The Death-Spiral Of American Entrepreneurism

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If American Entrepreneurism is in a death spiral, then so too is the U.S. economy and the state that lives off the surplus generated by American Entrepreneurism.

The self-congratulatory rah-rah about American entrepreneurism rings hollow, as the evidence is conclusive: entrepreneurship, new businesses and the source of new businesses, self-employment, are all declining.

Two recent articles describe the trend: American Entrepreneurship Is Actually Vanishing. Here's Why (Inc)

American Entrepreneurship: Dead or Alive? (Gallup)

The Inc.com piece is a nuanced look at entrepreneurship that tries to find a silver lining in the abysmal data: perhaps we're simply not looking at the right metrics. Perhaps entrepreneurship is best measured by self-employment rather than by only counting businesses with employees (which, by the way, includes incorporated self-employed).

This is very sensible, as self-employment is the ground floor of entrepreneurship. If your one-person business takes off, then you hire employees and scale up from there.

Alas, the feedstock of small business--self-employment--has been in structural decline for decades. I've covered self-employment in depth for years: Endangered Species: The Self-Employed Middle Class

The Decline of Self-Employment and Small Business (April 22, 2013)

Financial Independence via Self-Employment: How Do We Do It? (September 23, 2015)

The chart of self-employment is unambiguous:

The Gallup article and chart are also unambiguous: Entrepreneurship is in structural decline, and the health of the economy and the state that depends on tax revenues is at stake:

Here is a chart of the number of new enterprises and those that have closed: much is being made of that tiny uptick in new businesses; now that the birth of new enterprises exceeds the death of existing enterprises by a wafer-thin margin, victory is being declared:

Not so fast, rah-rah cheerleaders. Look at the chart with the expansion of the U.S. population as a baseline. While population rose 42%, the number of new firms actually dropped precipitously.

While the financial media focuses on the handful of multi-billion dollar success stories, in the trenches of the U.S. economy the story is quite different: American Entrepreneurism is in a death spiral. On a per capita (per person) basis, American Entrepreneurism is in a free-fall.

And if American Entrepreneurism is in a death spiral, then so too is the U.S. economy and the state that lives off the surplus generated by American Entrepreneurism.