November 26 2012

The Start-Up Slow Down

Hadley Heath

This weekend I had the pleasure of joining PBS "To the Contrary" a roundtable show hosted by Bonnie Erbe.  You can watch the full episode here, where we discussed Christmas shopping, hourly wage earners, and even the Anglican Church.  

As is often the case on TV, we got a good debate going, but didn't have enough time to flesh it out entirely.  The main point I stressed during the show was that our economic woes run much deeper than a lack of consumer demand.  As we've pointed out elsewhere on the IWF blog, more Americans than ever before are using food stamps to put the holiday meal on the table.  

But of particular concern to me is the decline in entrepreneurial activity, the hallmark of the American economy.  A few months ago I had the opportunity to speak to a very interesting woman from New York: Barbara from Harlem.  I don't know her last name.  She prefers to go by Barbara from Harlem.  She is a mother of five, who - by herself with no husband and no college degree - worked to become successful.  She bought a house for her family, supported her children's educations, and started a nonprofit to reach out to inner-city children about the importance of a good work ethic.  Often working three jobs at once, Barbara has exemplified the determination and hard work that it takes for so many Americans to get ahead.

Barbara told me this autumn that there was no war on women in America, but there was instead a "war on entrepreneurship."  I liked her jazzy terminology, but became curious about the facts.

So, along with a couple colleagues of mine at IWF, I found the following:  There really is evidence of a crisis in American entreprenuership.

The Hudson Institute documents in a fall 2012 report that from 1992-2000, start-up companies were responsible for an average 11.2 jobs per one thousand created.  From 2000-2008, this number fell to 10.8.  From 2008 forward, that average dipped to 7.8.

The number of jobs created by firms less than one year old has fallen from 4.1 million in 1994 to 2.5 million in 2010.  Those millions of jobs are among those missing in the monthly unemployment reports.

But another truly sad aspect of a crisis in start-ups is that more Americans are stuck in the "rat race" of wage jobs, where they dream of pursuing and owning their own innovative enterprise, but they don't.  They just continue working for "the man."  And, as I pointed out on PBS, it doesn't take a college degree to start and own your own business.  Many smart, capable high-school graduates have started small and become like Joe the Plumber, with a successful, profitable small business.

In response to my point about the sharp decline of entrepreneurial activity in the U.S., another panelist on the show pushed back with a counterpoint.  I have enormous respect for Marjorie Clifton, but she and I often disagree.  She pointed out, rightly, that of the start-ups in the U.S., over recent years, women have owned a growing percentage. According to Marjorie, more women than men are starting their own businesses. (Even though the overall number of start-ups is in decline.)

It's a fair point, but I didn't have time to respond on the show.  Sadly, an us-versus-them mentality is prevalent in academics, business, and even politics, where women and men are pitted against each other, as if everything were a zero-sum game.  What about the supportive wives and families of entrepreneurial men?  Are we supposed to cheer their decline as well?  What about the products that their innovative firms will never bring to market?  Painting every bar chart in pink and blue, and treating every measure as a race between men and women is not healthy.  It ignores the reality that our economy has deep problems: growing government dependency, growing debt, increasing regulatory compliance burdens, complex tax codes, and sadly, fewer opportunities to follow one's dreams.

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