Ed Driscoll

Do Tell: 'Some Economists See a Link Between the Scarcity of Start-Ups and the Rise in Influence-Peddling'

“The great start-up slowdown” is explored by the Washington Post:

The more pronounced of those trends is a slowing birthrate for new businesses. The slowdown has persisted over two decades and has worsened since 2000. Economists aren’t entirely sure what’s causing it.

The nation’s “start-up rate,” the number of new companies as a share of total companies, declined by 12 percent from the late 1980s to the eve of the Great Recession. That’s according to research by John Haltiwanger, a pathbreaking University of Maryland economist who studies business dynamics, and several co-authors. They found the rate dropped even further during the recession: By 2011, it was about 25 percent lower than it was in the late ’80s.

Recent research from the Brookings Institution confirms that compared to 25 years ago, a smaller share of Americans today work in start-up companies and that a smaller share of companies are start-ups. Even the tech industry — that bastion of venture capital and IPOs — has seen its start-up rate decline. In 1982, Haltiwanger and coauthors report, 3 in 5 high-tech firms were young start-ups; in 2012, that had fallen to less than 2 in 5.

This is bad for middle-class workers. Newer companies create a lot more jobs, on net, than long-established ones, according to several studies, including a recent one by the Organization for Economic Cooperation and Development, which compiles economic statistics for wealthy nations around the world. (This is true even though so many start-ups fail.) Haltiwanger’s research suggests America would have 1.1 million more jobs today if dynamism were still at even mid-1980s levels. More jobs would reduce competition among would-be workers for available slots, which would mean companies would need to pay workers more to attract or keep them.

I blame the Washington Post.

Well, at least a little bit. After pulling out all the stops to get Mr. Obama elected, at dawn of his presidency, the Post, through its then-Newsweek division, ran the following cover:

2009_socialist_newsweek_cover_5-5-13-1

If you’re plumping for socialism, you’re also rejecting a dynamic entrepreneur-friendly economy in search of what Virginia Postrel calls stasism, a freeze-dried early-20th century economic paradigm in which big corporations, through plenty of help from government, happily crush small businesses into the ground.

Short of full-out nationalization*, that model seems like an ideal solution or at least a nifty modified limited hangout** when your industry is in its death-throes, and it’s not a coincidence that the Graham Family first divested itself of Newsweek after a half century of ownership for a dollar a year and a half after the above cover, and then last year offloaded the Post itself at fire-sale prices to Jeff Bezos.

Since Bezos made his money launching a quintessential start-up, presumably the new iteration of the Post is a bit more start-up friendly (at least for now). But the sins of their namesake predecessors shouldn’t be forgotten.

* Which Salon called on the government to do to all of media. No, really. Say, I wonder if they’ll ask the new Congress to take up the idea next year…?

** Whom the Gods destroy, they first transform into the second coming of the Post’s nemesis, the Nixon Administration. (See also: Rather, Dan.)