The Death-Spiral of American Entrepreneurism

February 22nd, 2016
in Business, Money and Banking

by Charles Hugh Smith, Of Two Minds

If American Entrepreneurism is in a death spiral, then so too is the U.S. economy and the state that lives off the surplus generated by American Entrepreneurism.

Follow up:

The self-congratulatory rah-rah about American entrepreneurism rings hollow, as the evidence is conclusive: entrepreneurship, new businesses and the source of new businesses, self-employment, are all declining.

Two recent articles describe the trend: American Entrepreneurship Is Actually Vanishing. Here's Why (Inc)

American Entrepreneurship: Dead or Alive? (Gallup)

The Inc.com piece is a nuanced look at entrepreneurship that tries to find a silver lining in the abysmal data: perhaps we're simply not looking at the right metrics. Perhaps entrepreneurship is best measured by self-employment rather than by only counting businesses with employees (which, by the way, includes incorporated self-employed).

This is very sensible, as self-employment is the ground floor of entrepreneurship. If your one-person business takes off, then you hire employees and scale up from there.

Alas, the feedstock of small business--self-employment--has been in structural decline for decades. I've covered self-employment in depth for years: Endangered Species: The Self-Employed Middle Class

The Decline of Self-Employment and Small Business (April 22, 2013)

Financial Independence via Self-Employment: How Do We Do It? (September 23, 2015)

The chart of self-employment is unambiguous:

The Gallup article and chart are also unambiguous: Entrepreneurship is in structural decline, and the health of the economy and the state that depends on tax revenues is at stake:

Here is a chart of the number of new enterprises and those that have closed: much is being made of that tiny uptick in new businesses; now that the birth of new enterprises exceeds the death of existing enterprises by a wafer-thin margin, victory is being declared:

Not so fast, rah-rah cheerleaders. Look at the chart with the expansion of the U.S. population as a baseline. While population rose 42%, the number of new firms actually dropped precipitously.

While the financial media focuses on the handful of multi-billion dollar success stories, in the trenches of the U.S. economy the story is quite different: American Entrepreneurism is in a death spiral. On a per capita (per person) basis, American Entrepreneurism is in a free-fall.

And if American Entrepreneurism is in a death spiral, then so too is the U.S. economy and the state that lives off the surplus generated by American Entrepreneurism.

 


 

My new book is in the top 10 of Amazon's category of international economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $8.45, a 15% discount from its list price of $9.95.











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