The 2008 financial crisis apparently knocked U.S. entrepreneurship to the ground, and it’s having a hard time returning to its feet, one expert has warned.
Michelle Meyer, US economist at Bank of America Merrill Lynch, recently said that the formation of new corporate firms (for example, McDonald's as a whole) and individual establishments (an individual McDonald's restaurant), has plunged since the financial crisis and remained low, Business Insider reports.
New businesses typically hire faster and produce higher levels of productivity than firms that have been around for a while. Such a decline in business formation can explain some of the labor market's recent problems, and is at least part of the reason for the steep drop in productivity, BI explained.
"A recent paper from the Federal Reserve Board (and referenced by Vice Chair Fischer in his Jackson Hole speech) estimates that there is a persistent increase in both GDP and productivity as a result of changes in the number of start-ups. Specifically, they found that a one-standard deviation shock to the number of start-ups led to an increase of real GDP culminating to 1-1.5% and lasting 10 years or longer. This suggests a notable and lasting impact on the economy from weak rate of business entry over the past decade," Meyer said.
Meyer suggests four reasons for this:
- Tighter credit conditions as loans became harder to secure.
- "Uncertainty shock" due to the recession and more recent political and economic battles.
- "Technology disruptions" as online shopping and downloadable products have discouraged physical products and locations.
- "Aging economy and population" as most entrepreneurs are young people.
But Meyer does admit that the situation is very volatile and the stalled new-business drive can eventually “grow” out of its recent funk: Credit is getting easier, society will adapt to technology, another generation of self-starters has been born and the current economic and political battles will be replaced by new ones.
To be sure, there is additional evidence that political uncertainty is hurting small business.
"Political dysfunction" is holding back the strength of U.S. competitiveness, according to a new report from Harvard Business School's U.S. Competitiveness Project.
Harvard Business School's U.S. Competitiveness Project released a report that said the government's lack of action is holding the U.S. economy back.
Professor and cochair of the project Michael Porter bluntly told CNBC: "I think it is very disappointing. We're stalled in America. Our economic performance on many metrics is worse than we've seen in many generations," Porter said.
That's because the U.S. hasn't made progress on fixing the things that are holding us back, he said.
"We're having a very bizarre political dialogue about a lot of things, but ultimately we're not moving ahead on tax policy, on infrastructure, on all the things we know we need to do," Porter said.
(Newsmax wire services contributed to this report).
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