Entrepreneurship

Entrepreneurial Spirit Has Abandoned Non-Urban America: Bug or Feature?

Imagine what will happen to flyover country under even more wage regulations.

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Pretty much every story describing the state of the American economy these days has a subtextual—if not outright stated—message: "This is why Donald Trump is happening." So it goes with a new report mapping out how America has recovered from the recession of the last decade. We are seeing significant fracture between urban areas and non-urban or rural environments when looking at the creation of new businesses. Entrepreneurship is becoming increasingly consolidated in major city centers. And even after the economy began recovering, new business creation did not return to previous levels in less-populated environments.

The report is by the Economic Innovation Group, a pro-entrepreneurship advocacy group. Their report, the "New Map of Economic Growth and Recovery," shows that the creation of new businesses in general has plunged compared to previous years going back to 1992. And yes, that includes previous smaller recessions like the dot-com bust. Their numbers show more new firms being created in 2001 and 2002 than in 2012 and 2013.

Chart
Source: Economic Innovation Group

The report has a big focus on geography, and what it shows is that to the extent that new business creation has recovered, it has done so in a smaller number of areas than in previous examples of economic recovery. They've determined that fully half of new businesses established in the United States between 2010 to 2014 were in only 20 counties. And, of course, these are generally not counties out in the sticks. These are counties that are connected to major metropolitan areas. And while one might assume that areas with higher populations would naturally be responsible for creating more new firms, this is still a massive narrowing of opportunity. In the mid-'90s, half of all new businesses were scattered across 125 counties. Just prior to the burst of the housing bubble, half of new businesses were scattered to 64 counties.

Michael Coren at Quartz notes the disparities and brings in Trump, like you do:

Particularly hard hit were sparsely populated, rural areas. In the last post-recession recovery, counties with 100,000 or fewer people generated one-third of the country's new firms (net) between 1992-96. By comparison, those counties lost 1.2% of their businesses between 2010-2014.

The second story is that the majority of new companies look more like tech companies than the construction firms and restaurants that have typically anchored middle-class prosperity. New business formation over the past five years tracked very closely with access to capital, particularly venture and other forms of risk capital, says the report. Of the top 20 counties, 13 were in just three states (California, New York, and Texas) with ample access to such money. That shift has given highly educated urban dwellers another advantage at the expense of everyone else, a disparity polls suggest is fueling the rise of Republican presidential candidate Donald Trump among working-class, rural Americans.

Coren adds that the housing collapse resulted in decreased access to loans in these communities, and the plunge in housing prices also damaged people's equity in their homes and their savings, and people in these environments no longer had enough personal wealth to attempt to start their own businesses.

There's a lot more, as well. Municipal governments large and small have made it increasingly hard for new, small business creation to happen, with an explosive number of regulations, fees, and licensing requirements. Occupational licensing, which once only affected a small number of workers, now affects one out of four jobs, with government-mandated training and fees that drive up costs for both people wanting to enter the job market and for people who want to start businesses.

And to reiterate, this is also what is so utterly destructive to the idea of a state-wide or national $15 minimum wage and President Barack Obama's proposed rule to increase the number of people who would be covered under federal overtime laws instead of as salaried employees. Both of these proposals will have devastating impacts for smaller businesses in less wealthy communities, where both flexibility and thriftiness are necessary to survival.

Fareed Zakaria looked at this drop in businesses in the Washington Post and noted the impacts on regulation growth and how it favored entrenched firms that have been around for a while and could afford to deal with (and influence) government meddling. And then he quickly goes off the rails with some self-aggrandizing generational nonsense:

But a less-noted factor that might be crucial is generational. Baby boomers have proved to be great entrepreneurs, launching companies when they were young and keeping at it as they aged. Succeeding generations have been much less likely to found their own firms. Leigh Buchanan, citing Kauffman data, has explained that the percentage of start-ups launched by people in their 20s and 30s fell from 35 percent in 1996 to 18 percent in 2014. Meanwhile, the share founded by people in their 50s and 60s has actually increased over the past decade.

Young people today dress like Silicon Valley entrepreneurs, consume technology voraciously and talk about disruptive innovation. But they want to work at Goldman Sachs, McKinsey and Google. They are earnest, intelligent, accomplished — and risk-averse.

