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In 2009, the number of businesses that closed down exceeded the number of new ventures for the first time in three decades, a sign that productive entrepreneuri

In 2009, the number of businesses that closed down exceeded the number of new ventures for the first time in three decades, a sign that productive entrepreneurial activity is declining. I haven't read the underlying paper, so this probably doesn't detract from the larger point. However, in terms of the Economist's article, I'm not sure that this is a good "sign" of any trend; rather, it would seem inextricably linked to the 2008 crash that led to the Great Recession.

ksdale 8y ago
I agree with you, it also seems plausible that as the cost of starting a business continues to decline, the number of ventures closing will continue to go up relative to the number of new ventures until it's practically even. People will have fewer qualms about shutting everything down and moving on when all they have invested is a few hundred dollars worth of business licenses and files on a computer, rather than office or retail space and some inventory. I also think that even if an entrepreneurial activity isn't "productive" in an economic sense, it could still be useful from the perspective of a person getting out of an employment situation that makes them really unhappy. People starting and failing in a handful of businesses on their way to figuring it out probably doesn't measure out great in the stats, but it's good (hopefully) from a making people happy perspective.
- mrep 8y ago
  Business licenses and files on a computer are the least expensive thing for tech startups in my opinion. The real cost is the opportunity cost that the entrepreneurs and even the early employees take on by working for low/no pay when they could be making much more from big companies and consulting. With how much money is being thrown around in salaries and liquid RSU's these days, the costs of creating or joining a startup have never seemed higher (granted I'm relatively new to the industry).
epberry 8y ago
Exactly. This jumped out immediately to me.
fergie 8y ago
To put it another way: Tech startups before 2008 generally made money by suddenly providing new and cool stuff. Think Google, Facebook, Twitter, Apple. Tech startups now seem to be focussed to a greater degree on rent-seeking business models- think Uber, AirBnb, UpWork, Stripe, various ginormous tech mega-consultancies. Do you see the difference? The former have won market share by making products that are clearly better than the competition. The latter are essentially attempts to capture "middle man" monopolies on existing transaction chains. This is of course a bit of a generalisation, but rent-seeking _is_ a bad thing in a number of non-obvious ways, and should be called out to a much greater degree.
- vonmoltke 8y ago
  How are Uber, AirBnB, UpWork, and Stripe rent-seeking business models?
  - chii 8y ago
    Rent seeking is the wrong term for those businesses. A more appropriate term might be a market maker. Rent seeking specifically means to extract extra money from an existing asset, but not produce any extra value (but purely by virtue of owning the asset).
    - fergie 8y ago
      What you say is true in the purest sense. Building on this, some economists regard monopolies of exchange as "assets". Baumol (the economist referenced in the article) did a lot of research into "Contestble Markets Theory", essentially concluding that markets which are not contestable generate free money for incumbants/owners/monopolists You could say that anything to do with the "Sharing" or "Gig" economy is a play on rent extraction. Companies seek to own a marketplace in order to levy a rent on transactions.
  - grigjd3 8y ago
    They seek to change or undermine regulations in order to provide for their middleman positions.

ksdale 8y ago

I agree with you, it also seems plausible that as the cost of starting a business continues to decline, the number of ventures closing will continue to go up relative to the number of new ventures until it's practically even. People will have fewer qualms about shutting everything down and moving on when all they have invested is a few hundred dollars worth of business licenses and files on a computer, rather than office or retail space and some inventory. I also think that even if an entrepreneurial activity isn't "productive" in an economic sense, it could still be useful from the perspective of a person getting out of an employment situation that makes them really unhappy. People starting and failing in a handful of businesses on their way to figuring it out probably doesn't measure out great in the stats, but it's good (hopefully) from a making people happy perspective.

mrep 8y ago
Business licenses and files on a computer are the least expensive thing for tech startups in my opinion. The real cost is the opportunity cost that the entrepreneurs and even the early employees take on by working for low/no pay when they could be making much more from big companies and consulting. With how much money is being thrown around in salaries and liquid RSU's these days, the costs of creating or joining a startup have never seemed higher (granted I'm relatively new to the industry).

epberry 8y ago

Exactly. This jumped out immediately to me.

fergie 8y ago

To put it another way: Tech startups before 2008 generally made money by suddenly providing new and cool stuff. Think Google, Facebook, Twitter, Apple. Tech startups now seem to be focussed to a greater degree on rent-seeking business models- think Uber, AirBnb, UpWork, Stripe, various ginormous tech mega-consultancies. Do you see the difference? The former have won market share by making products that are clearly better than the competition. The latter are essentially attempts to capture "middle man" monopolies on existing transaction chains. This is of course a bit of a generalisation, but rent-seeking _is_ a bad thing in a number of non-obvious ways, and should be called out to a much greater degree.

vonmoltke 8y ago
How are Uber, AirBnB, UpWork, and Stripe rent-seeking business models?
- chii 8y ago
  Rent seeking is the wrong term for those businesses. A more appropriate term might be a market maker. Rent seeking specifically means to extract extra money from an existing asset, but not produce any extra value (but purely by virtue of owning the asset).
  - fergie 8y ago
    What you say is true in the purest sense. Building on this, some economists regard monopolies of exchange as "assets". Baumol (the economist referenced in the article) did a lot of research into "Contestble Markets Theory", essentially concluding that markets which are not contestable generate free money for incumbants/owners/monopolists You could say that anything to do with the "Sharing" or "Gig" economy is a play on rent extraction. Companies seek to own a marketplace in order to levy a rent on transactions.
- grigjd3 8y ago
  They seek to change or undermine regulations in order to provide for their middleman positions.