Last night, amidst yelling and hand-raising and arm-waving, the Democratic presidential candidates managed to say the word “entrepreneur” three times during their debate in South Carolina. Former vice-president Joe Biden was responsible for two of those mentions; Sen. Amy Klobuchar, the third. During the previous debate, in Nevada, “entrepreneur” was spoken a whopping five times: four by Sen. Elizabeth Warren, and once by Mayor Pete Buttigieg.
Overall, in last night’s debate, foreign policy garnered the most attention from the candidates, followed by health care and “social issues.” In the Nevada debate, “economic inequality” was the most-frequently discussed issues, followed by health care and the environment. As best I can tell—purely looking at the debates—economic issues in general aren’t getting much attention in the race.
That makes some sense: the U.S. economy is strong, with January job growth outpacing expectations, wages still rising at about three percent, and unemployment claims at historic lows.
Eroding Economic Foundations
Beneath the surface, however, there is a slow-motion erosion that threatens future economic growth. This should be at the top of the national economic agenda. New business creation in the United States remains near historic lows, especially among businesses with growth potential.
I’m not referring to the tech startup boom that might be losing steam. There is, instead, a more general challenge, what some researchers call a “startup deficit.” This is far more pernicious and worrying for the national economy. Let’s consider some statistics:
- From the end of 2004 to the third quarter of 2012, the average number of quarterly business applications rose by 18 percent. A business application is an application for an EIN. This increase is a good thing.
- Yet “high-propensity” business applications fell during the recession and have stalled in their recovery. Since 2016, they have remained about 14 percent below the quarterly average of 2004-07. High-propensity business applications are those defined by the Census Bureau as having a “high propensity of turning into businesses with payroll.” That is, an application for an EIN that could turn into a business that creates jobs. This stall is not such a good thing.
- Worse, the quarterly number of EIN applications that turn into actual businesses fell by one-third from the 2004-07 period to the 2013-15 period. People are filing applications, but not creating businesses.
- Finally, on an annual basis, the number of new employer firms created remains far below historical averages. For 30 years, from 1977 to 2007, about 500,000 new employer business were created in the United States each year. On average, since then, we’ve created about 100,000 fewer each year.
All of these data points, based on Census data, can be found in my report from the Progressive Policy Institute (PPI).
It Doesn’t Get Better
Among the businesses that do get started, huge challenges persist. There are major funding gaps for young and small companies, especially those owned by women and minorities. Business creation has virtually disappeared from large parts of rural America. Among metro areas, only a handful account for most of the national net growth in new businesses.
As the PPI report documents, the slowdowns and gaps in business creation have all sorts of knock-on effects. The economy becomes “older and slower,” with bigger and older companies dominating, unchallenged by new entrants. Overall business dynamism—a major driver of productivity—diminishes. It’s also just, well, un-American. Entrepreneurship has been central to our national identity since before the republic was founded.
The immediate effects may not be apparent while the economy is still chugging along. But the slowdown will eventually—and inevitably—manifest itself in lower levels of job creation, demographic gaps, and even greater regional divergence.
Are We Going To Talk About This?
Evidently not. If Democrats are trying to mimic the absence of entrepreneurship in the economy with silence on the campaign trail, they’re doing a remarkable job of it. The PPI report reviews every candidate on what they say about entrepreneurship and what they say they’re going to do to support new business creation. Several of the candidates we included in the review have since withdrawn, which is unfortunate because some of them were the most articulate on the topic.
Several of the candidates have plans on their campaign sites with varying levels of detail. Some of them recognize the existence of an “entrepreneurship gap,” as Sen. Warren said, along demographic lines. President Trump has often celebrated entrepreneurs but his record on supporting them has been criticized.
The slowdown in business creation should be on the lips of every candidate in the race, including the president. It should be the first question asked at the next debate and should be a central topic when we move into full-blown campaign season later this year. Entrepreneurs want to know what the next presidential administration will do to address funding gaps, talent shortages, bottlenecks in technology commercialization, the attraction of immigrants, and more.
But first, they want to know: are we going to talk about the problem?