Daniel Garza: The crisis of entrepreneurship: American businesses failing at a historic rate

We recently received worrying – but not surprising - news from Washington. According to new GDP figures, our economy is continuing to slow, and now sits on the edge of recession. Instead of strength and creating new opportunities, this may be as good as it gets for working families – at least until there’s a new approach in Washington. Until and unless that happens, we appear to be a long way from breaking out of the pattern that has been going on for years – one of optimistic talk from Washington despite the reality of slow economic growth resulting in more of living paycheck to paycheck for American families.

What Americans need is growth in the private sector. That is not going to happen with a growing government, more government spending, more government borrowing and more unsustainable government programs. We need policies that will return a pro-growth environment immediately.

— Daniel Garza

Sadly, regardless of the near-term twists and turns in the domestic economy, there are serious long-term problems that are being ignored. One of the most serious is the alarming and little-noticed collapse in the number of businesses in the United States.

According to Gallup, the U.S. doesn’t rank first or second in the world in new businesses created - but 12th among developed countries. Nations like Hungary, Finland, Sweden, Israel and Italy all start up new businesses at greater rates than the U.S.

This strikes most people as surprising. Americans are proud of our pioneer spirit, our creativity, and our entrepreneurship. With a strong tradition built on hard-working immigrants – millions of whom continue to start mom-and-pop businesses even to this day – we expect America to lead the world. Instead the number of new companies founded every year is plummeting.

This is a serious problem because growing companies are critical for employment growth, and always have been. The number of large companies in the economy is relatively small, and while they can be an important source of new jobs, the opportunities they create are limited. The fact is that companies that have already become dominant in their sector do a limited amount of new hiring. In the same way, companies that stay small also generate few opportunities for employment.

The jobs of the future will come from healthy, growing companies – firms that may be founded today, but which have the potential to expand by leaps and bounds 5, 10, or 20 years from now. But sadly, the number of new companies started each year has been falling for more than 30 years – and has absolutely collapsed since 2007.

Even worse, the number of businesses failing has spiked since 2007 – so now more businesses are closing down than starting up every year. Gallup recently reported that the total number of businesses of all sizes is falling in the country by nearly 70,000 per year.  With only about 6 million active businesses employing more than 100 million Americans, we are set to lose about half a million firms over a 7 year period. And that crisis of entrepreneurship threatens millions of American families.

Latinos should be more concerned about this than anyone. Our community is much younger than the nation as a whole, and Latinos coming out of school now face serious economic challenges. They cannot afford to see job opportunities dry up even further as the job base shrinks. Additionally, Latino immigrants continue to pursue an American Dream that for many involves starting a small business. As it becomes harder and harder to start a company and grow it until it can sustain a family, these families will see their chance to achieve the dream diminished.

Politicians and community leaders with a big government mindset continue to advocate for more and more government assistance as the answer to a declining job market, despite years of failed results. This shallow, unthinking policy response only induces long-term idleness, lack of productivity and chronic economic decline. What Americans need is growth in the private sector. That is not going to happen with a growing government, more government spending, more government borrowing and more unsustainable government programs. We need policies that will return a pro-growth environment immediately.

The staff and volunteers of the LIBRE Institute are trying to do what we can to help. In a few weeks LIBRE will host the Southwest Business Summit <http://swbsummit.com/> in Albuquerque New Mexico. The event is free, and will focus on energy, trade with Mexico, the burden of government regulation and unique business opportunities and challenges impacting all small businesses in the Southwest. This summit will help entrepreneurs develop strategies for succeeding in an environment that is increasingly challenging.

But while efforts like this one may help, they do not solve the problem. In recent years the dreams of entrepreneurs to build a business that helps their family and community are being stifled. Whether due to costly regulations, complex mandates, high taxes, lack of credit, or some combination, people simply aren’t starting the companies that will grow to be world leaders someday. Ignored by Washington, this problem is festering, and it will take a new approach to fix it.