We hear a lot about start-ups and entrepreneurship in the media, but the fact is the American economy is becoming less entrepreneurial. The most important economic statistic I never hear the White House talk about is business creation relative to business contraction. It’s termed “business dynamism” by economists, and basically compares how many companies are born or expand versus how many contract or die.
And the latest numbers are scary.
The latest Brookings Institution study data (2008-2011) indicate more U.S. businesses are dying than are being created. Naturally, companies start small. But don’t be fooled, small companies are huge employers in the U.S. There are nearly 3.8 million private sector businesses with less than 10 employees – nothing to scoff at.
Let’s face it, the firms likely to contract or fold are the smaller ones. You don’t often hear about a GM or Microsoft dying. So when more companies are going under than forming, the smaller businesses are probably the hardest hit.
All of this can create real problems for Americans.
We like to think we’re the hotbed of capitalism. But we’re ranked 12th in the world in economic freedom, trailing Singapore, New Zealand, Chile, Finland and more! These countries don’t jump out when thinking of business titans, do they?
The researchers haven’t pointed to any causes yet. But I have three ideas of why it’s happening:
All of this combines to create a large number of potential entrepreneurs who don’t want to jump in the pool because they’re afraid they’ll drown.
Hopefully these trends reverse. Major changes are needed, especially with taxes and regulations. If not, our record stock market gains could disappear and then some.