U.S. businesses are being destroyed faster than they’re being created
Ian Hathaway (Ennsyte Economics)
Robert E. Litan (The Brookings Institution)
Matt O'Brien (Washington Post, noted on Wonkblog )
The American economy is less entrepreneurial now than at any point in the last three decades. That's the conclusion of a new study out from the Brookings Institution, which looks at the rates of new business creation and destruction since 1978. In the University of Pennsylvania’s 2012 Global Go To Think Tanks Report, Brookings is ranked the most influential think tank in the world.
Not only that, but during the most recent three years of the study -- 2009, 2010 and 2011 -- businesses were collapsing faster than they were being formed, a first. Overall, new businesses creation (measured as the share of all businesses less than one year old) declined by about half from 1978 to 2011.
The authors don't mince words about the stakes here: If the decline persists, "it implies a continuation of slow growth for the indefinite future." This lack of economic dynamism, particularly the steep drop since 2006, may be one reason why our current recovery has felt like
much less than a recovery. As Matt O'Brien noted on Wonkblog last week, annual job growth rates have stubbornly refused to budge above 2 percent for the duration of the recovery.
The authors of the Brookings study dug beyond the national numbers to look at the change in new firms at the state and metro levels and found that they generally mirrored the national trends.
I mapped the state data below. While all states showed steep drops in new firms, New York stands out for its much smaller decline in the share of new companies than other states -- only 18 percent, compared with the 50-state average of 47.2 percent. Illinois, Texas, New Jersey and Missouri round out the top five.