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October 11, 2012

Business Insider: America Not Entrepreneurial Capital

An interesting article describing business creation among the countries of the world was published by the Business Insider last week.  In summary, the article discusses how we are not the top business creator, how new businesses do not create many jobs, how many new businesses in America are started by people who cannot get hired, and how we are lacking innovation at the business creation level.  I would like to take the opportunity to discuss each of these points.

The fact that new businesses do not create many jobs in America is not surprising to me.  Sole proprietorships tend to be more popular in countries with a history of economic freedom versus those with more restrictions.  Small businesses do create a majority of the jobs in America, but few to none are young companies.  The only way to improve this metric is to have an environment that fosters the creation of more sole proprietorships.

The desperation of new business owners may be seen as a negative, but I believe that it is actually a positive.  Common Sense Capitalism has been concerned over the past four years that a generous unemployment benefits system would hurt business creation because it is a strong incentive not to work.  I would much rather prefer the chronically unemployed starting shaky new businesses versus not working.  Even if the business fails, it gives the individual the opportunity to acquire skills that may help in future business endeavors.  This piece of entrepreneurship provides us some hope that Americans still favor failure as the ultimate regulator of a free market.

On innovation, the previous paragraph may offer some explanation, but our regulatory environment may offer more.  How many business models in the United States block out the individual?  Most healthcare, insurance, and financial companies require millions of dollars in capital to get started.  The various legal and accounting requirements certainly do not help the cost structure.  There are also industries in manufacturing that the sole proprietor could not enter into.  With limited options and regulatory costs associated with creating new products, is it a surprise that smaller businesses are having a tougher time innovating?

Overall, I hope the Business Insider article was an eye-opener to Americans about how the economic environment is becoming less friendly to the individual.

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