START-UPS have always been at the heart of America’s economic success. Companies that are five years old or younger account for all of the country’s net job creation. They also account for the bulk of innovation. Established firms are usually in the business of preserving the old world; start-ups are under more pressure to come up with new ideas, and if they do so they usually create lots of new jobs. But these growth machines have broken down. America is not producing as many start-ups as it did a decade ago and those that have been created are providing fewer jobs—less than five each, compared with an historical average of about seven. Start-ups created 2.7m new jobs in the 2012 financial year compared with 4.7m in 1999. The financial crisis clearly bears a lot of the blame for reducing America’s stock of capital and animal spirits. But it is only a partial explanation. The decline in the number of firms going public began in 2001. And these problems are continuing to delay the recovery despite the federal government pump-priming the economy and keeping interest rates near zero.
Three years ago John Dearie and Courtney Geduldig, who both worked for the Financial Services Forum, which represents America’s biggest financial institutions, came up with an inspired idea. Why not ask entrepreneurs themselves what is going wrong? Both big multinationals and established small firms have lots of representatives in Washington, DC. Entrepreneurs are too busy inventing their companies to spend time lobbying. The pair organised meetings and conducted lots of polls. Across a vast and diverse country they heard the same message from everyone they asked: entrepreneurship is in a parlous state. And everyone pointed to the same problems. The result is a new book, “Where the Jobs Are”, which should be dropped onto the heads of America’s squabbling politicians.
The first worry is over human capital. Entrepreneurs repeatedly complain that they cannot hire the right people because universities are failing to keep pace with a fast-changing job market. Small firms lack the resources to provide training and are consequently making do with fewer people working longer hours.