Is this caution born out of years of stagnant incomes, the financial crisis and a sluggish economy? Maybe, but I think there is something broader at work. Baby boomers were shaped by the 1960s and its counterculture. They were told to "tune in" to their passions and "drop out" of the old establishment. They were rebellious about everything — politics, parental authority, old-fashioned morality and big institutions. Their willingness to strike out on their own was not a pose to get venture capital funding. It was an expression of their passion.

First of all, thanks for erasing Generation X entirely. I'm sure we all had absolutely nothing to do with the launch of new businesses in the 1990s (when many of us were in our 20s, not baby boomers).

Second, who is responsible for that regulatory regime that is strangling the creation of new businesses for the benefit of entrenched government, corporate, and labor interests? Here's a hint: It's not millennials. When all was said and done, baby boomers hardly "dropped out" of the old establishment. They became the establishment, just like every generation does as it ages. The student loans that millennials are racking up now (which probably hamper their ability to engage in post-college risk) are lining the pockets and pensions of a growing administrative class at colleges, money being shifted to baby boomers and Gen. Xers. Our entitlement system, far from being a "safety net," has become a money transfer from the young to the old, even as the post-65 crowd are seeing their income status improve to a greater degree than any other demographic in the United States (while millennials actually lose ground).

Zakaria's absurd generational chin-stroking here (and again, his complete erasure of the generation that made start-up culture actually function) ignores the culpability of the members of the baby boomer establishment in holding new business development back. And it has nothing to do with an "expression of their passion" other than a desire to bend the tools of government to serve themselves. 

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  1. OT: Calvin and Hobbes repeat

    Imagine what would happen to a parent that did that today.

    1. It depends. Does the kid identify as Native American?

  2. It hurts my head to imagine the red tape that opening a coffee shop or restaurant involves. A real green-field business like a factory or machine shop? I don’t even want to think about the horde of regulators that would descend on me.

    1. That’s a little too doom and gloom.

      Trees and stuff.

      More optimistic now?

      1. As long as you don’t try to harvest the trees or make money off of stuff.

  3. Obama has spoken up multiple times on occupational licensing laws. It hasn’t caught on among the left at all. They just kind of quietly report it and move on never considering it in any other arguments. For Obama’s part, he seems only willing to consider how local and state regulations fuck little people over. His regulations? All 20k+ of them he’s added? They’re just going after the big wigs or something.

    We are at a point where the left just defends regulations based on a kneejerk reaction. When I saw Slate/Salon and those other rags launching longwinded screeds against the court case in Texas that overruled the hair stylist regulations, it really epitomized the modern left’s drift away from all liberal values. The progressives used to consider themselves a minority in the Dem party. They now rule the roost like a retarded chicken strutting and shitting all over the place.

    1. I was just thinking about that. The Slate article actually said “TEXAS IS ABOUT TO BECOME A MORE DANGEROUS PLACE!” in the headline, as if blood was going to run in the streets as a result of unlicensed eyebrow threading. (Yeah, it wasn’t even hair stylists they were talking about – it was a law requiring 750 hours of schooling to pluck eyebrows)

      Also, that article was written by Mark Joseph Stern, who may just be the dumbest human being on planet Earth. He’s the same guy who wrote an entire article whining that Kiss Cams at sporting events are ‘heterosexist’ and he once wrote an article claiming it’s literally impossible for someone to be a hateful bigot if they are gay. Behold as he sniffs his own farts:

      “Gay people are born with empathy for the underdog, whether we like it or not. We’ve all played the role of the outcast, the weirdo; we’ve all faced prejudice and discrimination and sorrow and self-loathing. Those of us who emerge from the darkness gain newfound will and determination. But we can’t shake that fundamental desire of justice, that yearning for fairness for those despised by society.”

      1. “(Yeah, it wasn’t even hair stylists they were talking about – it was a law requiring 750 hours of schooling to pluck eyebrows)”

        It takes 720 hours to become a police officer in Texas… just saying.

        1. so youre saying i can get my weave did in jail?

  4. I like that Quartz mentions Trump in their article, but not Obama. You know – the person who was actually president while this was happening.

    Also, Zakaria once again shows why I hate him:

    “Is this caution born out of years of stagnant incomes, the financial crisis and a sluggish economy? Maybe, but I think there is something broader at work. Baby boomers were shaped by the 1960s and its counterculture. They were told to “tune in” to their passions and “drop out” of the old establishment. They were rebellious about everything ? politics, parental authority, old-fashioned morality and big institutions. Their willingness to strike out on their own was not a pose to get venture capital funding. It was an expression of their passion.”

