With entrepreneurship on the decline in America, Washington DC should prioritize helping startups
America celebrates the entrepreneur and rightfully so. We’ve watched how campus startups have bloomed into global giants and disrupted the Fortune 500. We devour TV shows like “Shark Tank,” during which start-up entrepreneurs compete for growth capital and seasoned advice. In many ways, entrepreneurs have become the business rock stars of our time.
But I’m worried. Entrepreneurship is on the decline. According to the Ewing Marion Kauffman Foundation, new ventures as a share of all companies has been falling for decades. Only 452,835 firms were started in 2014. That’s well below the 500,000 to 600,000 new companies that launched in the US every year from the late 1970s to the mid-2000s. The Labor Department follows how many new jobs come from businesses that are less than a year old. This peaked in 1999 during the dot-com boom as 4.7 million jobs came from newbie businesses. Last year, it was down to 3 million.
We’re not entirely sure of what’s causing the decline but there are some clear indicators. Despite the image of every millennial incubating a startup — think of TV’s “Silicon Valley,” a send-up of the high-tech gold rush — 44% of millennials think staying with one company is best, compared with 22% who want to start a business. Why? Student loan debt for one thing. The average student’s loan balance soared 77% between 2004 and 2014, with overall US student loan debt topping $1.2 trillion. It’s now bigger than credit card or car loan debt. With that burden on their shoulders, many millennials don’t feel empowered to take the risk of striking out on their own to establish a new enterprise.
Consider mobility. Americans move much less often than they once did, meaning would-be entrepreneurs aren’t getting to where the best opportunities are, whether it’s Silicon Valley, Silicon Alley or some other start-up mecca. According to Yale Law School Professor David Schleicher’s much-cited study, government policy, including land use restrictions that prevent the free flow of human capital, plays a big role in keeping Americans stuck in place.
Other governmental policies, including some tax rules, also seem to be dampening the US entrepreneurial spirit. A lack of tax incentives for startups within complex system dispirits many young would-be entrepreneurs. A report just released by the Kogod Tax Policy Center questions whether more than $255 billion of tax expenditures targeted to help small businesses grow actually helps women-owned enterprises, which account for 38% of all US firms. And a recent survey by the World Bank found the US ranked a dismal 49th in ease of starting a new business.
As federal and state policy discussions take place, we need to consider designing and embracing policies that help entrepreneurs start up and innovate to build a future for all of us.
One place to start is immigration policy, an issue that’s bedeviled lawmakers for more than a generation. It is a fact that immigrants help drive entrepreneurship in America: An astonishing 35%–40% of new firms from 1995–2008 had at least one immigrant entrepreneur involved in their creation. Whatever your views on this hot-button topic, there’s little sense in a system whereby some of the best minds in the world come to America to be educated in our top universities, work in our most innovative companies and then take their expertise and start up somewhere else because they can’t get the right visas to stay, let alone become citizens. To make matters worse, many of those great minds may not want to come here in the first place depending upon how they read American public sentiment. And that leaves other countries, with more entrepreneur-friendly environments, to attract them to their shores.
Likewise, as long as the country is debating health care, we need a system whereby would-be entrepreneurs, who could be starting the next unicorns, don’t stay in a job specifically for the health insurance. A 2008 Harvard Business School study estimated that 11 million people were caught in so-called job lock tied to health coverage. But steps toward portability can help. A 2015 HBS study found that after the bipartisan Children’s Health Insurance Program began in 1997, the self-employment rate for parents of CHIP beneficiaries jumped 23%, and their rate of ownership of incorporated businesses increased 31%. Whatever Congress decides on health care, it should keep an eye on how it affects the health of entrepreneurship in America, too.
Working in Utah and Silicon Valley, I’ve spent years getting to know visionary entrepreneurs like Rick Alden, whose passion for creating headphones for snowboarders and skateboarders made Skullcandy an audio giant. EY is known for its Entrepreneur Of The Year Award® and the firm’s long-standing work with many outsized entrepreneurial success stories. I’ve seen the importance of what’s been called an entrepreneurial ecosystem — access to capital, the right workforce, the mentors and guidance needed to get a business off the ground. There needs to be more microcosms of founders and funders beyond Silicon Valley in order to see that entrepreneurship thrives across the country.
Emboldening risk takers and enacting entrepreneur-friendly policies to reward the innovation that drives our economy aren’t a simple fix. But if politicians and policymakers can keep entrepreneurship in mind as they debate what’s best for Americans, we can help encourage and nurture the next generation of startups. Let’s start the conversation.
Seeking entrepreneurs who break the mold
EY is seeking entrepreneurs whose bold ideas propel them to do things differently and change our world in the most unexpected ways. If you are a successful entrepreneur, we welcome you to apply for the Entrepreneur Of The Year US 2018 program. Or, if you’ve been inspired by an enterprising leader, nominate him or her today.