10 ms·

U.S. businesses are being destroyed faster than they’re being created

79 points by pesenti 12y ago

arel 12y ago
I'm not sure that this is a bad thing in the short term. Unhealthy businesses closing are better for the economy in the long run as it redistributes capitol, talent, resources to those that are productive. Japan can tell you all about their "zombie economy"
- notacoward 12y ago
  This isn't about healthy vs. unhealthy businesses. If that were the case, the businesses that closed would be balanced by new ones (of the same size) that opened. This is about consolidation from a larger number of smaller companies to a smaller number of larger ones. It would be a bit surprising to hear - on HN of all places - that big companies are inherently healthier or better to have than small ones.
  - humanrebar 12y ago
    I don't know. We used to have a bunch of owner-run video rental shops around. That has been replaced with streaming and RedBox. Does that mean we're unhealthy? Maybe some of the consolidation is due to the increasing importance of supply-chain at the expense of location in low-margin businesses.
- seanccox 12y ago
  "The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again." -JM Keynes
  - humanrebar 12y ago
    I'm not a fan of that quote. It's a straw man. The critics of Keynes don't think it's flat after the storm. They think the storms are caused by Keynesian carbon emissions, among other things.
- michaelochurch 12y ago
  The problem is that large, unhealthy businesses are "too big to fail" and still get to survive for a long time. Even if they're shut down, the executives move on and infect (zombify) other companies. We already have a zombie economy. Well-connected people can fail in bad faith, break the law, and nothing bad ever happens to them. A few seats may be exchanged, but it's the same set of (mostly, inept and morally bankrupt) people in charge. Has anything been learned from the fiasco of 2008? Not really. We've added some regulations, but we still have the same people running the corporate economy and, while they may be short-sighted and greedy, they're not stupid and will find ways around this set of regulations just as they did the last ones. Now, on the matter of small businesses: the question of whether "creative destruction" is good comes down to, "why did those businesses fail?" If a restaurant fails because it's badly run and produces a low-quality product, that's a good thing. If it fails because the local economy has gone to shit, that's a bad thing. I think that most of the change is an increasing rate of the latter. On the macro scale, I don't think the proportion of businesses that "deserve" to fail has increased. If anything, it's lower because it's harder (outside of the Valley) to start one. That said, the real problem isn't that businesses are failing. That's inevitable. It's that new ones aren't being created (because no one has the capital).
  - digitalengineer 12y ago
    You could even say that more regulation makes more competition less probable. What good are more rules in a time of To Big to Fail? The entry to market is now more difficult for starting business owners.
    - turnip1979 12y ago
      This is a key point. Large existing businesses have the resources to deal with the regulations. Brand new ones don't. More than that, they lack the knowledge capital to even understand the landscape, which certainly discourages a lot of people.
- VLM 12y ago
  "redistributes capitol, talent, resources" If capital is unavailable intentionally by central control of the economy, the talent has a negative value (mismanagement destroyed the company, perhaps) and the resources are regulated away except for grandfather clause'd incumbents, then this good idea doesn't happen. If it did happen, it would be good, but I believe it no longer happens.
michaelochurch 12y ago
Before this discussion heads that way, this one can't really be blamed on the venture capitalists directly, because VCs are involved in less than 1% of new small businesses, most of which are local concerns like restaurants, parking garages, and bookstores. The VCs aren't at fault for what happened to them. What's happened to the Valley is just one campaign in a larger war on the middle class (and, yes, there is such a thing going on... and the middle class is losing). The main problem is general economic disenfranchisement. When truck drivers had powerful unions (today, many unions are corrupt and weak, with union leadership buddied up to management) and made what would be six-figure salaries today, while living in houses where the land was effectively free (i.e. the cost of the house was the construction cost alone), it was possible for people in the middle class to accrue real savings. College tuitions were reasonable, because you could get a good job from a (well-funded, cheap) state school and so there wasn't an arms race to get into elite colleges. The idea that a working-class family could bankroll a business seems insane now, but it wasn't, 30 years ago. The Satanic Trinity of housing, healthcare, and tuition hadn't been re-summoned yet, so average people had money to do things like start companies after a couple decades of working. The Boomers pulled up the ladder, and made life for the rest of us a race to the bottom. Now, college is expensive, healthcare is a long-tail risk for pretty much anyone (even the "good" insurance policies have exclusions) and housing is obnoxiously expensive anywhere that there are jobs. Add to this the advent of consumer debt (which breaks the Fordist correlation between worker prosperity and the health of the economy) and you have a world in which almost no individuals have capital, and people are stuck relying on a few wealthy individuals and large (usually corrupt) institutions. When most people don't have any money, fewer small businesses will be formed. It's that simple. These businesses aren't being created because people don't have the means.
