When Entrepreneurialism Falters

A new study by the Brookings Institution suggests that there is a disturbing trend in the U.S. economy — one that involves less entrepreneurial spirit, less risk-taking, and the declining creation of new businesses.

The study looked at the rates of business creation and destruction in the U.S. from 1978 to 2011.  It shows a persistent national decline in the percentage of new businesses in the economy.  Moreover, during the 2008-2011 time period the percentage of failing businesses exceeded the number of new businesses being created for the first time.

These findings help to explain the poor employment statistics in America in recent years.  The number of people aren’t even trying to find work has grown to more than 92 million Americans, and job growth isn’t keeping pace with population growth.  A decline in entrepreneurialism would help to explain these very troubling trends.  New businesses not only create new jobs, the creation of new businesses often follows a recession, as some Americans who have lost their jobs look at their options and decide to go into business for themselves. They employ themselves, and in the process they employ others, too.  That apparently isn’t  happening as frequently now.  Why not?

The Brookings Institution study says the reasons for the decline in new business creation are “unknown.”  We can draw inferences about the causes, however, by looking at the common characteristics of entrepreneurs.  They tend to be dreamers and risk-takers.  They are willing to work hard and to put their own money into their new ventures.  They believe in themselves, in their products and services, and in their ability to succeed in our capitalist economy.  Scratch an entrepreneur, and you’ll likely find an optimist.

From this armchair analysis, I’d speculate that the decline in new business creation means that fewer people are optimistic about the future, or that fewer people have confidence in themselves and their ability to succeed on their own, or that more people are comfortable with their current circumstances and are more interested in holding on to what they’ve already got than in risking it on a new business that will involve hard work and potential failure — or a combination of those factors.  If any of these potential causes turns out to be the truth, it doesn’t paint an encouraging picture of our future.

1 thought on “When Entrepreneurialism Falters

  1. Scratch an entrepreneur and you are likely to find someone in dire need of antipsychotics. Trust me. We’ve had two viable businesses and some other ventures that didn’t quite qualify as businesses as much as they did pursuits. No one in their right mind would want all the work and worry that comes with being your own boss.

    I suspect the lack of new business start ups is a reflection of national discouragement.

    Like

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