Ed,
Robert J. Samuelson has made some good points in his article. I'd like to
have seen him enlarge on his Inspiration Myth somewhat. The vast majority
of new jobs are created by small businesses which are not really new but
are only more efficient, or more polished, replacements of old jobs. Or
they are specializations or fashionable infills of older businesses. And
very many of them in the recent years are Internet versions of
brick-and-mortar retail businesses with the cannibalism of at least as many
jobs.
As Samuelson says, the problem since 2008/9 is that the banks aren't
lending to small and medium-sized businesses, even with perfectly
respectable business plans. Yet (as my other posting today refers to) they
continue to lend huge sums of money (at very low rates of interest) to
large businesses which use the loans to pay off debts (a sort of new "carry
trade"), or buy back their own shares to make them more attractive on the
stock exchanges or which simply warehouse the money to await the day when
the economy arises.
But there's one myth which Samuelson himself has fallen victim to. Yes,
Americans have been good entrepreneurs but they couldn't have failed to
make a success in the last 100 years. They had huge domestic oilfields
supplying cheap energy on their own territory and, without a development
lag, they were able to improve the products that Western Europe was already
making. The "entrepreneurial instinct" is not an exclusive American trait.
When the time and conditions are right, almost every culture throughout
history has had periods of great creativity and economic growth.
Americans have got to start getting used to the idea that they are
ordinary, like the rest of us.
Keith
At 09:50 04/10/2010 -0400, Ed Weick wrote:
The real jobs machine: Entrepreneurs
By
<http://projects.washingtonpost.com/staff/articles/robert+j.+samuelson/>Robert
J. Samuelson
Monday, October 4, 2010
If you're interested in job creation -- and who isn't these days? -- you
should talk to someone like Morris Panner. In 1999, Panner and a few
others started a small Boston software company called
<http://www.openair.com/>OpenAir. By 2008, they sold it for $31 million.
The firm had then grown to about 50 workers. It turns out that
entrepreneurship (essentially, the founding of new companies) is crucial
to job creation. But as Panner's experience suggests, success is often a slog.
What's frustrating and perplexing about the present unemployment is that
the U.S. economy has long been a phenomenal jobs machine. Here's the
record: 83 million jobs added from 1960 to 2007 with only six years of
declines (1961, 1975, 1982, 1991, 2002 and 2003). Conventional analysis
blames today's poor performance (jobs are 7.6 million below their
pre-recession peak) on weak demand. Because people aren't buying,
businesses aren't hiring. Though true, this omits the vital role of
entrepreneurship.
In any given year, employment may reflect the ups and downs of the
business cycle. But over longer periods, almost all job growth comes from
new businesses. The reason: high failure rates among existing firms. Even
successful firms succumb to threats: new competition, products or
technologies; mature markets; family feuds and the deaths of founders;
shifting consumer tastes; poor management and unprofitability. A company
founded today has an 80 percent chance of disappearing over the next
quarter-century, report Dane Stangler and Paul Kedrosky of the Kauffman
Foundation.
True, some blue-chip firms -- the Exxons and Procter & Gambles -- endure.
<http://www.kauffman.org/uploadedFiles/firm-formation-neutralism.pdf>Fourth-fifths
of the "Fortune 500" were founded before 1970, note Stangler and Kedrosky.
But they are exceptions, and many brand names have died: Pan Am (once the
premier international airline), Digital Equipment (once the second-largest
computer maker) and Circuit City (once a leading consumer electronics chain).
The debate over whether small or big firms create more jobs is misleading.
The real distinction is between new and old.
American workers are roughly split between firms with fewer or more than
500 employees. In healthy times, older companies of all sizes do create
lots of jobs. But they also lose jobs, as some businesses shrink or
vanish. On balance, job creation and destruction cancel each other. All
the net job increases occur among start-ups, finds a
<http://www.nber.org/papers/w16300.pdf>study of the 1992-2005 period by
economists John Haltiwanger of the University of Maryland and Ron Jarmin
and Javier Miranda of the Census Bureau. Because most start-ups are
necessarily small, this gives a statistical edge to tinier firms in job
creation. But, the study says, the effect entirely reflects the impact of
new businesses.
To be sure, entrepreneurship has a downside: booms and busts. Remember the
dot-com "bubble." But more damaging, says Panner, are widespread popular
misconceptions about what entrepreneurship is and isn't.
Start with the Blockbuster Myth: Success involves creating huge
enterprises a la Google that transform how we live. In reality, "most
ventures don't change the world," says Panner. They're unknown companies
providing highly specialized goods and services, plus restaurants, auto
repair shops and many everyday businesses. There are more than 500,000
start-ups annually, report Haltiwanger, Jarmin and Miranda. The number
must be large to make an impact on the
<http://www.bls.gov/news.release/empsit.t01.htm>155 million-person labor
force.
Second is the Inspiration Myth: Most start-ups spring from some epiphany
suggesting a new product or technology. Wrong. Gee-whiz moments are few.
Companies continually change plans. OpenAir ditched its original idea,
which drew scant customers. "You can't do anything until you meet
someone's needs," says Panner. Discovering what works is exhausting,
frustrating and chancy. Failure rates are high; half of new firms die in
five years.
And, finally, the Incentive Myth: It's necessary to keep tax rates low, so
entrepreneurs can reap huge rewards for their time, sweat and money. Well,
this may be true, but it misses a parallel truth: government disincentives
to entrepreneurship. Panner, a registered Democrat, criticizes complex
accounting, employment, and health-care regulations imposed by federal and
state agencies that consume scarce investment funds and time. The
fragmented system of business oversight imposes a bureaucratic bias,
perhaps unintended, on start-ups. Any one rule or tax may seem
justifiable, but the collective effect can be crushing.
It's all about risk-taking. The good news is that the entrepreneurial
instinct seems deeply ingrained in the nation's economic culture.
Americans like to create; they're ambitious; many want to be "their own
bosses"; many crave fame and fortune. (Panner is already involved with a
new start-up, <http://www.townflier.com/>TownFlier. It has five
employees.) The bad news is that venture capital for start-ups is scarce,
and political leaders seem largely oblivious to burdensome government
policies. This needs to be addressed. Entrepreneurship won't instantly
cure America's jobs' deficit, but without it, there will be no strong
recovery.
Keith Hudson, Saltford, England
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