- notacoward 12y ago
  "Pulling up the ladder" captures it well. The "steady climb" route to modest prosperity is increasingly unavailable. Now you have to be superman and leap tall buildings at a single bound, or (more often) go splat trying.
  - michaelochurch 12y ago
iamthepieman 12y ago
This is due to consolidation pressure brought about by long-term low interest rates combined with inaccessible small consumer loans. When the banking crisis happened in 2008, there was some talk and pressure from consumer groups and governments (at least in the U.S.) to make capital available to individual consumers. However, this was a short-lived sentiment, or at least one that never had any teeth to it. Banks stopped lending to consumers as readily as they had before the crisis while the Federal reserve kept interest rates and especially interest rates they give to banks extremely low. This meant that if you already had capital(large businesses, wealthy individuals) it was easy to get nearly free money. whereas if you didn't it was nearly impossible. This led to consolidation as big businesses could buy up many small ones . I predict this will continue happening as long as the combination of low interest rates and inaccessible consumer loans continues.
- sitkack 12y ago
  That seems deeply wrong to me. Free money to grow your monopoly?
  - endersshadow 12y ago
    Well, it's wildly oversimplified, but there aren't any actual glaring errors in it. Planet Money did a pretty good episode [1] wherein they looked at what effect chronically low interest rates actually have. It's a good primer in what exactly is happening, and why capital which, in theory, should be available to American consumers...isn't. [1]: http://www.npr.org/blogs/money/2014/01/31/268350791/episode-514-how-bernanke-set-off-tomato-protests-in-brazil http://www.npr.org/blogs/money/2014/01/31/268350791/episode-...
  - 3am 12y ago
    Why is it wrong? It's exactly the reason anti-trust legislation exists in the first place. Monopolies have more pricing power and scale, so all else being equal they are lower credit risks than smaller companies. Since they enjoy an advantage on cost of capital, they have an intrinsic synergy when buying out a smaller competitor since they can increase their ROIC simply by lowering their capital costs (and in practice almost always have operational overlap). It makes sense for the banks, it makes sense for the large companies, and it makes sense for the small companies being acquired. The only one being harmed is the consumer. Not that I don't understand you point on a moral basis, it's just that is not the framework used to make these decisions.
rayiner 12y ago
Businesses shutting down faster than they are created could be a measure of an un-dynamic economy, but I think that given the relevant time scale, it's mostly a measure of consolidation. And the fact that businesses are consolidating isn't news or even surprising, or necessarily even bad. In the Valley, technology has had the effect of making it easier to create new businesses (startups), so I can see why the HN crowd would assume that consolidation represents a negative trend. But the fact is that in the rest of the economy, technology has enabled consolidation and driven small businesses either into closing down or being acquired. Technology pushes out the boundary at which diseconomies of scale overtake economies of scale, enabling larger businesses to be more efficient. Take a company like Amazon or Wal-Mart. Technology enables those companies to operate at massive scales, and using technology, they can replace thousands of smaller businesses while operating much more efficiently. I suppose the other relevant trend has been what has happened in the financial markets. 1978-present was a period of massive M&A activity. Those with more capital spent it buying out those with less capital, and as a result industries that used to have dozens of competitors now have a handful.
jotm 12y ago
Could it also be because the EU, China, HK and other countries have become more attractive for small business? Related:http://flipchartfairytales.wordpress.com/2014/02/26/america-not-a-small-business-country/ http://flipchartfairytales.wordpress.com/2014/02/26/america-...
er35826 12y ago
I'm not sure his evidence given supports his statement of "no correlation" between a state's Business Tax Climate index. He says the most business-unfriendly state is showing the smallest decline, while the business-friendliest state is showing the smallest decline. While the full data may actually show no correlation, his highlights show the correlation "business friendliness -> lower business creation."
wil421 12y ago
I think this may be a good thing. Kind of like a house cleaning for businesses. I can count on both hands how many companies I find out about each week and ask myself how are these people still in business.
- notacoward 12y ago
  Replacement of bad companies with fresh new ones might be a good thing, but a consistent pattern of companies failing with nothing to replace them is a horse of an entirely different color. That means more people are deciding to work for an established company instead of starting their own, and it's hard to see the good in that.
  - wil421 12y ago
    >That means more people are deciding to work for an established company instead of starting their own. Maybe established companies are seeing more growth. Not everyone wants to work for a new/struggling company, a lot or people want job security (if there is such a thing). I think part of this could be the decline or brick and mortar stores. Nowadays I probably wouldnt want to open a Hardware store vs the 70s. We have companies like Home Depot who drive the smaller guys out but they also create a lot more jobs and have better benefits than a Mom and Pop hardware store can provide. So is it a good thing, yes and no depending on how you look at it. I really need more info on the factors that are causing the decline.
