Last month,
in an event that went largely unnoticed, President Obama appointed 11 new
ambassadors for global entrepreneurship.
The eager
purveyors of the American way are responsible for inspiring and helping
fledgling business owners in the U.S. and abroad to become part of the
"next generation of entrepreneurs."
As someone
who believes deeply in the power of a healthy and dynamic private sector to
build strong economies, lift people from poverty and create broad prosperity,
I'm delighted that the president is looking to export what is surely one of our
nation's greatest assets: our entrepreneurial spirit.
But as we
work to inspire and encourage innovators on other continents, we cannot ignore
that business dynamism - the process through which businesses begin and fail,
create, destroy and transfer jobs - has taken a nose dive at home.
And the
economic implications are huge.
It may come
as a shock, but entrepreneurism has actually been in danger for decades,
although it has fallen off a cliff in recent years.
Census data
from 1978 to 2011 (the latest year available) show that while the number of
business deaths has held relatively steady for the last 30 years, the number of
businesses being created is trending downward.
In 2006,
that downward trend went from gradual to precipitous, a sharp decline that a
recent analysis by the Brookings Institution called "disturbing."
Americans
established fully 27 percent fewer businesses in 2011 than they did five years
prior.
And around
2008, the number of businesses exiting the market actually exceeded the number
of firms opening their doors.
Yikes.
It's easy
in a state like Texas, where the economy is humming along, to think the trend
is isolated; it's not. Texas' new-business entry rate from 2009-2011 was almost
36 percent lower than it was from 1978-1980, although the exit rate was largely
unchanged. And multiple studies confirm that the decline is universal,
affecting every sector of the economy.
As the
Brookings study explains, an economy in constant churn "forces labor and
capital to be put to better uses," thereby catalyzing innovation and
spurring new enterprises. And "when business dynamism is spiraling,"
says small-business writer Jean Card, "when small firms" - the
historic driver of new employment - "are not creating jobs, economic
recovery cannot be complete."
This might
help explain the inertia that is holding our current recovery captive, and it
also hints at other concerns, raised by columnist James Pethokoukis:
"Without competition from new companies, old ones will pursue only the
sort of 'efficiency innovation' that makes production cheaper. ..." That
means they will do things like automate and cut employment, and the consequent
lack of job competition could cause wages to stagnate, even decline.
Similarly,
decreased dynamism allows "established players" to "win through
lobbying what they can't achieve in the marketplace," also known as crony
capitalism, which further solidifies the downward cycle of indifference to
innovation and economic decline.
Yes, all of
this is very troubling and solutions will not come easily, but finding and
implementing them before the trend lines dip further is imperative.
Politicians
will argue about the causes; those on the right will point to a suffocating
regulatory environment that creates barriers to entry. Those on the left will
finger increasing economic inequality. Increasing student loan debt, declining
productivity and deeply embedded structural barriers will also get some
well-deserved blame.
There is
little doubt that all of these causes play their role in our floundering
business dynamism, and each must be addressed.
It will take
a comprehensive and bipartisan approach to turn the tide, one that seeks to
simplify the tax code, takes a less punitive approach to small-business
regulation and yes, one that pursues immigration reform that increases visas
for immigrant entrepreneurs and encourages them to remain in the United States
- at least that's a start.
So while
I'm all for promoting entrepreneurial diplomacy abroad, it's time for a little
economic nation-building at home.
From BND.Com
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