Cynthia M. Allen: Where have all the entrepreneurs gone?

05/25/2014 6:23 AM

05/25/2014 6:23 AM

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 United States 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 am 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 nosedive at home.

It may come as a shock, but entrepreneurialism has 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 past 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.”

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 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.

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, pursues immigration reform that increases visas for immigrant entrepreneurs and encourages them to remain in the United States.

So while I’m all for promoting entrepreneurial diplomacy abroad, it’s time for a little economic nation-building at home.

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