In the current issue of Chief Executive magazine, there is a report on a recent study by Tim Kane of the Hudson Institute which analyzes job creation and finds that almost all net new jobs come from newly formed firms as opposed to small firms. Using data from the Commerce and Labor Departments, he adds that existing employers tend to be net job losers, averaging net losses of 1 million workers per year, while entrepreneurial firms create an average of 3 million jobs per year.
The bad news reported by Kane is that lately entrepreneurship in the U. S. is weaker than ever and that there are far fewer companies being formed today than two years ago, when the recession ended. In fact, the startup rate has collapsed in recent years. The rate of new job creation at startup companies was steady in the two decades from 1980 to 2000, but in 2010 and 2011, supposedly a period of recovery, are the lowest on record.
As one who made a career of financing early stage and middle market growth companies, I can identify with the problems they face in this environment of hostility to job creators. This regime talks about job growth but is alien to private sector employers and includes no one anywhere close to policy formulation who has a clue about the dynamics of the market economy. To them it’s all about industrial policy and government allocation of capital, with policies that favor certain crony constituencies. If we can’t overcome this hostility to entrepreneurship and to business in general very soon, we will destroy the comparative advantage that America has historically held in the industrialized world and will begin to impoverish our people. In fact, I fear that this is already well underway and, given the election results, will be very difficult to reverse.