By Michael S. Malone
A recent report by the Economic Innovation Group has found that, while the years 1992 to 1996 saw a net increase in the U.S of 421,000 new businesses, and the 2002 to 2006 (despite a major recession) 405,000 new companies, the comparable interval from 2010 to 2014 saw just 166,500 new enterprises http://eig.org/recoverymap. Indeed, the years 2009, 2010 and 2011 saw a net loss of new companies year-over-year – the first time in a generation. Only this year, according to the Kaufman Foundation, has there been an uptick in new company creation.
In other words, the American economy is about 300,000 new start-up companies short as we stumble out of the long aftermath of the 2008 Great Recession and into a very uncertain economic future. How many Amazons, Facebooks, and Ubers were in those thousands of lost companies because they never gained financial traction, were crushed by regulations, or were never started at all?
These results are yet one more reminder that among the various legacies of the Obama Administration, this one – the loss of a generation of new entrepreneurs, their start-up companies, and the millions of jobs they might have created – may be the most enduring.
The magnitude of this “Lost Generation of [Millennial] Entrepreneurs”, as columnist Ron Hart calls it, can best be seen in research by the Federal Reserve and published in this newspaper. It found that the percentage of adults under age 30 who own or has a stake in a privately-held business is just 3.6 percent, the lowest in 30 years – a percentage almost half that of 2010, and a third of 1989’s figures.
These are devastating numbers – especially for a nation (as I wrote on these pages a few years ago) that was seen as among the most entrepreneurial societies in history.
What happened? A whole lot of things, including some dating back to the George W. Bush Administration. It can be said to have begun in the aftermath of the dot.com bust and the resulting market crash. Congress, with the Administration’s blessing, set out to punish the perceived corporate evil-doers like WorldCom . . .and in typical fashion, managed to shoot thousands of innocent bystanders instead. What had been a typical tech bubble, with a few bad players, instead became mass fraud in which every tech start-up needed to be handcuffed with the likes of Sarbanes-Oxley, stock options expensing, and new forms of board liability. The result was fewer companies going public, less democratic distribution of equity to employees, and dumber, more risk-averse boards. Meanwhile, seeing the changing odds for success, venture capitalists became less willing to fund early round start-ups, leaving that work to angels – who, as was their nature, invested more in their own kind, the networked and wealthy.
Nevertheless, and despite all odds, tech still managed to revive itself and produce the next great wave of start-ups, this time in social networking. But then came the Great Recession, and with it a new Progressive President. Historically, Progressives have never liked small business, preferring to govern in coordination with Big Business, Big Labor, Big Education, etc. – not with those armies of annoying shop-keepers and irritating tech nerds. And so, despite the occasional high theater of small business summits, almost everything the Obama Administration has done in the last seven years has been to the detriment of American small business start-ups, not least in tech. And it is just this contempt that may explain why the U.S. economy has struggled to exit the last downturn, even as we appear to be heading into the next one: no start-ups/no new jobs.
Ask anyone who has tried to start a company in the last decade. Nearly 21,000 new regulations on businesses since President Obama took office in 2009. A trillion dollar bailout that rewarded unions and favored certain pliant companies. Heavy-handed FBI penetration into once secure corporate data. Stock market rules that make going public nearly impossible – thus forcing new companies to ultimately sell out to larger competitors. Added healthcare costs for small companies under Obamacare. New FCC rules that crush investment and innovation in Internet enterprises. A rising minimum wage and new overtime rules that not only punish small retailers but cash-starved start-ups. The list goes on and on.
But wait, you may be saying: If this Administration is so anti-entrepreneurship, why has President Obama made scores of trips to Silicon Valley to raise campaign money from high tech leaders? The answer is that what you are seeing – and what Congress sees when it holds hearings or asks for contributions – is Big Tech, the latest oligarchs to earn a seat at the Progressive table. Facebook is not a start-up – it is a multi-billion dollar, public company with thousands of employees. Same with Apple, Google, Twitter, Tesla and all the rest. Real start-ups are a year or two old, have a dozen or so employees, have just rolled out their first product and are struggling for customers and the next round of capital. These companies are the future; and it is they who are being crushed. And the big tech companies are happy to help government make that happen – after all, they too were once start-ups trying to take down giants.
Washington has made two great mistakes with tech start-ups. It used them as cash cows even as it tried to manage them, and it assumed that they were inevitable – that every few months another crop of hot new unicorn companies would come trotting onto the scene. This has been a dangerous mistake: a decade ago surveys found that most young people wanted to start their own companies. Now, research by Babson College has found that more than 41 percent of 24-to-34 year olds (the prime age category for first-time entrepreneurs) said that even if they saw an opportunity to start a business, fear would keep them from doing so. Said head researcher Donna Kelley, “The fear of failure is the measure we should be most concerned about.”
Hunkered down in their ‘safe’ corporate jobs are this generation’s Jobs, Zuckerberg, Musk, Page and Brin. When – and if – they finally emerge to pursue their destiny, it may already be too late, not just to start their own companies, but mentor the subsequent generation of entrepreneurs.
The next President is going to face a whole raft of legacy challenges both domestic and abroad – but he or she wants to see a stronger, healthier America, the new President better cultivate this current Lost Generation of entrepreneurs before it is too late.
http://www.forbes.com/sites/mikemalone/2016/06/01/a-lost-generation-of-american-entrepreneurs/#19b747e5537e
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