mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Is America’s Entrepreneurial Spirit In Trouble?


Well here’s an unwelcome development: James Pethokoukis at AEI, citing a report by JP Morgan’s Mike Feroli, notes that startups are contributing fewer and fewer new jobs to the economy. Two key takeaways from the report:

1. Net job growth is driven by new businesses. Existing  establishments tend to shed jobs. But according to the Labor Department’s new Business Employment Dynamics report, “the trend has clearly shifted. In 12Q3 opening establishments added 1.27 million jobs. In the last cycle this figure averaged closer to 1.5 million jobs per quarter, and in the 1990s the figure averaged 1.75 million per quarter.” Down, down, down.

2. Feroli notes that employment “births” — a subset of openings not including reopenings of seasonal businesses — are also weak. Employment births in 12Q3 as a percent of all employment held at 0.7% in 12Q3 for the fourteenth consecutive quarter. In contrast, this figure stood between 1.1% and 1.3% during the 1990s.

Surf on over to the AEI page for some striking graphs and for Pethokoukis’ own speculations as to what might be going on.

One of America’s greatest strengths has always been its entrepreneurial culture and the willingness of its citizens to take risks on new ideas and new businesses. That culture isn’t gone, but this data sure does suggest that it is at least in trouble. Hopefully this is only a side-effect of the recession and not the sign of anything permanent. If it lingers on as a trend, however, we’ll have to do some serious thinking about what we can do to reverse it.

[Store closing sign courtesy of Shutterstock]

Features Icon
show comments
  • MWFlorida

    As an entrepreneur myself, this report is no surprise. The financial crisis was especially hard on small firms. Bank loans are scarce for all but the largest companies. If they can get a loan at all, the terms are much worse.

    Obama’s policies heavily favor large entities. New environmental, health care and financial regulations hit small companies much harder because they lack the large staffs to deal with the red tape. Small firms lack the lobbying resources and ability to make campaign contributions required to persuade the government to do what they need to grow and prosper.

    Crony capitalism is good for big companies, but bad for our economy. Until we return to free market principles, we will be saddled with subpar growth and lingering un/underemployment.

  • foobarista

    Businesses aren’t starting, at least anecdotally. My wife is a biz broker in Silicon Valley, which is supposedly having a “hot” economy (RE and tech are genuinely “hot” at the moment), but non-tech businesses are failing here and new ones aren’t getting started. If they sell, they sell for a song. She’s been in business for over ten years, and last year was her worst ever. This year is better, but probably won’t be in her top five.

  • Corlyss Drinkard

    “One of America’s greatest strengths has always been its entrepreneurial culture and the willingness of its citizens to take risks on new ideas and new businesses.”
    I hope I’m wrong, but I think we reached a tipping point some time ago. I think back to readings I’ve done about the New Deal and how elements of that were fought tooth and nail by the people, not just interest groups. Of course, not everyone fought it. But ever since the New Deal, the pols and the middle class interest groups have labored mightily to get more and more people on some kind of government sustenance program of one kind or another. Welfare, Medicaid, Medicare, and Social Security are just the most visible programs of a greedy society who has at last discovered just how to vote itself the public fisc, i.e., the very fear that Benjamin Franklin and others expressed in the 1780s would be the ruination of the noble experiment. Europe has always had a passive public that were stooges for the politicians as long as they got their cheap bread. America was a nation of a different stripe. With the Europeans being held up by the American gentry liberals as the model to emulate, and the Europeans working tirelessly to remove every whiff of risk and possible failure from their people, it was only a matter of time before we got a government that undertook similar measures.

    • Tedd

      I think you’ve hit on an important point. It’s easy to mistake American entrepreneurial spirit as an almost genetic characteristic of the American people, or perhaps an essential product of American culture. But it seems clear to me that it has always been a product of the unique structure and function of government in the United States, which (historically) has made individual liberty a very high priority, if not the highest.

