Boosting American entrepreneurship will be more important than ever in coming years

By James Pethokoukis.

"One of the biggest economic challenges currently facing the American economy might well be an even bigger one after the COVID-19 pandemic: the decline in American entrepreneurship. As John Dearie of the Center for American Entrepreneurship wrote earlier this year:

After remaining remarkably consistent for decades, the number of new businesses launched in the United States peaked in 2006 and then began a precipitous decline – a decline accelerated by the Great Recession. From 2002 to 2006, the economy produced an average of 524,000 new employer firms each year.  Since 2009, however, the number of new business launched annually has dropped to about 400,000, meaning the United States currently faces a startup deficit of 100,000 new firms every year – and a million missing startups since 2009.
Even more alarming, economists Robert Litan and Ian Hathaway have shown that rates of entrepreneurship – the fraction of all U.S. businesses that are new – have fallen near a four-decade low, and that this decline is occurring in all 50 states, in all but a handful of the 360 metro areas they examined, and across a broad range of industry sectors.  The U.S. economy is becoming less entrepreneurial, more concentrated among large incumbent companies, less “dynamic.”

This issue of startups and economic dynamism is one I’ve addressed many times over the years, including in this 2014 podcast with startup expert Ian Hathaway. During that conversation, I asked how policymakers could promote entrepreneurship. Here was his answer:

One in the short term is immigration reform. We know that immigrants are twice as likely to launch new firms, and that’s in all sectors, and in high tech it’s particularly elevated, so we know that’s something that will push the entrepreneurship rate up higher.
Longer term, education – it’s one of the factors that in studies of what drives regional variation, entrepreneurship rates, it’s the thing that keeps showing up. And this is at a time when a lot of states have had to cut back on education because of balanced budget requirements and things of that nature. So these are two things that I would advocate for.

All of that still works today. And let me add that Dearie’s CEA has quite a few policy ideas to boost entrepreneurship, including reforms for taxes, regulation, and immigration."