We Need More Entrepreneurs

Entrepreneurship is in decline in America.  Here is some data from the Kaufmann Foundation.

There are a large variety of reasons for the decline in entrepreneurship. Chief among them is the risk-taking appetite of the Millennial Generation. It’s not there. On the other hand, many of them are graduating with a lot of student loan debt so it’s hard for them to even envision assuming more risk.

Since 2001, government policies have been enacted that discourage risk. They were enacted in the name of protecting people from financial fallout. In 2001 when the internet bubble burst a lot of Americans were impacted. In 2008 when the real estate bubble burst every American was impacted.

The end result has been private companies staying private longer and the end of community banking in the US. TD Ameritrade founder Joe Ricketts wrote about how community banking is integral to seeding far-flung entrepreneurs.  He is right.  Community banks shouldn’t fall under the same regulatory framework as JP Morgan.  They exist for totally different reasons.  Dodd-Frank has crushed community banks and forced mergers so banks can get big enough to afford to confront the regulatory bureaucracy they must manage to stay in business.  Increasing costs have choked off their ability to make smaller loans.

No capital means the grease doesn’t get put on the gears of entrepreneurship and no jobs are created.  It also creates a situation where incumbents face less competition and just get bigger.

We need to encourage startups to go public sooner so the rest of the American public can participate in the technological wave that is sweeping through society today.  That will certainly cause some losses but it will also cause some Americans to increase their wealth.

If you bought 100 shares of Microsoft on the IPO back in 1986 and did nothing you’d have 28,800 shares today.  Or, $2100 dollars would have turned into $2,413,728.

Suppose you never bought a single stock and instead just invested in the broader market in an index fund.  You’d still be better off without the same amount of risk. Your return would have been less.  Because of our current regulatory environment, the American worker is worse off because of the opportunity costs of never getting the chance to invest.  What if Uber had gone public at less than a billion?  AirBnb?  Any of the other internet unicorns we read about?

High corporate taxes kill entrepreneurship too.  One avenue for exit is a corporate acquisition.  High taxes create barriers to exit since the hurdle rates corporations use internally to assess whether to buy another company change the calculus.  Lower corporate tax rates won’t only help workers increase their salaries.  They will increase the chances that an entrepreneur’s company could get bought creating wealth for them and that startup’s employees.

Our public policy is killing our risk-taking ability.  Our public policy is killing our risk-taking appetite.

Our society moves forward with entrepreneurship. It’s how wealth is created.  It’s messy.  There are failures for sure.  But, it’s the lifeblood of who we are as Americans. It’s one of the reasons we are different.  It’s time to make entrepreneurship approachable again.

4 thoughts on “We Need More Entrepreneurs

  1. The American way has always been to find a solution to problems created by the government or any organization.
    I recently backed a product on Kickstarter. While I have not used other organizations such as Fundrise, Kiva, or LendingClub I believe these, and others, offer opportunity to every individual, whether it be to create, invest, or just help others.
    Our public policy is the result of our educational system. I may be wrong (learned to say that after 30 years of marriage) but it appears we have been breeding conformity rather than independence of thought and risk-taking. Look at how colleges respond when confronted with bringing a speaker who challenges the status quo.
    We need entrepreneurial educators who can and will re-invent the system. Thereby creating jobs, making themselves and others wealthy in the process, and increasing the entrepreneurial drive in America.
    Thank you for your column. Please keep up the great work.

    1. Yupp, teaching kids about the upsides and downsides of risk is important. Problem is, the people doing the teaching all equate risk with downside.

  2. What is your take on JOBS Act Title III? Theoretically, everyone can invest as little as $100. Many actually poor people spent more than that per month on lottery tickets. Even if they bought randomly $100 shares in 12 startups each year, they would do much better.

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