Entrepreneurship is Anemic Around the Globe

The driver of the old economy from the twentieth century was the auto industry.  The old saying was that if General Motors sneezes, the rest of the economy caught a cold.

The driver of the economy in this century has been entrepreneurs.  From the sounds of the latest survey from the Kauffman Foundation and the OECD, entrepreneurs seem to have caught swine flu, so the rest of the economy is probably about to go on life support.

In all 23 countries and regions surveyed, firm formation declined and exits increased.  This should be viewed as a leading indicator of job creation — or should I say the lack of it — as 75-80% of all new jobs came from small business over the past twenty years.  The only parts of the world that show even a glimmer of hope are Eastern European countries and Brazil, where they have seen higher rates of firm births and growth.  These are parts of the world that began to restructure to foster entrepreneurial activity even before the downturn.  However, these regions have also seen an increase in firm closures.

The U.S. (also the U.K. and to a lesser extent Spain) observed a decrease in firm entries already in 2007, when most other countries were still reporting a steady rise.

What is Keeping Entrepreneurs Awake at Night?

SmartBrief conducted a survey to find out what stresses entrepreneurs most these days.  Here is what entrepreneurs told SmartBrief causes them the most stress:

Complying with government regulations   28.76% 
Staying ahead of the competition   20.80% 
Managing employees/contractors   19.47% 
Making payroll   15.49% 
Dealing with customer issues   15.49%

Here is their take on these findings:

Employees, customers and payroll worries may keep you up at night, but they
lagged far behind the biggest stress factor of all: government regulations. Even
the competition (which, theoretically, is trying to put you out of business),
causes less stress than the government (which, theoretically, is trying to help
your business). In other words, government loans and educational programs may be
nice, but if Washington really wants to encourage entrepreneurial risk-taking,
it needs to get out of the way so you can get a decent night’s sleep.

The results are quite revealing, especially given the study I cited
earlier this week
that shows the real state of regulation in the U.S.

I wish we’d follow Europe’s lead when it comes to business regulation (rather than socialized healthcare) — they are slashing small business regulations to help spur new business formation all over the continent.

More on October Employment in Small Business

The NFIB has just released their employment report for October.  It is consistent with other reports we are seeing this week.

William C. Dunkelberg, chief economist for the NFIB, issued the following statement:
 
“Once again, the ‘good news’ is less bad news. Small business owners in October reported a decline in average employment per firm of 0.5 workers (seasonally adjusted) during the third quarter (prior three months to the survey), a marked improvement from the losses of about 0.8 employees reported in the prior three months and much better than the record loss of 1.26 workers posted in May.  

“Eight percent of the owners increased employment by an average of 3.5 workers per firm, but 19 percent reduced employment an average of 4.2 workers per firm (seasonally adjusted); both statistics are better than September readings.  The ‘job generating machine’ is still in reverse.  Sales are not picking up, so survival requires continuous attention to costs and labor costs loom large.  An increase in the minimum wage of more than 10 percent was hardly helpful, as teen unemployment has surged (over 440,000 jobs lost since April, the teen unemployment rate rose to 25.9 percent).  Still, job reductions are fading and job creation will cross the zero line by the end of the year. Eight percent (seasonally adjusted) reported unfilled job openings, unchanged from August and September.  

“Over the next three months, 16 percent plan to reduce employment (unchanged), and 9 percent plan to create new jobs (up 2 points), yielding a seasonally adjusted net negative 1 percent of owners planning to create new jobs, a 3 point improvement, but still more firms are planning to cut jobs than planning to add.”

Just an Ember of Optimism?

Those entrepreneurs who have survived the recession continue to show glimmers of optimism.  A new Intuit Payroll survey found that 44% are planning to hire in the next 12 months. The survey, which polled more than 1,000 small business owners, also revealed that 60% of small business owners expect their business to grow over the period. 

My fear is that what we are seeing are mere embers of optimism left over from the blazing fires of our economic boom times of the past twenty years, rather than a spark heralding a period of renewed growth.

No Recovery without Jobs

Economists never seem too bothered by the realities of what they study.

To most of us, the purpose of an economy is to facilitate commerce and create jobs.  So it follows that a recovery should include increases in employment.

However, we continue to hear that this may be a “jobless recovery.”

The latest poll from the NFIB suggests that any recovery including jobs is still not in sight.

In September, small business owners reported a decline in average employment of 0.83 workers per firm during the prior three months, a substantial improvement from May but virtually no change from July and August and historically the sixth largest loss per firm in the 35 year survey history (the record is negative 1.26 in May, 2009).

Only seven percent of the owners increased employment and 23 percent reduced employment, yielding a seasonally adjusted net negative 16 percent of owners decreasing employment in the last three months, unchanged from August.  The job generating machine is still in reverse.  Sales are not picking up, so survival requires continuous attention to costs, and labor costs loom large.
 
This is not a recovery to those of us who care about small businesses on main street.

Passing of the Torch?

There is a new group trying to focus the discontent of the Millennial Generation — it is called the Year of Youth.  Their focus:

The message of liberty, localism, and the decentralization of power are ideas
whose time has come.

I have sensed a strong libertarianism in this generation.  It will be interesting to see if this group can gain traction and achieve their goal of mobilizing the Millennials into political activism and fundamentally redefining policy beginning with the election of 2012.

We’ll Take Any Good News Right Now

Though overall unemployment has reached 9.8%, hiring by small businesses is up almost 2% year to date according to SurePayroll’s Small Business Scorecard monthly survey.  It is important that we clarify this glimmer of good news by clarifying that the increase is largely due to the fact that independent contractor hiring is up 14% year to date. But we will take any good news right now. 

Click here to view the full SurePayroll Small Business Scorecard.  

When Government Gets Involved

Think you know what a small business is?

Thanks to years of rent seeking by advocates and lobbyists for various industries and trade organizations, the SBA needs a table that runs 37 pages plus footnotes just to define small business.

Take a look.

This is just one small example why we don’t need government steering our economy and making decisions about economic winners and losers.

More is Less

I wrote a couple of posts yesterday on the resiliency of entrepreneurs and their ability to start new ventures even if venture capital is not flowing freely.  In a post by Jonathan Ortmans at Policy Forum on Entrepreneurship Blog based on what he heard during a recent discussion among investors, he offers the following observation:

There was a universal agreement, bar one person, that now is an excellent time
for investors in new start-ups and that entrepreneurs should be cautious about
accepting too much outside capital.  In fact, ironically, all three serious
start-ups I met last week had not accepted any outside funding at
all.
 
Let’s hope that scarce capital means more smarts and better success
rates for the entrepreneurs.