The Congressional Budget Office (CBO) has rang the alarm bell on a key component of the economy, expressing concern about the “continued decline of entrepreneurship over the past four decades and the implications for economic growth.”
CBO said new businesses formed decreased from 10 percent of all firms that existed in 1982 to 8 percent in 2018. In addition:
“New firms (defined here as those less than five years old with at least one employee on the payroll) constituted 38 percent of all businesses in 1982 but were only 29 percent of them in 2018.
During that period, new firms’ share of employment fell by a third, from 14 percent to 9 percent. The decline in new firms’ share of employment was fairly consistent in both the retail and services sectors throughout the period.”
This significant fall in new businesses highlights a fall of dynamism in the economy and a trend of declining capitalism.
“The decline in entrepreneurship was related to a falloff in labor productivity of at least 3 percent to 4 percent by the mid-2010s,” CBO said.
CBO blames “financing constraints” and regulations for this huge decline, illustrated by the tightening in bank lending since the 2008 collapse.
They call on the government to “create a program to give new firms access to credit” and to “make regulatory policies less burdensome for new firms in particular.”
One solution that could address both is a much needed reform of the Securities Act 1933, an outdated act unfit for the digital age and perhaps the primary cause of this decline which began as digitization started picking up in the late 80s.
The Securities Act prohibits the public from funding entrepreneurship, causing a key challenge for any startup: funding during the first years on the way to real profits.
This prohibition may have not had a noticeable effect prior to the digital age because members of the public couldn’t easily communicate to the public at scale.
Investment therefore was within the circles one knows, the neighborhood or professional association or the local bank which was far more receptive to enterpreneours.
Nowadays, a lot of the innovation is in the digital space and to make it can require significant upfront funding.
Such innovation was continuing the boom through crowdfunding, but a crackdown by the Securities and Exchanges Commission (SEC) in 2010 on crowdfunding significantly cooled down if not froze entirely innovation in the digital space with that action likely to be the direct cause of the censoring anti-competitive monopolies we have today in Big Tech.
The death of entrepreneurship therefore lays on the doors of Congress, and it is the Congressmen that will soon gather who are digging the grave of capitalism by refusing to reform the Securities Act which is the primary cause of America’s decline.