Declining Entrepreneurship Effects Economic Growth

In the fall of 2014, around the time Facebook announced it was buying WhatsApp for $19 billion, a flurry of studies offered a startling revelation: The U.S. startup rate has been falling for decades.

The Kauffman Foundation concluded that the number of companies less than a year old has declined as a share of all businesses by nearly 44 percent between 1978 and 2012. Meanwhile, the Brookings Institution established that the number of new businesses is down across the country and that more businesses are dying than are being born.

The implications are huge. “New businesses are disproportionately responsible for the innovation that drives productivity and economic growth, and they account for virtually all net new job creation,” says John Dearie, executive vice president for policy at the Financial Services Forum.

Reasons for the downward trend in entrepreneurship include:

– The portion of 20- and 30-year-old entrepreneurs has declined.
– U.S. population growth is shrinking.
– Established businesses are getting bigger and the larger those businesses become, the fewer the startups that sprout.

One hopeful sign is that all who have identified the decline are optimistic about its correction. Dane Stangler, Kauffman’s vice president of research and policy, says he expects to see a “huge rebound” as the economy improves. He is particularly upbeat about changing demographics, viewing young people as founders-in-waiting rather than as missing in action.

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