What is responsible for the decline in startup activity in the United States? The article cites several studies that show how startup activity really has been declining in the United States, and then rebuts most of the reasons that are given:
"The phenomenon can’t be blamed on any recent administration or the great Financial Meltdown of 2008. Nor is it plausible to blame “the usual suspects”: big government, high taxes or regulations. Startups were booming in the 1970s and early 1980s, when tax rates were sky-high, and deregulation was only just getting under way. At the time, the U.S. had many highly regulated industries, yet it produced Silicon Valley. Even today, California has some of the highest taxes and the most regulation, yet it generates vibrant entrepreneurial activity in diverse sectors as such high tech, entertainment and energy.
Nor are the potential explanations identified by the NBER study very plausible: “credit constraints, rising investments in equipment that reduce the need for new employees, outsourcing of work to developing countries, and larger companies acquiring younger firms at an earlier stage of development.” It is not that these elements are irrelevant. The point is that they cannot either separately or collectively explain a decline of the size and persistence that we are seeing."
It then describes how "Student Debt" has to be considered "A Prime Suspect":
In the early 1990s, most students didn’t have to borrow money to graduate from college, and those who did typically took out less than $10,000 in loans. In 2016, over 70% of the graduating class of 2016 took on an average of about $37,000 in student loans to finance their degree. The total sum of student loan debt for the Class of 2016 comes out to around $60 billion — 12 times the amount that graduating classes from the early ’90s held.”
The article describes some of the reasons for this including the higher cost of college and less public investment in public education concluding that, "the increasing cost of college has less to do with improved education and more to do with higher administrative costs and services, including sports" but then goes on to describe the devastating impact of this debt:
A 2013 report by the think tank Demos found that student debt has a negative effect on income, by making borrowers more risk-averse and discouraging them from moving to another city or taking gambles on new jobs or launching a new business. Even more seriously, student loan borrowers save less early on in their lives, and they tend to be more conservative with their investments, due to constraints on income and credit. When even investing in a home seems too risky, launching a new business is even less likely.
After building a solid case, the article reaches its conclusions:
The student debt crisis is transforming the saving, spending and investment behavior of an entire generation, and is transforming the economy along with it. The trend is not a good one. Through a set of collective missteps, America has opted to put a crushing debt burden on the segment of society that can least afford it and the group that has the most to contribute the future. This is not just a question of social justice: it is nothing less than an issue of national economic survival. Unless lawmakers across the country take radical action to address the skyrocketing cost of college, and attendant student debt burden, we can expect U.S. entrepreneurship to continue its frightening decline.
Full Article:
Why U.S. Entrepreneurship is Dying
