America is no longer Start-up Nation”

In his new book The Complacent Class, economist Tyler Cowen explains how America lost its entrepreneurial moment a while ago. Old companies get more entrenched. More companies get out of business than new ones are created. This is an ominous trend.

“Not only are there fewer start-ups [in America], but a smaller percentage of them are succeeding. That means young firms are a smaller part of the overall market and so American corporations are increasing in average age, just as the American people are. In the late 1980s, 18.9 percent of the employment in the American economy was at firms five years of younger. This average had fallen to 13.5 percent right before the Great Recession; in numerical terms, that is a 29 percent decline over only seventeen years, a significant and rapid drop. New firms are also down as a share of total firms and also as a share of job creation, again since the 1980s…”.

“…Furthermore, not only are fewer new firms started in the first place, but the more successful new firms don’t grow as they used to, and they are more likely to remain small than rise to prominence. That’s again very different from the rhetoric pervading the rah-rah discourse, namely that start-ups are revolutionizing our country and business culture like never before. That’s just not what the numbers show”.

“Even when it comes to the information and related high-tech sectors, the growth in dynamism, as measured by the creation and growth of new firms, stops at about the year 2000 and then declines. For all of today’s talk about “unicorns” –those celebrated unique firms that take off and totally transform their markets – they are more myth than reality. Unicorns are not very visible in the data. Since 2000, there is also a declining propensity of young firms to turn into successful firms, including in the tech sector.”

–Tyler Cowen, The Complacent Class, St. Martin’s Press, New York  2017