    - notacoward 12y ago
      "Maybe established companies are seeing more growth." When has that ever been the case? Small companies have always been the growth engine of the US economy, and others as well. A small company can grow 100x in a couple of years and it doesn't seem weird, whereas a large company growing even 2x would be remarkable. Even if 95% of those small companies totally fail, they're still likely to generate more growth than big companies. It's not likely to be a coincidence that declining entrepreneurship and stagnant wages (everywhere but Silicon Valley) have gone hand in hand for a while now. Yes, people seek security. That's fine, perhaps even wise, but when everyone's running for their lives there's not going to be much growth or innovation.
candybar 12y ago
Original sources: http://www.census.gov/ces/dataproducts/datasets/lbd.html http://www.census.gov/ces/dataproducts/datasets/lbd.html http://www.census.gov/ces/dataproducts/bds/overview.html http://www.census.gov/ces/dataproducts/bds/overview.html Methodology: http://www.census.gov/ces/pdf/CES-WP-02-17.pdf http://www.census.gov/ces/pdf/CES-WP-02-17.pdf Looking more carefully, I think the numbers tell a completely different story - this is not about the decline in entrepreneurship, but more about the rise of contingent workers and one-person businesses. Their definition of firm is a business that has paid employees and not all contingent workers count under that definition because they are often independent contractors or employees of a third party agency. The broader availability of all kinds of services from legal to insurance to accounting to technology to logistics to HR/staffing also allows 1-person businesses to handle more than they ever have, while potential legal and regulatory concerns have raised the cost of hiring the first employee. This is not about consolidation but bifurcation.
- digitalengineer 12y ago
  >more about the rise of contingent workers and one-person businesses. This is exactly what's happening in the Netherlands as well. Lot's of one-man companies. Our government is looking to stop the growth because of some tax dedications they can claim.
  - stevesearer 12y ago
    I see the same thing in the circles of people I spend time with. Almost nobody is starting a business in the sense of having other employees. What people are starting are businesses that bring in some side revenue to help augment their regular incomes. What I find interesting about this is that because these are run on a shoestring budget, they end up being a testing ground for ideas that are actually profitable.
snorkel 12y ago
The bar chart at the end of PDF is tells the same story we already know, that most of the decline in business entries is in manufacturing and construction: http://www.brookings.edu/~/media/research/files/papers/2014/05/declining%20business%20dynamism%20litan/declining_business_dynamism_hathaway_litan.pdf http://www.brookings.edu/~/media/research/files/papers/2014/... We don't build stuff no more.
- kasey_junk 12y ago
  There is no way to read this data to indicate that we aren't building stuff any more. Rather, fewer and fewer companies are in the business of building things. This is almost certainly due more to consolidation than to output.
  - mikeyouse 12y ago
    Also, automation! http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=zTD http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=z...
jusben1369 12y ago
A few quick thoughts: 1) That's a particularly horrendous timeframe to try and draw long term conclusions from. 2) Small business people are more conservative than ever right now (ie not starting businesses). Large enterprises have also suffered from this same conservative approach (sitting on massive piles of cash vs investing) It's a very conservative business climate across the spectrum. 3) Some have argued that larger companies have gotten more nimble at competing in the last decade and so the opportunities aren't always there for small businesses to move into gaps 4) Healthcare costs have skyrocketed in the last 10 years and have been risky (losing coverage) which has a very real dampening effect on individuals quitting corporate jobs to start businesses. There's a pocket of people who believe the ACA will have one of it's biggest impacts in this area (workforce mobility has also declined in last 10 years) This is good stuff and worth watching but I would want to wait until the end of 2016 for some of the above to play out before drawing long terms conclusions around the US economy.
- brudgers 12y ago
  I'd agree that long term conclusions might be suspect, but then again "It's tough to make predictions, especially about the future." However the US demographic shift toward a greying population suggests that the pool of people likely to start businesses is shrinking. In the short term, people start businesses when they are optimistic or at least naive about the economy. And the sort of people who historically have started small businesses as a means to achieve economic mobility are exactly the people who are likely to be least optimistic these days.
  - jusben1369 12y ago
    You raise a good point I forgot to address. The proportion of new businesses that are started by first generation immigrants. It's much higher in that population than with people born stateside. When you add together the unattractiveness of the economy (dampening interest to migrate) along with an uptick in anti-immigration sentiments it's not hard to see this being a big part of any short term reduction in new businesses.

