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Friday, June 10, 2005

Study: Rate of U.S. entrepreneurship is falling

NPR's Marketplace Morning Report this morning (6:50 EDT rendition) reported a recent study that found entrepreneurship is down significantly in the U.S. from 2003 - 2004. The study found the number of persons starting new businesses in America dropped by 4 million in 2004, to about 18 million from about 22 million in 2003.

The study, Entrepreneurship in the U.S.: 2004 Assessment, was conducted by Paul Reynolds of Florida International University and can be downloaded from the Entrepreneurship Research Institute website.

An excerpt from the Executive Overview of the report:

Levels of Activity
  • Evidence of a substantial rise in U.S. activity from 1993-2000, and a subsequent decline through 2004.
  • In the year 2000, about 23 million between 18-74 years of age were actively engaged in a start-up or new firm management; this declined to about 18 million in 2004.
  • There has been a statistically significant drop in activity of 20% from 2003 to 2004; representing a one-year reduction of 4 million involved in the entrepreneurial process.
  • This decline in participation is concentrated among young adult men and women, 18-34 years of age, and mid-career men, 35-54 years of age.
  • This decline is associated with a less positive personal context for entrepreneurship among these gender-age specific groups.

Section B of the report, "Changes over time", includes the following observations:

Based on this one item indicator, there have been dramatic changes in the U.S. level of participation in the start-up process over the past 11 years. As shown in Figure B-1, there was a considerable change from 1993 to 1998-99; participation in business start-ups more than doubled. There was a further increase—perhaps as much as 80%—from 1999 to 2001. Following 2001 there seems to have been a decline, perhaps as much as 28%. All of these changes are statistically significant.

Key points:

Who says the Bush administration is good for business? Didn't the Bush Administration try to blame the recession of 2001 on Clinton; then say that the recession was over rather quickly? If the recession ended so quickly, why such a dampening of entrepreneurship?

The graphs in the report also show that while the overall trend from 2001-2004 has been down, there was a small spike in activity in 2003, but that was followed by a dive from 2003 - 2004. I am not an economist, but I am not thrilled by the picture these numbers paint.

The "Changes Over Time" section of the report further noted, in analysis of surveying potential causes for the decline, that

It would appear that those at the “entrepreneurially predisposed” stages of their work career are very sensitive to slight shifts in the opportunity structures in their immediate personal environment. A few adjustments in the perception of opportunities can affect a substantial proportion of these individuals and, in turn, affect the overall level of entrepreneurial activity.

Given the importance of small businesses and entrepreneurship to the U.S. economy, and the American values of opportunity, independence, and self-determination, one might think that the President would express deep concern and take serious action to address the decline in entrepreneurship shown by this study. However, during his administration, George W. Bush has shown himself to be anything but a friend to small business. For example, refer to the statement (pdf) by Senator John Kerry, ranking member of the Senate Small Business Committee, on the Bush Administration's proposed 2006 budget for the Small Business Administration. Senator Kerry notes that

In a press release regarding the removal in conference committee of an amendment to the FY2006 budget that would have restored much of the SBA funding, Sen. Kerry noted "Since 2001, the SBA’s budget has been cut by 36 percent, more than any other federal agency." Other recent Bush Administration assaults on small business include gutting the LowDoc program, a program that streamlines the loan process and is particularly helpful for rural loan-seekers.

It is clear from this record that the Bush Administration and the Republicans in Congress are not particularly interested in encouraging small business and entrepreneurship. In fact, if the study reported by NPR this morning and detailed above is correct that "those at the 'entrepreneurially predisposed' stages of their work career are very sensitive to slight shifts in the opportunity structures in their immediate personal environment", then cuts to the SBA which reduce opportunities will further reduce entrepreneurship in America. And as Paul Reynolds, the study's author, stated on the NPR program this morning, "if it declines that much in 2005 [as it did from 2003-3004], I think the country has a problem."

On the other hand - and I can't say it enough - John Kerry "gets it" that enabling small business and entrepreneurship is essential to core American values of independence and self-determination. John Kerry "gets it" that small businesses protect and care for their people and community better than large corporations. John Kerry "gets it" that entrepreneurship is the linchpin of our economy.

John Kerry GETS IT. Will the Republicans running Washington, and the people who voted for them, GET IT before it's too late?


Great post! I heard a bit of that on NPR today. It was a very good day on NPR. Everytime I was in the car (where I primarily listen to NPR) I couldn't wait to get back and post about something I heard.
Good question, MH. I think some of them will.


Some days NPR is good, some days it makes me wince. But either way I find it far more informative than most MSM news sources.

As always, your optimism is wonderful! I hope you are proved right very soon!
We had a fairly healthy economy and a budget surplus. We felt confident in a new venture because if it failed there was work somewhere else. Now there's no work and no confidence.
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