Blog PostMay 12, 2014

Wrong Way Business Dynamism Means Less Job Creation

What happens when more businesses fail than succeed?

A lot can happen in 30 years. In our nation, that time span has seen ordinary people do extraordinary things with their ideas and “can do” spirit – starting businesses from scratch and creating millions of jobs for Americans in the process.

Take Do Won Chang, the founder of Forever 21 clothing stores. The Korean immigrant spent his first three years in the United States working three jobs to make ends meet before opening his first store in 1984. 30 years later, Mr. Chang and his wife have opened hundreds of stores around the world which earn billions every year and created at least 30,000 jobs.

Three decades ago one of our own Job Creators Network business leaders had an idea as well. At age 18, Gary Rabine took the few thousand dollars he had in his pocket and started what is now Rabine Paving America. Today, it is one of the largest commercial paving companies in the United States.

And the past 30 years has undoubtedly included thousands of similar stories of entrepreneurship run amok, resulting in millions of jobs and a thriving economy.

According to a new study, however, we are hearing fewer and fewer of these stories. Researchers at the Brookings Institution tracked the rates of “business dynamism” from 1978 – 2011.

Brookings defines “Business dynamism” as “the process by which firms continually are born, fail, expand and contract, as some jobs are created, others are destroyed and others still are turned over” and that “Entrepreneurs play a critical role in this process and in net job creation.”

For 30 years, there were more businesses successes than not. But since 2009, the number of businesses that fail now outnumber those that succeed:

Researchers did not offer any explanation for such a drastic decline, but said only that if this trend continues, we are on a path of continued slow economic growth.

The timing of this sharp drop coincides with another drastic economic decline – the nation’s labor force participation rate. Since 2009, we have seen the number of new adults coming into the labor force go from approximately 60 percent to ten percent.

That means since 2009, of the new adults entering our population who are able to work, only one of every ten actually has a job or tries to get one.

Both of these statistics are frightening – they tell us our economic freedom is slipping from hardworking American taxpayers at a faster rate than we’ve ever seen before.

Whether the culprit is the new federal health law, over-regulation, over-taxation – or a combination of all three, it is clear that we need to revive the American “can-do” spirit so we once again can tell the stories of people like Mr. Chang and Gary Rabine.