No More Start-Ups In America

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WASHINGTON – There is an almost unquestioned belief that America is the land of entrepreneurs. This is “start-up” country. Anybody with a good idea, if armed with enthusiasm and persistence, is likely to get results. The assumption is that America loves young people going into business. The system helps. It is easy  to get started. Relatively easy to get funding. Plenty of venture capitalists willing to buy into a promising venture.

Young entrepreneurs

And we have many good examples, from Bill Gates (Microsoft), to Mark Zuckerberg (Facebook), that demonstrate how brilliant innovators can go from zero to building enormous business empires, becoming fabulously rich in a relatively short period of time.

Well, while these are real examples, there are not as many as there used to be. The broader picture is far less inspiring. Indeed, survey after survey indicate that in America the number of new businesses has been declining. The established  American firms are old. The number of newly hatched companies is very small. The number of people employed by them is negligible.

No more start-ups

As Holman Jenkins put it in the WSJ (“Secular Stagnation” and the Cheap Burger, January 24-25 2015), “Our new business formations are the lowest in 35 years, more like Europe that the US. According to Gallup, companies are dying faster that new ones are being born”.

Got that? the lowest in 35 years.

Yes, we still have Silicon Valley (Thank God!) and other high-tech centers in Texas, Massachusetts and elsewhere. America is still the world leader in information technology, and one of the best in biotechnology.

But the famed, irrepressible entrepreneurial spirit that led people in their twenties (in some cases) to drop out of school in order to get started on their (sometimes) revolutionary projects as soon as possible is not what it used to be.

What is happening?

The data supporting this conclusion of fewer and fewer start-ups is out there, and it is not challenged.

What is not clear is why this is happening.

Less enthusiasm for technology? Fewer young people drawn to business? Too risky to set up your own company? Better career opportunities if one chooses to work for an established big company? Lack of financing?

Who knows really.

However, we can say that gradually the old pro-business eco-system that enabled and supported entrepreneurship has been damaged.

Too many obstacles 

Indeed, over time, running a business in America has become more onerous and more complicated. Taxes are high. Indeed, America has the highest corporate tax rate in the developed world. (Sure enough, large companies manage to pay much less; but only because of sophisticated tax avoidance arrangements that require small armies of accountants and tax lawyers).

Onerous compliance

Besides, a thicket of rules and regulations (from safety standards, to environmental impact, to corporate governance, book-keeping, and mandatory disclosures) requires companies to dedicate a lot of resources to administrative matters, just to make sure that they comply and do not get into trouble with regulators.

And then there are permits and licences that must be obtained to have the legal authorization to do almost anything. And finally now the Affordable Care Act (Obamacare) creates new and costly medical insurance burdens for some employers.

There can be other reasons. But it is intuitively obvious that if you make it more complicated to start and operate a new business, you will end up having fewer people trying to set one up.

America’s advantage

America’s true economic advantage used to be in the optimistic dynamism of its people. This used to be the “can do” country. Yes, this used to be the land in which “creative destruction” took place every day.

It takes a certain mind set to challenge the status quo with new technologies, new systems, and new modalities. It is obvious that the new destroys the old, including the companies that run it, and all the jobs they created.

But this is the only way to move ahead. Successful new companies create new sectors and new jobs.

Remove barriers 

If all of a sudden we become timid, because trying the new looks too complicated or too risky, as a country we are done. In this new, fiercely competitive global economy, the future belongs to the fearless innovators.

I do not believe that public policy can breed innovators. But for sure policy-makers should not create unnecessary bureaucratic obstacles for anybody who would like to try to be one.

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