Why We Still Need Startups and Entrepreneurs in the U.S.
Depending on the article, entrepreneurship in America is either thriving or dying. A recent report by the Brookings Institution indicates that the U.S. economy has become less entrepreneurial since the late 1970s. Businesses that are one year old or younger have dropped from 15% to 8% in 2011.
That being said, getting a business started is easier than ever due to everything from microloans to crowdfunding to angel investors. Launching isn’t the problem. It’s staying in business once started. Failures happen for a variety of reasons: lack of planning, declining cash flow, competition, etc. A recent The Atlantic article sites the rise of businesses like McDonald’s and Dunkin Donuts as killing local mom-and-pop shops. While franchises can take customers away from smaller companies, they are also an avenue for entrepreneurs to take advantage of an established business model, but still have the thrill of running their own business.
Why People Should Be Worried
If fewer smaller businesses are succeeding, then that could spell trouble for the U.S. economy. Why? Well, startups are important for a variety of reasons:
- Indication of Business Dynamism: With fewer and fewer smaller companies surviving, this could be a sign of lost vitality in the U.S. economy. A Brookings Institution Economic Study indicates that business dynamism (“the process by which firms continually are born, fail, expand, and contract”) is necessary to sustained economic growth and job. According to the study, if this decline “persists, it implies a continuation of slow growth for the indefinite future”.
- Made in America: Startups originate in America and aren’t large conglomerations from other countries. This means that all of their tax dollars stay within the U.S.
- Job Creation: While small businesses don’t add as many jobs as large companies (about 16 percent for small companies and about 27 percent for mid-sized companies), their workforce tends to stay in the U.S. Companies with over 500 employees typically start looking overseas for cheaper workers when they start getting too big. During the 2000s, multinational companies added over 2 million positions overseas while eliminating nearly 3 million jobs in the U.S.
The recent recession does have something to do with the failure of many small businesses. Yet, what has people like Robert Litan, co-author of the Brookings Institution Study and non-resident senior fellow, concerned is that fewer companies are starting businesses. The reasons for this are unknown. “The fact that the trend is so long-standing, for example, suggests that it's not one presidential administration or another that's at fault, nor is it the recession”.
To stop the trend, this may mean providing entrepreneurial education in schools and more support to entrepreneurs. Experimentation may have to take place to increase the number of startups and entrepreneurs in the country.