      American freedom attracted people with entrepreneurial spirit as immigrants, and fostered entrepreneurial spirit among citizens. But measures of economic freedom show that the U.S. now lags behind many other countries, where it once was the country that virtually defined economic freedom. We should not be at all surprised that a loss of entrepreneurial spirit would be the result. It would be miraculous if that were not the case.

  • Felipe Pait

    The graph shows clearly that the startup jobs rate started declining in 2007 in response to Obamacare, which would be signed into law in 2010 and really kick in a few years later.

    Of course it has nothing to do with unemployment. The American Enterprise Institute and the Hudson Institute brilliantly nailed this one, as always.

    • Jim Luebke

      A curiously large percentage of Fortune 500 companies started up during recessions. The last five years were unnaturally sparse when it came to startup and job creation.

      Obama’s policies have prevented the normal course of American economic recovery. The damage, measured in lost experience for the unemployed, lost retirement savings opportunities, and the like, will be permanent.

      He’s doing a heckuva job.

      • Felipe Pait

        Yes, recessions are good for business. The deeper and longer, the better. That’s why Herbert Hoover and GW Bush were the best presidents in American history.

        • SDN

          GW Bush didn’t have a recession like Obama’s. See 2007 for why.

          • Felipe Pait

            Sorry, I forgot that Bear Stearns, Lehman and the other banks collapsed in anticipation of Obamacare. How naive of me to believe in causality.

        • Jim Luebke

          Recessions typically contain the seeds of recovery. Big firms with outdated business models that have been living on leverage crash and burn, clearing the way for small firms with new models and low debt to prosper and grow.

          Obama is a central-planning statist. That type only likes (and can only understand) a few big, standardized entities or systems, instead of lots of little things that they don’t want to bother trying to understand.

          So, we see too-big-to-fail banks institutionalized instead of broken up, and we see those banks giving loans only to big businesses (many of which are overleveraged already.)

          Small businesses get slapped with onerous regulation and legislative entanglements designed to cater to the needs of big businesses.

          The world doesn’t need another Europe. The world doesn’t need Fabian communism. The US needs regulation rolled back, needs utopian Leftist schemes firmly squelched, and for government to stop arrogating all power unto itself.

          • Felipe Pait

            I understand very clearly your argument that Bear Stearns, Lehman, and the other banks became too-big-to-fail because of overregulation after the end of Glass-Steagall and due to the impending election of Barack Obama. Causality be damned.

          • Jim Luebke

            If you’ll read my argument carefully and without ideological prejudices or biases, you’ll find I’m not positing that Barack Obama caused anything prior to his election as president.

            What he and the Democrats have SINCE the crisis done is twofold: one, institutionalized the problems that led to the 2007 crash (too big to fail, Fannie Mae / Freddie Mac), and two, imposed a regulatory system that privileges large (corporations, donors, etc) over small entrepreneurs.

            This privileging of big business (donors) through regulatory capture (and add to that, Obama’s other policies) is keeping our economy from rebounding. That’s my argument — purely from the point of Obama’s inauguration.

            It’s tremendously convenient for the semi-incompetent people in power that you’re taking up a highly partisan line defending them all (and yes, you’re defending the privileges of the big banks here) instead of helping form a consensus around constructive paths forward, like reimposing Glass-Steagall or using the Sherman Act to break up Citigroup.

            I realize those are not the “anti-regulatory” moves you would expect me to advocate. So tell me, is this because you simply want to score cheap debate-club ideological points about “narrative” rather than solve any problems, or that you simply can’t imagine that deviation from strict, blind, ideology (for yourself or your opposition) is even possible?

          • Felipe Pait

            I am not sure you had made an argument. You did make an unsupported claim about Obama being a central-planning statist, which has no basis on facts, and followed it by a comment about too-big-to-fail banks in a way that linked this preexisting condition to Obama’s actions. Then you proceeded with an unrelated point about Fabian socialism.

