The apparent decline in US startups is bad news for two reasons. First, it means fewer potential Googles and Apples and Twitters and other high-impact businesses. Second, it also means fewer small businesses that — while they may not make their owners millions or billions — might provide a rung or two up the economic ladder. Although I had many problems with Fed Chair Janet Yellen’s inequality speech last week, at least she did address the business formation issue:
For many people, the opportunity to build a business has long been an important part of the American dream. In addition to housing and financial assets, the SCF shows that ownership of private businesses is a significant source of wealth and can be a vital source of opportunity for many households to improve their economic circumstances and position in the wealth distribution. …
Owning a business is risky, and most new businesses close within a few years. But research shows that business ownership is associated with higher levels of economic mobility. However, it appears that it has become harder to start and build businesses. The pace of new business creation has gradually declined over the past couple of decades, and the number of new firms declined sharply from 2006 through 2009. The latest SCF shows that the percentage of the next 45 that own a business has fallen to a 25-year low, and equity in those businesses, adjusted for inflation, is at its lowest point since the mid-1990s. One reason to be concerned about the apparent decline in new business formation is that it may serve to depress the pace of productivity, real wage growth, and employment. Another reason is that a slowdown in business formation may threaten what I believe likely has been a significant source of economic opportunity for many families below the very top in income and wealth.
Still, while Yellen had plenty to stay about public funding and education, she had nothing to say about how regulation is sapping our startup culture. I mean, not even a word about the terrible burden of occupational licensing on lower-income Americans. What a missed opportunity to bring some light to an issue that plenty of folks across the political spectrum agree on.
Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.
I know the stats bear you out on this. But, take a look at what is going on in Philadelphia among the millennials that have moved in over the past several years as the City attempts to rebuild from its dismal past. Rather than thinking big, there have been many small business opportunities opening up in micro-neighborhoods that are populated by young folks. Young folks who may not own a car or who have bought into the surburan life style, and are attempting to remake their neighborhood in their image.
Philadelphia still has a lot of problems to overcome — with a large percentage of low-income residents. But drilling down to specific neighborhoods reveals some of the hard core problems as well as some of the new opportunities.
This is an actual question — have licensing requirements increased significantly since, say, 1990?