79 points by pesenti 12y ago

arel 12y ago

I'm not sure that this is a bad thing in the short term. Unhealthy businesses closing are better for the economy in the long run as it redistributes capitol, talent, resources to those that are productive. Japan can tell you all about their "zombie economy"

notacoward 12y ago
This isn't about healthy vs. unhealthy businesses. If that were the case, the businesses that closed would be balanced by new ones (of the same size) that opened. This is about consolidation from a larger number of smaller companies to a smaller number of larger ones. It would be a bit surprising to hear - on HN of all places - that big companies are inherently healthier or better to have than small ones.
- humanrebar 12y ago
  I don't know. We used to have a bunch of owner-run video rental shops around. That has been replaced with streaming and RedBox. Does that mean we're unhealthy? Maybe some of the consolidation is due to the increasing importance of supply-chain at the expense of location in low-margin businesses.
seanccox 12y ago
"The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again." -JM Keynes
- humanrebar 12y ago
  I'm not a fan of that quote. It's a straw man. The critics of Keynes don't think it's flat after the storm. They think the storms are caused by Keynesian carbon emissions, among other things.
michaelochurch 12y ago
The problem is that large, unhealthy businesses are "too big to fail" and still get to survive for a long time. Even if they're shut down, the executives move on and infect (zombify) other companies. We already have a zombie economy. Well-connected people can fail in bad faith, break the law, and nothing bad ever happens to them. A few seats may be exchanged, but it's the same set of (mostly, inept and morally bankrupt) people in charge. Has anything been learned from the fiasco of 2008? Not really. We've added some regulations, but we still have the same people running the corporate economy and, while they may be short-sighted and greedy, they're not stupid and will find ways around this set of regulations just as they did the last ones. Now, on the matter of small businesses: the question of whether "creative destruction" is good comes down to, "why did those businesses fail?" If a restaurant fails because it's badly run and produces a low-quality product, that's a good thing. If it fails because the local economy has gone to shit, that's a bad thing. I think that most of the change is an increasing rate of the latter. On the macro scale, I don't think the proportion of businesses that "deserve" to fail has increased. If anything, it's lower because it's harder (outside of the Valley) to start one. That said, the real problem isn't that businesses are failing. That's inevitable. It's that new ones aren't being created (because no one has the capital).
- digitalengineer 12y ago
  You could even say that more regulation makes more competition less probable. What good are more rules in a time of To Big to Fail? The entry to market is now more difficult for starting business owners.
  - turnip1979 12y ago
    This is a key point. Large existing businesses have the resources to deal with the regulations. Brand new ones don't. More than that, they lack the knowledge capital to even understand the landscape, which certainly discourages a lot of people.
VLM 12y ago
"redistributes capitol, talent, resources" If capital is unavailable intentionally by central control of the economy, the talent has a negative value (mismanagement destroyed the company, perhaps) and the resources are regulated away except for grandfather clause'd incumbents, then this good idea doesn't happen. If it did happen, it would be good, but I believe it no longer happens.

