Monday, January 19, 2015
Random ruminations from your resident curmudgeon...
It's stating the obvious when I say our nation has a lot of economic problems. A ballooning deficit; a large swath of working age Americans without a job; and a gargantuan amount of debt are but a few.
But perhaps our most serious economic problem has to do with birth and death.
No, not of individuals, but of businesses.
As of the end of the year, the U.S. economy ranked 12th globally in terms of business start up activity. Countries such as Finland, Hungary, Israel, New Zealand, and even Italy all rank ahead of the United States in new business start ups.
For the first time in 35 years, business "deaths"- companies that close for good- outnumber the business "births"- companies that are starting up.
According the Census Bureau, 400,000 new businesses started up while 470,000 businesses closed in 2012, the last year for which data has been released.
So why is this the biggest economic problem that our nation must confront?
I will answer by asking a question.
Where are jobs created?
85% of all jobs in this country are created by small business, defined as those that employ 50 people or less.When small and medium size businesses are dying faster than new ones are being created, jobs disappear.
Now if you look at the census data, you will find that there are 26 million businesses listed in the U.S.
But dig deeper, and you find that just over 20 million of those businesses don't actually do business. They have no sales, workers, or profits. Their business is still listed as an active enterprise only because they have not officially shut down.
Of the remaining approximately 6 million companies, 3.8 million have under 4 employees. they are the "mom and pop" shops across the country. There are 1 million companies with 5 to 9 people employed. There are 500,000 companies with 20-99 employees; 90,000 companies with 100-499 employees;and 18,000 companies that employ more than 500 people.
These approximately 6 million businesses employ 100 million Americans, and those employed Americans and their employers, especially the small to medium sized ones, provide the tax base for all of our spending.
Without the growth of companies and the jobs they bring, our tax base starts to shrink. There is less tax revenue for defense spending, social programs, and running the country. When new businesses are not being born, jobs- and tax revenue- declines.
Without a growing entrepreneurial economy, good, well paying jobs are not being created, which puts further strain on economic growth and on families.
Until we recognize the growth of our economy does not come from stifling bureaucracy, layers of government, and an onerous tax code, our country is going to continue to struggle to produce jobs that pay well. We are going to struggle to have new companies "born" that provide those jobs.
We must understand that our national security as well as our standard of living are dependent upon an environment that fosters the birth of new companies that will employ more Americans.
If we do not reverse course, we will continue to travel the road to economic calamity.
And that, my friends, is my view.