Some weeks it is almost impossible to decide what to write about in my E-Letter and Blog. But currently, there are so many interesting topics to write about I don’t know where to land. I’m itching to write about Obama’s $1.7 billion cash “ransom” payment to Iran and the terrible Iran nuclear deal struck last year. Likewise, I’m anxious to write about some new information on why the FBI chose to exonerate Hillary Clinton over her use of a private server that risked national security.
I also have more to say about manufacturing output and the lack of skilled workers to fill our record number of unfilled job openings. Also, I’m sitting on some very interesting new information on China and its exploding borrowing binge, a ticking time-bomb. Then there’s the looming state and local pension fund crisis and a massive effort to cover-up this coming debacle. And of course, there’s the Clinton/Trump presidential election that I could write about every week. The list goes on and on.
But what I try to do each week, especially for the Blog, is write about what I find most interesting and/or important. So today, I want to focus on a topic that I feel is critical but one which has received very little coverage by the mainstream media.
Today’s topic is the dramatic decline in entrepreneurship and new business startups. According to Labor Department stats, new businesses create over half of the new jobs in our economy. As such, this is something we should all pay close attention to, even if the mainstream media doesn’t. Becoming the next Bill Gates (Microsoft) or Mark Zuckerberg (Facebook) requires Americans to be gutsy and start new businesses. Lately, they’re not doing it nearly as much.
New business creation in the US is at a near 40-year low. This should concern all of us.
Only 452,835 firms were created nationwide in 2014, according to the most recent US Census Bureau data released last week. That’s well below the 500,000 to 600,000 new companies that were started in the US every year from the late 1970s to the mid-2000s.
The Great Recession was a major killer for startups. Americans didn’t start new businesses back then because few had the money or the guts to do it in those gloomy days. But the expectation was that America’s great entrepreneurial spirit would rush back as the economy recovered.
So far, that hasn’t happened. The big question is why this decline is occurring — and what it means for jobs. Historically, new businesses have done most of the hiring in the US. Here are some of the reasons for the decline in startups from leading experts on this topic.
- The “Walmart-ization of America” – There’s been a huge shift to national chains versus ‘Mom and Pop’ shops. Small businesses have found it hard to compete with the Walmarts of the world on price because they lack the infrastructure needed to source cheap goods from overseas. Plus, outsourcing and automation can now take care of tasks that young small businesses used to provide.
- Regulation — Opening a business, even a simple local shop, requires more and more licenses and permits. Consider that almost no new banks have opened since the financial crisis, and the controversial Dodd-Frank legislation passed in 2010.
- Non-Compete Clauses — Companies have increasingly put more “non-compete” clauses in employment contracts to forbid current employees from leaving and starting their own firms.
- Big companies are getting more entrepreneurial — The startup culture has permeated big business now too. Look at Google and Tesla. They have research and experimental divisions that young people are hungry to join, as opposed to starting businesses on their own.
On top of the factors hindering startups, the new businesses that do get off the ground don’t employ as many people as they once did. The Labor Department keeps track of how many new jobs come from businesses that are less than a year old. It peaked in 1999 during the “dot-com” boom — when 4.7 million jobs came from young startups. Last year, only 3.0 million came from startups.
There’s hope the startup slump could be bottoming out. Americans love watching TV shows about startups such as ABC’s “Shark Tank” and HBO’s comedy series “Silicon Valley” where entrepreneurs pitch their ideas for cash.
That’s encouraging, but the fact remains that entrepreneurship, and business start-ups, are at a 40-year low. It remains to be seen if this is about to change. I’m not optimistic, especially if we elect another high-tax, big government, over-regulation president, like you know who.
We need a big change in leadership, even if it’s someone we don’t particularly like, if we want to increase entrepreneurship.
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