By: Kevin Montgomery
With all the tech startups flooding the market, it would seem that America is more entrepreneurial than ever. But just the opposite is true. According to a pair of reports from The Brookings Institution, American entrepreneurship has been declining since the 1970s.
Brookings' reports reveal that American business has become steadily less dynamic in the past three decades. Instead of creating new companies, would-be entrepreneurs are increasing going to work for established corporations. And the rate of corporate consolidation is only making the statistic worse.
Now, for the first time since Brookings began tracking the data, more businesses are dying than being born in America.
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As New York's Daily Intelligencer describes, all the media fanfare over startups is only masking the truth behind the state of entrepreneurship:
But the glitz, glamour, and big money of San Francisco — as well as the cultural potency of and media attention paid to start-ups — shroud a hard truth. The country is getting less entrepreneurial. In aggregate, firms are aging. People are starting fewer new businesses, and older businesses are doing better than their younger competitors. For all the talk of "disruption" in today's economy, it is better to be a big, old incumbent dinosaur than it is to be a lean, mean start-up.
This isn't just bad for potential founders, Brookings says. The trend curbing "creative destruction" has the potential to make the entire American workforce less productive:
Research has established that this process of "creative destruction" is essential to productivity gains by which more drive out less productive ones, new incumbents, and workers are better matched with firms. In other words, a dynamic economy constantly forces labor and capital to be put to better uses.
The problem isn't relegated to "The Paper Belt"—Silicon Valley's dismissive name for Middle America. Brookings reports that the entrepreneurial downturn transcends any particular state and region. The trend has been observed in all 50 states and "in all but a handful" of the 360 metropolitan areas tracked.
What's more? "This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech."
Brookings' reports are not all doom and gloom, however. The public policy organization notes that "business accelerators" are a "welcome development." And immigrants, being statistically twice as likely than native-born Americans to start businesses, could be allowed in the country in greater numbers to help reverse the trend.
