Almost a year to the day of writing this column, I issued a rare tweet that said, “Very important article written by Ben Casselman in WSJ this a.m.! ‘Risk-averse culture infects Americans.’ A must read. Sound the alarm.”
Frequent tweeters will note that I did not have any hashtags or other gobbledygook that is typical of the Twitter jargon, but that is not what I want you to focus on. I want you to focus on what I view as an alarming, and largely unnoticed trend — that entrepreneurship is dying in the U.S.
I am writing this article exactly one year to the day later because in May 2014, the highly regarded Brookings Institute published a study titled, “Declining Business Dynamism in the United States: A Look at States and Metros.” The upshot of the Casselman article and the Brookings study is that more and more economists are terrified at the rate of decline in entrepreneurship across every region in this country.
In fact, according to the report, American entrepreneurship is at its lowest point in 30 years, and the decline since 2009 has been precipitous.
For someone like me who has benefited a great deal from entrepreneurship, the statistics are breathtakingly bad. It is the world I live in, and I get to see every day the enormous benefits the U.S. economy derives from this economic activity.
For others, who are far removed from entrepreneurship in corporate America or elsewhere, I thought I would offer some insights as to why they should care.
The concept “Economic Dynamism” is extremely important to a healthy economy and even more important to job growth. In my words, the idea is basically that when businesses are created, some will succeed and some will fail. Those businesses that succeed will generally create a lot more jobs than those businesses that fail will lose jobs.
The newly successful businesses not only create jobs for many others, but move capital, resources and people to where they are needed most. This dynamism and risk-taking is the essence of entrepreneurship.
According to findings by Harvard economist Edward Glaeser, cities with high levels of entrepreneurial activity had significantly better job growth than those that relied heavily on existing businesses.
To me it is no surprise, after reading the Brookings report and reading articles by Casselman and others, that our GDP was revised down to a meager 0.1 percent annualized rate in Q1.
The hard work and passion associated with starting a new business that has been repeated millions of times in U.S. history over the centuries has more recently been replaced by whirring trading terminals on Wall Street and endless money printing in Washington as the easy (and short-term) solution to our economic doldrums.
I will finish with my second tweet from one year ago: “Decades long decline in ‘specific and necessary’ kind of risk-taking will crush innovation and employment growth. Don’t be a lemming!”