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More Businesses Shutting Down than Starting Up

'Business deaths now exceed business births for the first time' in decades.

7:28 AM, May 8, 2014 • By WHITNEY BLAKE
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A new Brookings Institution report indicates that businesses are shuttering their doors more quickly than new ones are popping up.

From the Washington Post:

The American economy is less entrepreneurial now than at any point in the last three decades. That's the conclusion of a new study out from the Brookings Institution, which looks at the rates of new business creation and destruction since 1978.

Not only that, but during the most recent three years of the study -- 2009, 2010 and 2011 -- businesses were collapsing faster than they were being formed, a first. Overall, new businesses creation (measured as the share of all businesses less than one year old) declined by about half from 1978 to 2011.

This descent has a broad scope; no group is immune. Brookings notes that “the national decline in business dynamism has been a widely shared experience.” It “hasn’t been isolated to particular industrial sectors and firm sizes” and “reach[es] all fifty states and all but a few metropolitan areas.”

The think tank further observes: “Firms and individuals appear to be more risk averse too—businesses are hanging on to cash, fewer people are launching firms, and workers are less likely to switch jobs or move.”

Brookings doesn’t attribute the trend to anything in particular, stating that would “requir[e] a more complete knowledge about what drives dynamism, and especially entrepreneurship, than currently exists.”

Just going out on a limb here, but perhaps an additional $73 billion in government regulations each year have something to do with it? Not to mention the 400-plus employers that have cut hours or positions because of Obamacare—or the overall hostile business climate in which businesses are reminded they didn’t achieve anything on their own.

Brookings recommends the government “adopt policies that better facilitate entrepreneurship,” increase visas for entrepreneurs, and retain foreign students with STEM degrees (science, technology, engineering, math).

The report attempts to provide a glimmer of solace in the last paragraph, even invoking the father of the “Bridge to the 21st Century”:

Finally, policy makers, citizens, owners, employers and entrepreneurs must not be afraid of dynamism, or change, even though it can be unsettling for a time. To paraphrase President Clinton, we must make “change our friend,” because to resist it is to settle not only for the status quo, but in a world in which other countries and citizens are improving their skills, products and services, the failure to change will only ensure continued decline

Nevertheless, the future does not bode well; according to Brookings, “if [the decline] persists, it implies a continuation of slow growth for the indefinite future.”

So much for jobs being “saved or created.”

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