michaelochurch 12y ago

Before this discussion heads that way, this one can't really be blamed on the venture capitalists directly, because VCs are involved in less than 1% of new small businesses, most of which are local concerns like restaurants, parking garages, and bookstores. The VCs aren't at fault for what happened to them. What's happened to the Valley is just one campaign in a larger war on the middle class (and, yes, there is such a thing going on... and the middle class is losing). The main problem is general economic disenfranchisement. When truck drivers had powerful unions (today, many unions are corrupt and weak, with union leadership buddied up to management) and made what would be six-figure salaries today, while living in houses where the land was effectively free (i.e. the cost of the house was the construction cost alone), it was possible for people in the middle class to accrue real savings. College tuitions were reasonable, because you could get a good job from a (well-funded, cheap) state school and so there wasn't an arms race to get into elite colleges. The idea that a working-class family could bankroll a business seems insane now, but it wasn't, 30 years ago. The Satanic Trinity of housing, healthcare, and tuition hadn't been re-summoned yet, so average people had money to do things like start companies after a couple decades of working. The Boomers pulled up the ladder, and made life for the rest of us a race to the bottom. Now, college is expensive, healthcare is a long-tail risk for pretty much anyone (even the "good" insurance policies have exclusions) and housing is obnoxiously expensive anywhere that there are jobs. Add to this the advent of consumer debt (which breaks the Fordist correlation between worker prosperity and the health of the economy) and you have a world in which almost no individuals have capital, and people are stuck relying on a few wealthy individuals and large (usually corrupt) institutions. When most people don't have any money, fewer small businesses will be formed. It's that simple. These businesses aren't being created because people don't have the means.

notacoward 12y ago
"Pulling up the ladder" captures it well. The "steady climb" route to modest prosperity is increasingly unavailable. Now you have to be superman and leap tall buildings at a single bound, or (more often) go splat trying.
- michaelochurch 12y ago

iamthepieman 12y ago

This is due to consolidation pressure brought about by long-term low interest rates combined with inaccessible small consumer loans. When the banking crisis happened in 2008, there was some talk and pressure from consumer groups and governments (at least in the U.S.) to make capital available to individual consumers. However, this was a short-lived sentiment, or at least one that never had any teeth to it. Banks stopped lending to consumers as readily as they had before the crisis while the Federal reserve kept interest rates and especially interest rates they give to banks extremely low. This meant that if you already had capital(large businesses, wealthy individuals) it was easy to get nearly free money. whereas if you didn't it was nearly impossible. This led to consolidation as big businesses could buy up many small ones . I predict this will continue happening as long as the combination of low interest rates and inaccessible consumer loans continues.

