START-UPS have always been at the heart of Americas economic success. Companies that are five years old or younger account for all of the countrys net job creation. They also account for the bulk of innovation. Established firms are usually in the business of preserving the old world; start-ups are under more pressure to come up with new ideas, and if they do so they usually create lots of new jobs. But these growth machines have broken down. America is not producing as many start-ups as it did a decade ago and those that have been created are providing fewer jobsless than five each, compared with an historical average of about seven. Start-ups created 2.7m new jobs in the 2012 financial year compared with 4.7m in 1999. The financial crisis clearly bears a lot of the blame for reducing Americas stock of capital and animal spirits. But it is only a partial explanation. The decline in the number of firms going public began in 2001. And these problems are continuing to delay the recovery despite the federal government pump-priming the economy and keeping interest rates near zero. In this section Haier and higher Pennies from heaven Silicon and pine Cracking the screens Turning Japanese Three legs good? Not open for business Reprints Related topics Sarbanes-Oxley act United States U.S. Economy Economies Job growth Three years ago John Dearie and Courtney Geduldig, who both worked for the Financial Services Forum, which represents Americas biggest financial institutions, came up with an inspired idea. Why not ask entrepreneurs themselves what is going wrong? Both big multinationals and established small firms have lots of representatives in Washington, DC. Entrepreneurs are too busy inventing their companies to spend time lobbying. The pair organised meetings and conducted lots of polls. Across a vast and diverse country they heard the same message from everyone they asked: entrepreneurship is in a parlous state. And everyone pointed to the same problems. The result is a new book, Where the Jobs Are, which should be dropped onto the heads of Americas squabbling politicians. The first worry is over human capital. Entrepreneurs repeatedly complain that they cannot hire the right people because universities are failing to keep pace with a fast-changing job market. Small firms lack the resources to provide training and are consequently making do with fewer people working longer hours. Exasperation turns to fury when it comes to immigration. Immigrants are responsible for launching about half the countrys most successful start-ups and producing a striking number of its patents. But the authorities do their best to drive them out of the country once they have been educated or to break their spirits on the visa treadmill. The system for skilled workers is skewed towards established firms because it demands guaranteed employment for a certain length of time and forces workers to leave the country if they lose their jobs. Start-ups are turning themselves upside down trying to deal with this problem. The authors came across two heterosexual men who were thinking of taking advantage of new gay-marriage rules and getting hitched so that the foreign-born one could stay in the country. They also found Max Marty, who is raising money to moor a ship in international waters off San Francisco. Foreign-born entrepreneurs will work in the floating office-park and make trips to Silicon Valley. The second problem is the complexity and cost of government. Entrepreneurs the world over complain about regulations and taxes. But Americas have lots to gripe about: in 2009-11 the Obama administration issued 106 new regulations each expected to have an economic impact of at least $100m a year. Besides this business founders suffer from the constant political uncertainty generated by a combination of ambitious new legislation, such as Obamacare, and ideological trench warfare. The Vanguard Group, an asset-management firm, calculates that since 2011 Washingtons bickering politicians have imposed, in effect, a $261 billion uncertainty tax that has cost up to 1m new jobs. The financial crisis has worsened the third problem: raising money. Over 70% of new businesses are launched using savings or assetsparticularly houses. The crisis reduced the average net wealth of American households by about 40%. Business founders repeatedly mention other problems too. Venture capitalists are increasingly risk-averse. The Sarbanes-Oxley act imposes additional costs of $1m a year on public companies. Investors no longer bother with growth stocks because there is more money to be made in making lots of big trades in established firms. The dramatic decline in the number of firms going public since 2001 is worrying because, over the past four decades, more than 90% of jobs created by start-ups came into being after they went public. Stop start-up Congress tried to fix some of these problems with last years JOBS act: for example new firms can now apply for exemption from the most onerous parts of Sarbanes-Oxley for five years. But problems such as political uncertainty have worsened. Mr Dearie and Ms Geduldig suggest other, more ambitious reforms such as giving entrepreneurs a special status, under which their new firms would be subject to a flat 5% tax on their income for the first five years. But these reforms will make an absurdly labyrinthine tax system more complicated still. There is a stronger case for reducing regulations and taxes across the board: American firms now pay the highest corporation taxes in the world, for example. Start-ups would gain disproportionately from such reforms. Fixing the small-business problem should be at the top of the political agenda. Some 22m workers are either unemployed or underemployed, or have given up looking for work. If it continues to generate new jobs at its current anaemic rate, America will not return to pre-recession employment levels until 2020. The country is lucky that entrepreneurship is part of its DNA. It seems perverse to put unnecessary obstacles in the path of people whose ambition is to found businesses and hire new workers. http://www.economist.com/news/busin...business?fsrc=scn/fb/wl/pe/notopenforbusiness
A reduction in income inequality would be a good start. Given the impact of risk aversity on firm creation, a solid safety net will encourage the pursuit of self-employment
The middle classes, the great engine of spending, have been decimated over the past 30 years. Compared to 30 years ago, the 1% now takes 20% of the nation's income, up from about 10%, and now controls 40% of the wealth, up from about 20%. The middle classes' share have fallen proportionately. Add to that the fact that most of their wealth was in their home equity, which got vaporized in the housing bubble. If you want a strong economy, you need demand for products and services. Reversing "trickle down" policies and getting more money into the hands of the middle class, and less with the 1% who stick more of it in their offshore accounts instead of spending it, would be a good place to start. Also, this might have something to do with it. Reagan Spending increase, 1981-1984: +25.6%. Total Government employment, 1981-1984: -27,000 Obama Spending increase, 2009-2012: +0.6% Total Government employment, 2009-2012: -730,000 What do you think the economy would look like if spending had actually grow over the past four years, and the Republican dominated states hadn't added over 700,000 people to the unemployment rolls?
Much of the Reagan era spending was for the military due to Carter's failure to keep the military modernized and trained. And if spending had continued on from the Reagan era we would be further in the red national debt wise.
