Why US Fears Decrease in New Companies

As 2015 arrived, large economic entities arose, oil continued to fall, the United States economy flashed a light of hope, the gross domestic product picked up the pace, the U.S. dollar exchange rate strengthened and unemployment rates fell. The Federal Reserve system is already pressing the “add interests” button, and “quantitative easing” is officially over. We see the GDP in countries using the euro losing momentum, the euro exchange rate plummeting and high unemployment with no sign of coming down — and all the European Union can do is announce a quantitative easing policy. We hope that Europe’s economy can return to its road of recovery as soon as possible and catch up with the USA. After 30 years of rapid development, China’s economy has clearly entered an adjustment stage. Even with oil prices falling, China’s GDP growth in 2014 was still 7.4 percent. The People’s Bank of China now takes the path of lowering interest rates to stabilize the economy, and of course, Russia and Saudi Arabia have suffered heavy losses.

Mid-January, during the Davos World Economic Forum, the EU suddenly announced a new quantitative easing policy, making it obvious to people that these countries are getting less and less competitive.

And in California, nobody seems to care about other countries or macro-economics. So what do they care about?

The U.S. magazine Foreign Affairs has an inspiring article called “Start-Up Slowdown” by Robert Litan, senior fellow at The Brookings Institution. It mainly discusses three points:

– the decrease in new U.S. companies years ago;

– ways to improve;

– the importance of entrepreneurs, and their edge in the U.S. economy and world status.

The U.S. Census Bureau created the Business Dynamics Statistics database in 2008, tracking company start-ups and shutdowns. These statistics date back to 1977, and the author’s statistics from 1977 to 2012 reveal that the proportion of new companies to all companies dwindled year after year, falling from 15 percent in 1978 to only 8 percent in 2011. What’s more is that this is the first time in 30 years that there are fewer business births than business deaths.

The author is very concerned about this. He believes that the U.S. is a cradle of innovation, so a prolonged decrease in new companies could damage future innovation in America, as well as its competitive advantage over other countries, thereby compromising its world leadership status. In hope of improvement, the author gives several suggestions from which China can learn, too.

First, immigration laws should be changed to give more encouragement to immigrants. The number of companies created by immigrants is twice that of companies created by locals. Immigrants happen to be more adventurous. Twenty-five percent of new companies were established by immigrants. Immigrants have also created huge wealth and high-tech products, and needless to say, those well-educated immigrants make huge contributions to the U.S. economy.

Second, the U.S. government should encourage less wealthy investors to invest in new companies. For example, it should simplify restrictions on crowdfunding. More broadly, the government should encourage new companies to reduce burdens on themselves in terms of legal, investment and health insurance to reduce governmental restrictions.

Third, besides effort from the government, the people’s capital can be a big help, too. One good thing to try is a new business model called a “business accelerator.”

Besides these suggestions, the author shows his concern about the growing disparity between the rich and poor. In an environment of high-tech innovation, how can a disparity in income be avoided? The author’s remedy is education, especially advanced technological training. For example, he suggests computer programming education in junior high schools as a fundamental subject, like English. This could substantially improve people’s well-being and boost incomes. At the same time, the arts and humanities are also important aspects that an entrepreneur should possess.

Finally, the author states that entrepreneurs create the future and have the potential to strengthen the economy. The U.S. has no choice but to maintain its strong economy to preserve its world leadership status.

We can learn several things from this article.

First, take the number of new companies as a starting point. China’s State Administration for Industry and Commerce should also have these sorts of historical statistics — not only of the entire country, but of every province. These data should be open to the public and researchers to yield more meaningful findings and provide suggestions for policy making.

Second, private enterprises are the roots of the nation in America. China’s national conditions are different and cannot be imitated, but innovation and entrepreneurial edge are one and the same. China’s rapid economic development 30 years ago was a miracle; its original model was increasingly difficult and desperately needed a change in direction. Great efforts to advocate innovation, encourage an entrepreneurial edge and foster new companies in terms of policies and finances just might ensure China’s rapid economic development in the next 30 years.

Third, new companies have huge influences on national and provincial economies. The assessment indexes of central authorities on every level of provincial governments should include an index of newly established companies. Only with the powerful development of new companies can an economy be sustainable.

Fourth, elementary and intermediate school education should incorporate computer programming into its curriculum as soon as possible. This would set good foundations for future employment and innovation.

Fifth, technologically talented people should be encouraged to seek employment or start their own companies, and every government should become a business accelerator.

California is the most economically powerful and innovative place in the USA. There are very few people who talk deeply about politics or are concerned with international fluctuations. Some people are only getting their feet dirty through hard labor, working toward their goals. China needs this kind of spirit, too.