    ^^ Hey, dipshit – I suspect that the Baby Boomers who started all those businesses *were not the same Baby Boomers doing shitloads of drugs and dropping out of school.* Generations tend to contain multiple different groups of people – drug using hippies were not starting a whole lot of businesses in their 20s.

    1. No. No – Baby Boomers are all the same dope-smoking anti-war commies. It’s a function of astrology.

    2. Actually I was a dope smoking hippie dropout in the 70’s. I went into business for myself in the 80;s and have been self employed ever since. And I did it because I actually believe all that crap about individual liberty and decided working for somebody else was a little too much like servitude. I also have a ridiculously high tolerance for risk (which I consider to be a major personality flaw).
      And I can testify that the primary obstacle to small business is government . Zoning, licensing, regulation, the FED and the tax code have killed more startups than any other factor. And now comes Obamacare that forces the self employed to pay absurd premiums for something they don’t need.
      By the way, most of the business start ups I’ve noticed in the last few years are independent vape shops that provide enjoyable, and potentially life saving, goods and services to willing consumers. A real economic success story for all concerned. But wait. Their product kinda looks like another thing government doesn’t like and their customers aren’t being taxed enough and people are enjoying themselves and THE CHILDREN! Better dust off those For Lease signs.

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  6. This morning when I picked up a breakfast sandwich at the gas station, I marveled at the number of licenses posted on the wall. One for a submerged tank, another to sell beer, another to sell food, another just to have a business, and I think there were a couple more.

    I remember reading somewhere that, at least here in Maine, it costs over $50K in licenses and permits to open a gas station.

    1. And that’s capital spent that adds no value whatsoever. Whatever education is involved and direction given in the course of getting these licenses will be completely ignored once the paper is in hand and the owner will simply run the business in the exact manner he planned to in the first place.

      But hey, it gives the state a quick burst of cash to waste and gives them a way to pressure the owner into complying with senseless diktats, so it’s totally worth it.

  7. Why are you even listening to Fareed Zakaria?

  8. “We declared war on rural America, and now these lowlife ingrates have the nerve to fight back!”

  9. Let’s face it, prospective employees want to locate in a highly regulated, high cost of living areas.

    1. Plus, if you need to invert the company go international, it’s convenient to be near an airport.

  10. Entrepreneurship is becoming increasingly consolidated in major city centers. And even after the economy began recovering, new business creation did not return to previous levels in less-populated environments.

    I believe some of this is because the new Entrepreneurship revolves around writing apps.

    The pros and cons of this can certainly be debated, but I think (oddly) the App-writing economy favors the urban center, close to universities and where clumps of young people congregate who choose urban centers for lifestyle reason. I added “oddly” because in many ways, the app-verse can be built and run from pretty much anywhere.

    I believe that startup companies actually building stuff are increasingly rare– for many reasons. And most of those that do manufacture don’t manufacture here, it’s done in China.

    1. I don’t know about the app thing, but certainly the computer/med-tech realm is correct. And most of the universities with large programs in those areas are in urban areas. University Of Illinois is one of the few that is not in a top 100 population center. Back when the advancements were in agriculture and manufacturing, the rural universities created plenty of startups. But now advancements in agriculture and manufacturing frighten the bejeezus out of progressives.

  11. First of all, thanks for erasing Generation X entirely.

    As a certified Gen Xer, I have no problem with erasing my generation entirely.

    1. No, you’re doing it wrong….”as a professionally certified gen X-er, I just want to make sure other gen xers are certified too to make sure the generation meets a high standard of quality and safety”

      Getting rid of the competition is a nice feature but it’s best to keep that part a secret

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  13. The government should just subsidize hipsters to re-locate to rural areas, problem solved!

  14. There are those who–quietly–want to destroy small town and suburban communities. It’s part of a well documented agenda for destroying the U.S. Herd people into slums, hand over “re-wild-ed” park space and nice houses to more immigrants…the U.N. officially dropped “Agenda 21” but plenty of people still seem to be working toward its stated goals. This article sounds like documentation of their success.

  15. Or maybe people just don’t want to live in the sticks.
    As has been the case in human geography since the beginning of time.

    1. Yeah, lack of public transportation in the boonies may have something to do with it. I remember when I was younger and struggling, looking for a cheap and decent apartment to move to. There were some in a distant town that were priced well, but the buses didn’t really go near there, and what would I do if my car broke down? Millenials may have that mindset right now… or they may even prefer to live without a car (which is impossible to do in DFW… believe me, I tried).

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