sitkack 12y ago
That seems deeply wrong to me. Free money to grow your monopoly?
- endersshadow 12y ago
  Well, it's wildly oversimplified, but there aren't any actual glaring errors in it. Planet Money did a pretty good episode [1] wherein they looked at what effect chronically low interest rates actually have. It's a good primer in what exactly is happening, and why capital which, in theory, should be available to American consumers...isn't. [1]: http://www.npr.org/blogs/money/2014/01/31/268350791/episode-514-how-bernanke-set-off-tomato-protests-in-brazil http://www.npr.org/blogs/money/2014/01/31/268350791/episode-...
- 3am 12y ago
  Why is it wrong? It's exactly the reason anti-trust legislation exists in the first place. Monopolies have more pricing power and scale, so all else being equal they are lower credit risks than smaller companies. Since they enjoy an advantage on cost of capital, they have an intrinsic synergy when buying out a smaller competitor since they can increase their ROIC simply by lowering their capital costs (and in practice almost always have operational overlap). It makes sense for the banks, it makes sense for the large companies, and it makes sense for the small companies being acquired. The only one being harmed is the consumer. Not that I don't understand you point on a moral basis, it's just that is not the framework used to make these decisions.

rayiner 12y ago

Businesses shutting down faster than they are created could be a measure of an un-dynamic economy, but I think that given the relevant time scale, it's mostly a measure of consolidation. And the fact that businesses are consolidating isn't news or even surprising, or necessarily even bad. In the Valley, technology has had the effect of making it easier to create new businesses (startups), so I can see why the HN crowd would assume that consolidation represents a negative trend. But the fact is that in the rest of the economy, technology has enabled consolidation and driven small businesses either into closing down or being acquired. Technology pushes out the boundary at which diseconomies of scale overtake economies of scale, enabling larger businesses to be more efficient. Take a company like Amazon or Wal-Mart. Technology enables those companies to operate at massive scales, and using technology, they can replace thousands of smaller businesses while operating much more efficiently. I suppose the other relevant trend has been what has happened in the financial markets. 1978-present was a period of massive M&A activity. Those with more capital spent it buying out those with less capital, and as a result industries that used to have dozens of competitors now have a handful.

jotm 12y ago

Could it also be because the EU, China, HK and other countries have become more attractive for small business? Related:http://flipchartfairytales.wordpress.com/2014/02/26/america-not-a-small-business-country/ http://flipchartfairytales.wordpress.com/2014/02/26/america-...

er35826 12y ago

I'm not sure his evidence given supports his statement of "no correlation" between a state's Business Tax Climate index. He says the most business-unfriendly state is showing the smallest decline, while the business-friendliest state is showing the smallest decline. While the full data may actually show no correlation, his highlights show the correlation "business friendliness -> lower business creation."

wil421 12y ago

I think this may be a good thing. Kind of like a house cleaning for businesses. I can count on both hands how many companies I find out about each week and ask myself how are these people still in business.

notacoward 12y ago
Replacement of bad companies with fresh new ones might be a good thing, but a consistent pattern of companies failing with nothing to replace them is a horse of an entirely different color. That means more people are deciding to work for an established company instead of starting their own, and it's hard to see the good in that.
- wil421 12y ago
  >That means more people are deciding to work for an established company instead of starting their own. Maybe established companies are seeing more growth. Not everyone wants to work for a new/struggling company, a lot or people want job security (if there is such a thing). I think part of this could be the decline or brick and mortar stores. Nowadays I probably wouldnt want to open a Hardware store vs the 70s. We have companies like Home Depot who drive the smaller guys out but they also create a lot more jobs and have better benefits than a Mom and Pop hardware store can provide. So is it a good thing, yes and no depending on how you look at it. I really need more info on the factors that are causing the decline.
  - notacoward 12y ago
    "Maybe established companies are seeing more growth." When has that ever been the case? Small companies have always been the growth engine of the US economy, and others as well. A small company can grow 100x in a couple of years and it doesn't seem weird, whereas a large company growing even 2x would be remarkable. Even if 95% of those small companies totally fail, they're still likely to generate more growth than big companies. It's not likely to be a coincidence that declining entrepreneurship and stagnant wages (everywhere but Silicon Valley) have gone hand in hand for a while now. Yes, people seek security. That's fine, perhaps even wise, but when everyone's running for their lives there's not going to be much growth or innovation.

