The Great Recession and its financial crisis put a big dent in the ability of entrepreneurs to raise start-up capital. But the problem runs deeper than the damage caused by the downturn, according to studies by the Ewing Marion Kauffman Foundation. According to Washington Monthly, one report last summer the number of “business births” peaked before the recession before dropping 27 percent in three years. Then:
This spring Kauffman followed with a second report that was in many ways even more dire. Compared to a generation ago, the report said, it is now much harder to start a business in America and keep it running. In 1980 “young firms”– those less than five years old — accounted for almost half of all going concerns. By 2010, their share of the total had collapsed to less than 35 percent. And as the Kauffman authors made clear, this doesn’t only mean less opportunity for America’s entrepreneurs. It also means millions fewer jobs every year, and much less economic growth.
In reality, it appears the situation is even worse, missed or distorted by conventional measures, and business formation has dropped dramatically over the past generation. According to authors Barry Lynn and Lina Khan, “America really is undergoing a radical change in the structure of our political economy. And yet this revolutionary shift of power, control, and wealth has remained all but unrecognized and unstudied by the mainstream media, Capitol Hill, the White House, state legislatures, and both party machines.”
What’s caused the change? Taxes have fallen. In many cases, regulatory processes have been streamlined by the Internet. The two big culprits appear to be the ability to line up financing and the radical concentration of business since 1981. “The effects have been nowhere more dramatic than in those sectors that have always been most congenial to individual proprietorships, like retail, services, farming, and small manufacturing.”
If this isn’t a hair-on-fire issue, especially for an entrepreneurial hotbed such as Seattle, I don’t know what is. And it represents a largely hidden problem holding back the economy.
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Today’s Econ Haiku:
Balmer’s not worried
About that tale in some rag
No vanity here