Monday, April 9, 2018

8/4/18: U.S. economy: entrepreneurship is not 'the new thing' outside Academia


These days, every business school on every university campus is sporting a burgeoning post-graduate program in Entrepreneurship. And this trend is driven by the perceived - and often hyped up by the media and by business futurists - rise in entrepreneurship in the modern society. Apparently, allegedly, an increasing proportion of today's business students want to start their own businesses (despite the fact the vast majority have never worked in a start-up and have no expertise to run one). The new dynamism of the economy, the college-to-start up model of business education, the 'can do' attitude (or aspirations) are all part and parcel of the mythological creature that is the New Economy.

In reality, of course, brutally put, there is no evidence of rising demand for entrepreneurship. And, worse, in fact, there has been a dramatic decline in entrepreneurial rates in the U.S. economy:

Source: http://rooseveltinstitute.org/wp-content/uploads/2018/03/Powerless.pdf.

Now, consider the two data series above, together: firm entry (new firms creation) and firm exist rates. As the blue line trended down, rapidly, without a pause, the green line remained relatively flat. Which means that the ratio of entries to exits has fallen over the time, pretty dramatically. In the 1970s and 1980s, firms entries had, on average been more frequent and less likely to be associated with higher firm exits. In the 1990s,  both relationship deteriorated. In the 2000s, both literally went down the drain.

So as the rate of new businesses additions went down, the rate of old businesses exiting did not change that much. So much for dynamism and for 'entrepreneurial spirits' of the young. The start ups mythology is strong. But the reality of the U.S. economy is that of concentration, market power, monopolization and decline of entrepreneurship. Funny thing, how Silicon Valley propaganda works, right?

How do we know the bit about monopolization? Why, look at profit share of output:


Still want to build up that 'entrepreneurship program' in the University? Because students want to learn about starting their own businesses? Should you really think twice?

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