The data say Americans just aren’t taking the bold risks that lead to business creation, drive growth and create jobs. Luckily, there has recently been a spate of Senate and House hearings during which the problems at the root of the decline of entrepreneurship were addressed and policy solutions on how to rekindle entrepreneurship in the US were provided.
John Lettieri submitted written testimony to the US Committee on Small Business and Entrepreneurship in which he delineated the six trends that he believes exemplify the current challenges facing the future of entrepreneurship in the US:
1. The rate at which the U.S. economy generates new firms is in longterm decline;
2. New business formation suffered an unprecedented collapse following the Great Recession;
3. The geography of startup activity has become highly concentrated;
4. The economy is increasingly dominated by older incumbent firms;
5. Rates of entrepreneurship are declining with each generation; and
6. High-potential startups are less likely than ever to succeed.
This first point is especially troubling as, according to testimony from Tim Kane, a research fellow at the Hoover Institution, submitted to a panel before the Joint Economic Committee, “New companies create roughly 3 million jobs every year, while existing companies tend to shed 1 million jobs net. A study I published back in 2010 found that in most years startups create 100 percent of all net new jobs.” According to Kane, 8% of US companies are startups, down from 14% during the Carter administration.
So, what is to be done about the decline of entrepreneurship in America? Almost all panelists thought that government policymakers could enact legislation to help the US become friendlier to fledgling companies. Dane Stangler, vice president of Research and Policy at the Ewing Marion Kauffman Foundation and a co-panelist of Mr. Lettieri, provided the Senate with some policy recommendations from the Kaufmann foundation:
Policymakers should be guided by two principles: First, subsidizing entrepreneurship is not the same thing as helping. “Second, there will be tradeoffs in policy given the multidimensional nature of entrepreneurship. Accordingly, here are some ideas and recommendations that emerged from the work of the Kaufmann foundation and our research and policy partners. First, scrutinize existing programs. By one count there are 45 different Federal programs that aim to help entrepreneurs. Congress and administrative agencies should devote resources to understanding their effectiveness. Helping entrepreneurship does not always mean another government program. Two, reduce policy uncertainty and regulatory complexity. Young businesses face particular burdens when it comes to dealing with regulations. While there are already special regulatory provisions when it comes to small businesses, Congress should consider expanding those to young businesses as well. Three, increase immigration. Immigrants have the highest rate of startup activity….Four, resist and rollback incumbent bias…. Finally, invest in data collection.
Cross-posted From AEIdeas and authored by Ross Steinberg.