candybar 12y ago

Original sources: http://www.census.gov/ces/dataproducts/datasets/lbd.html http://www.census.gov/ces/dataproducts/datasets/lbd.html http://www.census.gov/ces/dataproducts/bds/overview.html http://www.census.gov/ces/dataproducts/bds/overview.html Methodology: http://www.census.gov/ces/pdf/CES-WP-02-17.pdf http://www.census.gov/ces/pdf/CES-WP-02-17.pdf Looking more carefully, I think the numbers tell a completely different story - this is not about the decline in entrepreneurship, but more about the rise of contingent workers and one-person businesses. Their definition of firm is a business that has paid employees and not all contingent workers count under that definition because they are often independent contractors or employees of a third party agency. The broader availability of all kinds of services from legal to insurance to accounting to technology to logistics to HR/staffing also allows 1-person businesses to handle more than they ever have, while potential legal and regulatory concerns have raised the cost of hiring the first employee. This is not about consolidation but bifurcation.

digitalengineer 12y ago
>more about the rise of contingent workers and one-person businesses. This is exactly what's happening in the Netherlands as well. Lot's of one-man companies. Our government is looking to stop the growth because of some tax dedications they can claim.
- stevesearer 12y ago
  I see the same thing in the circles of people I spend time with. Almost nobody is starting a business in the sense of having other employees. What people are starting are businesses that bring in some side revenue to help augment their regular incomes. What I find interesting about this is that because these are run on a shoestring budget, they end up being a testing ground for ideas that are actually profitable.

snorkel 12y ago

The bar chart at the end of PDF is tells the same story we already know, that most of the decline in business entries is in manufacturing and construction: http://www.brookings.edu/~/media/research/files/papers/2014/05/declining%20business%20dynamism%20litan/declining_business_dynamism_hathaway_litan.pdf http://www.brookings.edu/~/media/research/files/papers/2014/... We don't build stuff no more.

kasey_junk 12y ago
There is no way to read this data to indicate that we aren't building stuff any more. Rather, fewer and fewer companies are in the business of building things. This is almost certainly due more to consolidation than to output.
- mikeyouse 12y ago
  Also, automation! http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=zTD http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=z...

jusben1369 12y ago

A few quick thoughts: 1) That's a particularly horrendous timeframe to try and draw long term conclusions from. 2) Small business people are more conservative than ever right now (ie not starting businesses). Large enterprises have also suffered from this same conservative approach (sitting on massive piles of cash vs investing) It's a very conservative business climate across the spectrum. 3) Some have argued that larger companies have gotten more nimble at competing in the last decade and so the opportunities aren't always there for small businesses to move into gaps 4) Healthcare costs have skyrocketed in the last 10 years and have been risky (losing coverage) which has a very real dampening effect on individuals quitting corporate jobs to start businesses. There's a pocket of people who believe the ACA will have one of it's biggest impacts in this area (workforce mobility has also declined in last 10 years) This is good stuff and worth watching but I would want to wait until the end of 2016 for some of the above to play out before drawing long terms conclusions around the US economy.

brudgers 12y ago
I'd agree that long term conclusions might be suspect, but then again "It's tough to make predictions, especially about the future." However the US demographic shift toward a greying population suggests that the pool of people likely to start businesses is shrinking. In the short term, people start businesses when they are optimistic or at least naive about the economy. And the sort of people who historically have started small businesses as a means to achieve economic mobility are exactly the people who are likely to be least optimistic these days.
- jusben1369 12y ago
  You raise a good point I forgot to address. The proportion of new businesses that are started by first generation immigrants. It's much higher in that population than with people born stateside. When you add together the unattractiveness of the economy (dampening interest to migrate) along with an uptick in anti-immigration sentiments it's not hard to see this being a big part of any short term reduction in new businesses.