The latest research from the Brookings Institution shows that entrepreneurship is down, and has been for some time. According to the data, the American economy is less entrepreneurial now than at any point in the last three decades. Not only that, but it seems that among those hearty enough for entrepreneurial activity, more of them than ever are falling on their faces. During the most recent three years of the study — 2009, 2010 and 2011 — businesses were collapsing faster than they were being formed. That’s unprecedented.
This entrepreneurial decline does not just mean fewer sassy young billionaires under 30; it portends continued slow economic growth and persistent high unemployment: in other words, a country that’s stuck and getting stucker.
What’s the cause? What’s the cure?
Many economists are talking about the weather. The latest tough winter in America and Europe put a temporary brake on growth, rendering the economy snowbound, housebound and moribund. Now that temperatures are rising, employment should be, too. The OECD cited “forward-looking indicators, such as investment intentions and business expectations, and rises in measures of consumer and business confidence suggest activity is bouncing back.”
This seems like a slender reed to rely on. The forward-looking entrepreneur might wonder about the possibility of a summer of tornadoes, floods, wildfires and hurricanes. The favorable entrepreneurial weather might not hold.
Some blame government: stimulus nobody felt; flailing about in the rhetoric of innovation and growth, but with no effective program. Others argue that government has little to do with it, even when you would expect it would. Taxation rates, for example, could be expected to have an impact on the location of new businesses. Yet, the Tax Foundation’s 2014 State Business Tax Climate Index shows virtually no correlation between taxes and start-ups.
Some point to a slowdown in innovation. If new ideas are scarce, that will be reflected in a scarcity in business initiatives, as well. The vision which drives the economy forward is lacking.
The sound of moaning over this alleged mental stagnation can be heard all the way from Silicon Valley, where, as Peter Thiel, innovator of PayPal, put it, the situation is “somewhere between dire straits and dead.”
But what could account for it? Is this generation of tech geniuses somehow less intelligent or inspired than their tech forebears? That sounds strange. Why the sudden drop in IQ?
What makes it stranger is that we read about technological breakthroughs and breathtaking new products all the time. Some suggest the answer is that these innovations are relatively minor. The truly fundamental innovations — in transportation, communication and energy — have mostly been made. The assembly line has already been invented; it can only be improved upon. They can make computers go faster, but the computer is already there.
However, as has often been observed, entrepreneurship takes a certain kind of personality: bold, adventurous, independent-minded. And that entrepreneurial type needs certain psychological and social, as well as economic, conditions to flourish.
Could it be that the American culture of the 21st century is less conducive to fostering such personalities than it used to be?
We live in a maelstrom of innovation, with new stuff coming down the pipeline all the time. This should presumably encourage and stimulate ever more ideas and innovation. Yet, more than ever before, as a result of the very same technological advances in every area, the habits of instant gratification — including laziness and a short attention span — are more pronounced than ever.
Nothing could be more anti-entrepreneurial. For entrepreneurship takes not only creative thinking but the capacity for sacrifice and risk taking. Furthermore, the biography of every great independent businessman is marked by tremendous hard work and perseverance despite countless setbacks and disappointments.
But does this mean that the prevailing cultural conditions doom the American economy to being stuck forever?
Of course not. The prevailing economic conditions — chiefly, the lack of jobs — are itself a constant spur to creativity. While some of the most talented people will always be in demand by the corporate recruiters and will fill the ready-made slots, others will look elsewhere to make their mark. Yet others, who lack the academic credentials corporations require, will not give up. They will seek and create their own opportunities.
Those same harsh conditions will force the necessary qualities of the entrepreneurial personality to assert themselves. The opportunities for success and innovation still exist. In fact, they may be greater than ever, with everybody on the lookout for the bearers of good ideas.
But economic forecasters have to stop talking about the weather outside, and think more about the weather inside, inside the people who will get things going again. That means finding ways to encourage not only innovative thinking and bold initiative, but innovative thinkers and bold initiators.