Monday, June 03, 2013

Playing It Safe

One of the attributes that has long defined and distinguished the US economy is its dynamism. This dynamism involved things like people coming up with innovative ideas, new companies starting up to support those ideas, and people being willing to move to new careers and new geographies. It helped drive economic growth and made America an attractive destination for entrepreneurs from around the world.

A front page story in today’s WSJ raised concerns that America may be losing its dynamic edge. Risk-Averse Culture Infects U.S. Workers, Entrepreneurs:

Three long-running trends suggest the U.S. economy has turned soft on risk: Companies add jobs more slowly, even in good times. Investors put less money into new ventures. And, more broadly, Americans start fewer businesses and are less inclined to change jobs or move for new opportunities.

The changes reflect broader, more permanent shifts, including an aging population and the new dominance of large corporations in many industries. They also may help explain the increasingly sluggish economic recoveries after the past three recessions, experts said.

A few other nuggets from the article:

The problem with fewer Americans starting businesses is that there are fewer chances for the next Amazon or Wal-Mart—or even the successful small- or medium-size business.

"It just means that there are fewer new companies that are creating jobs, fewer new companies that are competing for workers," said Lina Khan, an economist who has studied the decline in entrepreneurship for the New America Foundation, a Washington think tank. "Traditionally being able to start your own business has been a path to upward mobility."

That math here is pretty simple. For every thousand companies that start up, only X number are going to be an Amazon or Wal-Mart. Y number are going to successful mid-sized businesses and Z number are going to successful small-sized businesses. While there is no exact formula for how this works it’s clear that if instead of one thousand startups you only have five hundred, it’s going to impact the results.

And the point about upward mobility highlights that this is an issue that should concern Americans of all political stripes.

For the first time since such records have been kept, the Census found in 2008 that more Americans worked for big businesses—those with at least 500 workers—than small ones. The trend has continued since.

For all the paeans to small business from both Republicans and Democrats the reality is that economic, regulatory, and tax policies are more likely to favor existing big business than small business.

The work of running family businesses has also scared off younger generations, said Henry Hutcheson, president of Family Business USA, which advises these businesses.

"The lure and ease of joining a blue chip firm, where you get a good job and a decent salary, just seems to be overwhelming," he said. "People are saying, 'I can go take over my dad's garden center and I can go run this thing and work seven days a week and be there from dawn until dusk, or I can go manage a Home Depot and they're going to pay me $150,000 and I'll get weekends and vacation.' "

While running your own business and being your own boss still has its obvious appeals, I can understand why fewer and fewer Americans are taking the plunge. In addition to the extra risk and effort involved, you also make yourself vulnerable to whims and vagaries imposed by our elected officials. Taxes may go up. Minimum wage requirements may be raised. New regulations may be imposed. And unlike your brethren in big business, you’re likely going to have very little ability to have a real impact on influencing the policies that may make or break you.

This trend also explains why Mitt Romney’s pitch to help unleash America’s entrepreneurial animal spirits and the GOP’s mockery of President Obama’s “you didn’t build that” line (especially at the RNC) didn’t catch on with most voters. They aren’t entrepreneurs and don’t really want to be. They’re happy working for large corporations and letting these companies (along with the government) make decisions for them when it comes to things like health insurance, retirement planning, and paying taxes. They’re willing to trade control of these responsibilities in exchange for a regular paycheck and guaranteed benefits. Republicans are going to have come up with a new message that appeals to the changing attitudes that Americans have about economic risk taking.