Where are the entrepreneurs? (One of my favorite topics.) FiveThirtyEight’s Ben Casselman highlights the latest data on the long decline in US startup activity:
Last week, the Census Bureau released new data on so-called business dynamics (startups, failures, hirings and firings) for 2012. Entrepreneurship did rise in 2012, but barely. Americans started 410,000 businesses in 2012, up just 2 percent from a year earlier and still more than 20 percent below prerecession levels. The startup rate — the number of new businesses as a share of all businesses — was essentially flat at 8 percent.
On the one hand, the lack of a rebound shouldn’t come as too much of a surprise. The decline in entrepreneurship predates the recent recession; in economic terms, it’s a “structural” problem, not a “cyclical” one.
On the other hand, the decline did accelerate in the recession, so we might expect to see at least some increase during the recovery. And we have — just not much of one. Entrepreneurship looks a lot like other measures of economic dynamism: Companies, for example, are hiring more workers, but at a rate well below prerecession levels. Workers, similarly, remain reluctant to quit their jobs, which suggests they, too, remain cautious.
The US economy has a competitive intensity problem, and this decline in startups is at its core. Startups are the straw that stirs the drink. They generate new innovation (and new jobs) and force incumbents to improve or die. They change everything, creating a healthier, more vibrant economy in the process.
I recently watched a video report on how the 1995 reintroduction of wolves to Yellowstone National Park — after a 70-year absence — altered the park’s entire ecosystem. Yes, wolves are predators, but as the video explains, “they give life to many others.” Without wolves, the deer population population exploded, with the animals grazing away much natural vegetation and reducing the park’s animal and plant diversity. As soon as the first wolves showed up, things started changing, They, of course, killed some deer. But they also changed the behavior of the deer, and that led to a “trophic cascade” which caused an explosion in the number and variety of plants and animals — and that changed the nature of the rivers. “So the wolves, small in number, not only transformed the ecosystem of Yellowstone National Park, but also its physical geography.”
In the US economic ecosystem, startups are wolves. And we need more of them, and the creative destruction they bring, to transform our stagnating economy.