The decline of entrepreneurialism

Glenn Reynolds observes the current lack of startups with appropriate concern:

[T]he latest data indicate that start-ups are becoming rarer, not more common. A new report from JPMorgan economist Mike Feroli indicates that employment in start-ups is plunging. New jobs in the economy tend to come from new businesses, but we’re getting fewer new businesses. That doesn’t bode well.

In fact, it is yet another sign of a United States that is looking more like Europe: A society in which big businesses have cozy relationships with big government, while unemployment remains comparatively high. If you’re fortunate enough to have a job at one of those government-connected businesses, GE, for example, your situation is pretty good. If you’re a recent college graduate looking for work, your situation is not so great. If you’re a low-skilled worker, your situation is dreadful.

So what’s to blame for this change? A lot of things, probably. One reason, I suspect, for a job market that looks more like Europe is a regulatory and legal environment that looks more like Europe’s. High regulatory loads — the product of ObamaCare and numerous other laws — systematically harm small businesses, which can’t afford the personnel needed for compliance, to the benefit of large corporations, which can.

Likewise, higher taxes reduce the rewards for success, making people less likely to invest their money (or time) into new businesses. And local regulatory bodies, too, make starting new businesses harder.

But I wonder if the biggest problem isn’t cultural.

Reynolds is right to be concerned.  Entrepreneurialism is the engine of economic growth, technological advancement, and scientific progress. I suspect he is not only right, but that the cultural problem can be narrowed down considerably and connected to another recent phenomenon.  And, to be honest, I’m a little surprised that Reynolds didn’t make the connection, because that phenomenon is one of his primary bugaboos: the education bubble.

I started my first company when I was 23. It did rather well. But I would probably have been much more successful if I had followed the lead of Bill Gates, Michael Dell, and others and dropped out of school midway through my sophomore year.  With the considerable help of one of my father’s engineers, I’d designed an Ad Lib-compatible, stereo, CD-quality 16-bit, 16-channel sound board at a time when Ad Lib reigned supreme in the game’s industry with its MIDI card and Creative Labs had just introduced its first 8-bit, mono, 22 KHz Soundblaster.

We got two of the cards working over Christmas break, then I went back to school like a good little upper middle class worker bee and the project languished in a corporate bureaucracy that had no interest in game-related hardware until it died completely when the engineer who had worked on it left for another company before the summer.  Four and a half years later, Media Vision introduced its hugely successful Pro Audio Spectrum, which was almost exactly the same card we had built in the lab.

I’m not blaming anyone else for my failure to follow through on my ideas. It was my fault, no one else’s.  Let’s face it, if there is a theme to my life, that is it: once I have something working to my satisfaction, I tend to lose at least an amount of interest in it. But far from being encouraged to take advantage of the window of opportunity, I was actively discouraged from even the thought of dropping out of college.  I’d tentatively mentioned the possibility once we got the card working and it was greeted with what can only be described as unmitigated horror.  The idea that an intelligent individual from a good family would not be “educated” was simply not to be countenanced, and besides, I could always pursue the opportunity after I finished my degree in another two and a half years.

That seemed to make sense to me.  And indeed, it would have even been possible considering the timeline.  But opportunity doesn’t follow a nice orderly schedule, and as it happened, I never even looked at that sound card again.

The cult of the college degree is now even more widespread than it was back in the late 1980s, more people than ever are attending college, they are attending longer, and they are going into significant debt to do so.  This means that not only are more young men putting off their entrepreneurial activity for four to eight years during the most risk-friendly and most creative period of their lives, but they are far less able to afford to take risks once they graduate.

As a result, what we have now is young lawyers and MBAs in debt instead of young CEOs running their own startups.  Fortunately, the feminization of the university is beginning to cause young men to question the value of a college degree, so there may be a silver lining in the devolution of the academy.

The taxes and regulations aren’t helping either, of course. My father, for example, started three companies that employed hundreds of people and paid tens of millions in taxes.  He has spent the last six years living off the public dime, and in addition to the huge opportunity cost of locking him up, (which amounts to millions of dollars and scores of jobs), the actual cost of keeping him locked up in a Federal minimum-security prison amounts to about one-third of the amount he was charged with failing to pay.  Even if one is convinced he is the worst, most evil criminal of all time, from the macrosocietal perspective this is observably a case of society shooting itself in the foot.

So why should potential entrepreneurs bother?  It’s too much work combined with too much risk… and success only comes with even more risk. (My father’s imprisonment was the culmination of a battle with the IRS over an Irish subsidiary that began in 1992.) The younger versions of the best and brightest who once started companies are the most likely to see that it is now a better-paying, lower-risk option to get a glamor degree, join the parasitical class, and work up the hierarchy until reaching a position where one is able to use someone else’s organization to direct someone else’s money to one’s own pocket.  Why be an entrepreneur spending the next 10 years building a company when in the same amount of time you can expect to be an executive, or better yet, a consultant?

Why build when you can more easily and safely leech?