.

There was much more forgiveness back in the day than there is now because they "learned" it was no good, all while reaping the benefit, but not giving back in commensurate fashion for their wild profit.

Environmental regulations have gotten more numerous, tax laws have too, but the people who could jump into the loopholes with both feet while the getting was good did so, and it's complicated to see who's to blame.

I'm sure I'm forgetting some regulations, in corporate law, investment vs savings banks, and the financial industry's regulation I'm sure, but I'm too hungry and missed breakfast and am late to lunch.

I keep forgetting 20 years ago is 1994 lol gosh

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Thanks for the reply... I see your point but I disagree to some extent. First of all in the 60-80's high earners were taxed heavily, it is far less now as far as income is concerned.

As far as environmental I am not sure I will admit but in food service there are waste handling rules but nothing prohibitive. There are also laws on the books regarding food handling, requirements for certain pieces of equipment, inspections etc.. But none of them seem prohibitive.

Certainly if we are in energy or finance I am sure the red tape can pile up but just from my experiences it does not seem overly more difficult today than 10 years ago.

I still think it is a matter of money available. In the US most of the money that is made is in very few hands, hands that are already wealthy and looking to get more. The middle is getting squeezed down to low income and that is the group that used to create new businesses.

Less middle class and then you get less new start ups, thats my theory.

Im NOT saying regulations are simple or cheap to get around I just dont see it as "new" and therefore does not explain the difference between the past and now. What has changed steadily over the course of time is the cost of living (going up) and the amount of money the majority of people have (going down)

The increased bureaucracy is of course to blame but the main cause is the money quantity inflation, as it prevents the economy from restructuring because it keeps the non-efficient structures viable.

jazzc said:

The increased bureaucracy is of course to blame but the main cause is the money quantity inflation, as it prevents the economy from restructuring because it keeps the non-efficient structures viable.

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This is pretty much what I am saying inflation going up AND peoples incomes are not rising to compensate. The red tape is still there but it has been there for a while, I dont think it helps matters but the red tape is not the primary cause IMO.

Getwhatchuwant said:

This is pretty much what I am saying inflation going up AND peoples incomes are not rising to compensate.

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Money quantity inflation isn't the same as prices index rising. Eventually, monetary inflation causes the prices to rise, but the "unseen" damage it does until then is what I wrote above: Makes it much harder to restructure the mal-investments into what the economy actually needs. So, the economy just drags and drags.