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Why U.S. Entrepreneurship is Dying

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Opening Insights: A Founding Element – Lost

“A great nation is like a great man:
When he makes a mistake, he realizes it.
Having realized it, he admits it.
Having admitted it, he corrects it.
He considers those who point out his faults as his most benevolent teachers.
He thinks of his enemy as the shadow that he himself casts.”

LAO TZU, TAO TE CHING

The entrepreneurial spirit is what fueled the meteoric rise of a handful of founding states into the most powerful nation in the world. In recent years the loss of this spirit is resulting in early stages of the decline of America. What can be done to reverse this loss of national identity and driving force before it’s too late? Forbes writer Steve Denning has a suggestion.

Informational Insights: A Question of Indebtedness

The following article was published by Forbes, “the largest global business media brand in the world,” and written by Steve Denning, Senior Contributor with a focus on business and strategy. It discusses key elements of the fall of American Entrepreneurship and suggests a resolution to help reverse this trend.

(Forbes, US) — American entrepreneurship, the social force that made this country the envy of the world, is dying. Many different studies, using different ways to measure the growth and success of start-ups, all point to the same conclusion. The decline in U.S. entrepreneurship has been going on for decades.

• A study published in December 2015 by the National Bureau of Economic Research (NBER) shows that start-up activity has been slowing down in the United States for about three decades, dropping sharply over the past 10 years. New firms accounted for about 13% of all companies in the late 1980s, but only about 8% two decades later. In the 1980s and 1990s,  small number of young, innovative, and dynamic companies grew at very high rates. But in the post-2000 period,  startups contributed less to U.S. job creation than they did in earlier decades.

• The Kauffman Foundation reports that the percentage of adults owning a business has been declining since the 1990s, when the foundation first began to track that number.

• A study by the Brookings Institution found that the start-up rate (the number of new companies as a percentage of all firms) has fallen by nearly half since 1978.

Implausible Causes
Why is entrepreneurship declining? The decline has been going on for decades, so the phenomenon can’t be blamed on any recent administration or the great Financial Meltdown of 2008.

Nor is it plausible to blame “the usual suspects”: big government, high taxes or regulations. Startups were booming in the 1970s and early 1980s, when tax rates were sky-high, and deregulation was only just getting under way. At the time, the U.S. had many highly regulated industries, yet it produced Silicon Valley. Even today, California has some of the highest taxes and the most regulation, yet it generates vibrant entrepreneurial activity in diverse sectors as such high tech, entertainment and energy.

Nor are the potential explanations identified by the NBER study very plausible: “credit constraints, rising investments in equipment that reduce the need for new employees, outsourcing of work to developing countries, and larger companies acquiring younger firms at an earlier stage of development.”

It is not that these elements are irrelevant. The point is that they cannot either separately or collectively explain a decline of the size and persistence that we are seeing.

A Prime Suspect: Student Debt
A rather more obvious suspect is the burden of Americans’ $1.2 trillion in student loan debt. “Average debt at graduation for college students has been climbing for decades,” writes, Zeeshan Aleem, “and barring some kind of major reform to counteract the skyrocketing cost of college, the trend will continue. In the early 1990s, most students didn’t have to borrow money to graduate from college, and those who did typically took out less than $10,000 in loans. In 2016, over 70% of the graduating class of 2016 took on an average of about $37,000 in student loans to finance their degree. The total sum of student loan debt for the Class of 2016 comes out to around $60 billion — 12 times the amount that graduating classes from the early ’90s held.”

The increasing student debt is caused by two factors: the meteoric rise in the cost of college in the U.S., and the fact that states have dis-invested in higher education for many years. The increasing cost of college has less to do with improved education and more to do with higher administrative costs and services, including sports. With less public investment from the government, students and their families are expected to pay a larger share. While expensive private schools tends to get the most press attention, most college students attend public institutions, and their increased costs are at the heart of the student debt crisis.

While the wage premium and career options that accompany a college degree usually make it a good investment, the cost of paying off loans, which typically takes around two decades, exacts a toll on borrowers that can be more important than the sum they pay back.

A 2013 report by the think tank Demos found that student debt has a negative effect on income, by making borrowers more risk-averse and discouraging them from moving to another city or taking gambles on new jobs or launching a new business. Even more seriously, student loan borrowers save less early on in their lives, and they tend to be more conservative with their investments, due to constraints on income and credit. When even investing in a home seems too risky, launching a new business is even less likely.

“The $1 trillion in outstanding student loan debt will lead to total lifetime wealth loss of $4 trillion for indebted households, not even accounting for the heavy impact of defaults,” says the Demos report.

Student loans are particularly burdensome because of the onerous provision in the law that prohibits them from being discharged through bankruptcy, thus making student loans a permanent burden. Although there are various ways to achieve loan forgiveness or discharge, even here there is a catch: student loan forgiveness or discharge is considered taxable income by the IRS.

Those are the negative effects that borrowers experience even assuming they can even pay off their loans. At present, seven million Americans are already in default on their loans, an act that can result in a bad credit history, wage seizure and even loss of professional credentials. Around 17% of student loans are severely delinquent.

The student debt crisis is transforming the saving, spending and investment behavior of an entire generation, and is transforming the economy along with it. The trend is not a good one.

Through a set of collective missteps, America has opted to put a crushing debt burden on the segment of society that can least afford it and the group that has the most to contribute the future. This is not just a question of social justice: it is nothing less than an issue of national economic survival.

Unless lawmakers across the country take radical action to address the skyrocketing cost of college, and attendant student debt burden, we can expect U.S. entrepreneurship to continue its frightening decline.

https://www.forbes.com/sites/stevedenning/2016/05/27/why-us-entrepreneurship-is-dying/#69fb25e27d74

Possibilities of Consideration: Reinvigorating the Spirit

There are two ways to get to the top of the oak tree.
One way is to sit on an acorn and wait; the other is to climb it.
KEMMONS WILSON

Can the American entrepreneurial spirit be reinvigorated? This is not a question of curiosity but one of survival. If we are not able to collectively affect the change necessary to adjust our trajectory, then the United States of America, as we know it, will cease to exist.

Take a moment and examine…

  • As you reviewed the material above, what stood out to you?
  • What is the potential impact, economically and/or socially?
  • What action is needed to stop or support this idea?
  • You may want to consider whether you:
    • want to be aware of,
    • should become supportive of,
    • would want to be active in this topic?

Add Your Insight

I have been impressed with the urgency of doing. Knowing is not enough; we must apply.
Being willing is not enough; we must do.

LEONARDO DA VINCI

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FOOTNOTE of Importance


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