We’ve all heard it so many times the words have practically lost meaning: small businesses are the source of most new jobs, entrepreneurship is the secret sauce that makes America special, “creative destruction” and economic dynamism require a constant flow of new business start-ups, most of them very small. Republicans in particular like to justify all their attacks on big government as attacks on small business, as though Fortune 500 companies and their executives and shareholders don’t matter to them at all.
But the idea that entrepreneurship is a steadily recurring or even rising phenomenon is rarely examined. That’s what makes an article from the Washington Monthly‘s July/August issue, “The Slow-Motion Collapse of American Entrepreneurship,” by New America Foundation’s Barry Lynn and Lina Khan, particularly valuable (it’s available now as a Sneak Preview). By using more careful definitions than those often deployed, Lynn and Khan establish that we are actually in a period of significant and steady decline in the formation of new enterprises:
In 1977, Americans created more than thirty-five new employer businesses for every 10,000 citizens age sixteen and over. By 2009, however, Americans were annually creating fewer than eighteen such businesses, a 50 percent drop. While the Great Recession clearly cut into new business creation, the decline was clear well before 2007. The averages across decades capture that decline: between 1977 and 1989 Americans created more than twenty-seven new businesses for every 10,000 working-age citizens. This compares to fewer than twenty-five in the 1990s and around twenty-two in the 2000s.
Nor are single-person businesses–the building blocks of the so-called “free agent nation”–picking up the slack:
Data kept by the Small Business Administration, for instance, shows that the share of the working-age population that is self-employed has been declining since 1994. The share fell steadily until 2002, stayed level between 2003 and 2006, then began to drop again. Overall, between 1994 and 2009, the share declined nearly 25 percent.
So why are new, small businesses on the decline? Lynn and Khan look at all the usual suspects cited by others, and find no real explanation: taxes are actually lower than in the past, and regulatory compliance is actually easier; technology is as much boon as bain for small businesses. But one thing really has changed:
The single biggest factor driving down entrepreneurship is precisely the radical concentration of power we have seen not only in the banking industry but throughout the U.S. economy over the last thirty years. This revolutionary remaking of almost every economic activity in the nation was set in motion in 1981, when officials in the Reagan administration all but suspended traditional enforcement of America’s antimonopoly laws, a change in policy then adopted by every subsequent administration. Since then, regulators have done almost nothing to stop the great waves of mergers and acquisitions, with the result that control over most major economic activities is now more consolidated than at any time since the Gilded Age.
This concentration of economic power has not only exposed small businesses to the kind of “roll-up” operations pioneered by Mitt Romney’s Bain Capital, but has been especially powerful in the financial sector, drying up most sources of small business financing. And the loss of new small businesses has made us all more dependent on the Big Boys:
The loss of job creation that comes with the hollowing out of America’s entrepreneurial sector also goes a long way toward explaining why American businesses were creating fewer and fewer jobs even before the Great Recession hit. The founding generation was right: as America’s entrepreneurs go, so goes America’s prosperity and democracy. If we are ever to recapture the promise of this land, we must first break down the great powers that crush the individual citizen’s initiative and ability to create and build what is new and better.