The decline of entrepreneurship in America

The media is beginning to notice that there are fewer and fewer startups in the USA every year:

If you look at what’s happened in big cities around the U.S. in recent years, it’s easy to think we’re living in Startup Nation. Thanks to the plummeting cost and increased availability of digital tools, as well as greater access to early-stage funding, we’ve seen what the Economist has called a “Cambrian moment,” with digital startups “bubbling up in an astonishing variety of services and products.” The number of companies in Silicon Valley that got seed funding from investors, for instance, more than doubled between 2007 and 2012. Venture capital funding in the U.S. over the last five years has totaled a remarkable $238 billion, and 200 companies today are so-called unicorns, privately valued at more than a billion dollars each.

Meanwhile, though, a host of economic researchers have been telling a much bleaker story: American entrepreneurship is actually on the decline, and has been for decades. As the economists Ian Hathaway and Robert Litan documented in a 2014 Brookings Institution paper, the percentage of U.S. firms that were less than a year old fell by almost half between 1978 and 2011, declining precipitously during the recession of 2007-’09 with only a slow recovery after. According to the Commerce Department, the number of new businesses started by Americans has fallen sharply since 2000, and so too has the percentage of American workers working for companies that are less than a year old. Indeed, in 2013 Americans started fewer businesses than they did in 1980, when the country’s population was much smaller. This decline isn’t just due to the aging of the U.S. population—Americans of all ages just seem less likely to open new businesses than they once were. And, as Hathaway and Litan put it, the decline “has been documented across a broad range of sectors in the U.S. economy, even in high-tech.”

Speaking as a successful entrepreneur who left the country, who is the son of a very successful entrepreneur who is presently in prison, it’s not exactly difficult to understand why Americans are considerably less inclined and less able to start businesses than they were 36 years ago.

  1. The rapacious and criminal tax agencies. You would probably not believe the shenanigans and outright lies these agents habitually engage in if you did not see it in black-and-white documents right in front of you. Even those who think my father merited an amount of jail time for his actions are aghast when they find out what actually happened, and how absurdly egregious the behavior of the various agencies was.
  2. The increasing regulatory and reporting burden. Why go to the effort of building up a company when doing so is the equivalent of painting a big red target on your chest? As one of my entrepreneurial friends said after shutting down his company and taking a job for a big tech firm, “it’s so nice not having to deal with all that shit anymore.” In the USA, self-employment often feels more like working for the government as a paper-pusher. Just trying to get your head around why part-time external contractors who are clearly not your employees must be treated as employees for various compliance purposes is enough to give anyone a headache.
  3. The criminalization of commerce. These days, it’s more work to file the paperwork required to get paid by a big corporation than it is to do the work itself.
  4. The dumbing-down of the populace. Thanks to post-1965 immigration, Americans are 4-6 IQ points less intelligent than they were back in 1980. Less intelligent people are less inclined to start jobs.
  5. Emigration. Many of the American expats I meet around the world are highly intelligent and entrepreneurial. Few of them have any desire or intention to return to the USA. This is a fairly small group of people, but they are a statistically significant percentage of the entrepreneurial class.
  6. International competition. The Internet and semi-free trade means that one no longer needs to live in the USA to have access to its markets. So, would-be American entrepreneurs are much more likely to be beaten to the punch by foreign entrepreneurs exploiting American markets than was the case in 1980.
  7. The politicization of culture. Why start, say, a bakery, if you know you’re going to be forced to choose between being sued into oblivion and violating your conscience as well as your right to free association?
That being said, the situation isn’t much better elsewhere. The worse the global economy gets, the more desperate the various governments are for tax revenue, and the more intensely they go tax-hunting among the successful entrepreneurial class. The first country to offer legal protection and operational assistance to the international entrepreneurs being preyed on in this manner is going to do very well indeed, and do so at the expense of the other countries.