            As for banks – and, perhaps more important, non banking financial institutions – needing some form of re-regulation, you are probably right. The form of the regulations is a rather technical subject in which I would be out of my depth. Were I to decide to learn about it, I would choose a source in the reality-based community that makes rational, supported, and consequent arguments.

    • SDN

      Actually, 2007 was when the Democrats took Congress. Any business with a brain knew what that meant: more regulations and taxes. Time to hunker down or move to Bangalore where those regs and taxes don’t apply.

      • Felipe Pait

        Are you located in Bangalore? Is that true that taxes and regulations are less burdensome where you are? What I hear from the reality-based community makes me think otherwise….

  • TJL Dia-Media

    While I fear many of the issues mentioned, I would like to see if the start-up rate has sunk or merely start-up jobs have sunk. Many start-ups today, like mine, strive to remain as lean as possible, because it enhances our survival chances.
    The “Lean Start Up” as posited by Eric Ries and Steve Blank expressly counsels against hiring many of the positions that were previously considered essential to a new start up like sales, marketing, etc. until past the “customer development” stage. Of course, most start-ups ideas don’t make it past that point, thus no more jobs are created.
    So, what we may be losing in Start up jobs, may be being made up in start up efficiency.

  • Kavanna

    The entrepreneurial spirit has been declining since 2000. It’s just received a series of further blows since Obama was elected. But the master force here is deleveraging.

    It’s deeply connected to unemployment, since newer (and usually small) companies are the net job creators. As they get older, they create fewer net jobs. The largest and oldest companies create no net jobs at all. (It’s age, not size, that counts here.)

  • Luke Lea

    Theorists will do anything to get around the laws of supply and demand. The volume of employment is a function of the wage level, nothing else.

  • Thom

    I know some very talented young people…quite a few, and every one of them is seeking that ‘better’ job…..not one is even thinking in terms of starting their own business…they complain about hours, pay, bosses, commutes, and when I mention going out on their own, they give you this weird look…

  • MoReport

    The consumer economy is starving to death
    (the service economy in particular) because
    the middle class is experiencing a continuing, worsening reduction in discretionary income.Manufacturing of capital goods, particularly 21st century Hi-Tech items, is growing and will explode when the State is
    finally forced to remove the barriers to entry.

  • AnnSaltzafrazz

    How much of this is just people going underground. Out here in Los Angeles a heck of a lot of the economy is based on cash-only, off-books transactions.

  • Odah

    why start a business and employ others today. when the government and your employees may get payed more than you ..there are a ton of things someone can do to start a smallish lifestyle business than needs no investement or employees

  • Odah

    if america wants to punish success .which is the way it has gone and it is going then people no longer come here chasing success and people born here who want success leave to where it is easier for them to build bisinesses and the people the hire are fine working for money ..and don’t expect the boss to pay for health care a few months off in case of pregnancy sexual harassement lawsuits..yada ..yada yada

  • gs

    My reading of this chart is that job creation at startups grew, peaked and began to
    decline under Clinton, declined under Bush, and declined under Obama with perhaps an emerging plateau or modest recovery.

    My interpretation is consistent with the view that an elite ruling class is accumulating power and wealth without regard for the country’s overall

  • ToursLepantoVienna

    Never fear. More mestizos are on the way.

  • Rick Caird

    If you look at countries that continually have poor economies, it is always due to poor government. You can see that today with countries like Argentina and the Souther Mediterranean countries.

    Dare we mention that another country with a government that harms the economy is the US?

  • rogerzimmerman

    I second the “lean startup” theory. That’s certainly our approach. In every situation where we _could_ hire, we think very hard about alternatives, such as: contracting, automating more, buying services from peers. In 9/10 situations, one of these makes much more sense. True, these options are much more available in tech, especially IT, but that’s where a lot of the startups are.

  • Luke Lea

    Meanwhile, over at NYT:

    The comments are ferocious. WRM really needs to cover this story.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service