Where Are The New Entrepreneurs?

 Over the years, repeated research studies indicate that, at one time or another, some 14% of Americans (approximately one in seven) become an entrepreneur for at least a brief period. This has been considered a very important part of the bustling American economy. New business start-ups that survive (most do not) are vitally important in job creation. They also are bastions of innovation and force larger entrenched companies to adapt and up their game.

Over the last decade, the share of U.S. households including an active entrepreneur has halved down to roughly 4%. 

There are several explanations for this:

1) In recent years, many college graduates with strong skills have discovered that they may earn high incomes with larger companies particularly in tech.

2) Business formation is tough for prospective entrepreneurs who often do not have access to capital. One part of this that I never see discussed is that Venture Capital firms (VC) and the larger Angel Investors (Informal Private Investors) are much more selective and smarter than they were 30 years ago. There was a time when someone could say “internet” and funds would come their way. The big VC firms made a bundle on the giants that still exist today but had many failures. Now, they have very shrewd teams analyzing start-ups and their batting average is much higher than it has been in the past. Angel investors have also improved their game as well. Early-stage financing remains a real problem for young upstarts.

3) Within the tech giants, entire squads are looking at new ideas and do not have to beg for funding. I will never forget the first annual letter from Jeff Bezos way back in 1997. He wrote “Given a 10 percent chance of a hundred times payout, you should take that bet every time.”** Okay, that is great for Amazon. However, can a bootstrap entrepreneur take a shot like that? Not likely. And, risk averse CEO’s and CFO’s in established companies in many cases have one goal—don’t screw up. They rarely bet on longshots.

4) Young people also have other issues that did not exist for previous generations. In recent years, I have spoken with dozens of college students who lamented that they would never own a home due to their huge college loan bills. I always try to be encouraging. The college loan overhang must be discouraging some prospective entrepreneurs from going out on their own. Do you wish to launch your dream knowing the odds are strong that you might fail and, despite bankruptcy you still must feed the meter monthly on your large college or grad school loan tab?

Can the situation be reversed? Critics say that loosening up on licensing requirements would help a great deal. Also, allowing health insurance at reasonable prices would help a start-up with only a few employees. Encouraging early access to accredited investors sounds great but is tough in the real world for many. Some politicians think a silver bullet is allowing newbies to write off R&D expenses immediately. That would help but they have to get the seed money first and launch.

I have long believed America became the economic powerhouse that it is and has been is due to how risk taking was encouraged. Look at the billionaires who have been minted in our country. Rockefeller, Vanderbilt, Carnegie, Ford and today’s tech titans. The uber-wealthy took giant risks and had many bumps in the road on the path to vast riches. When you fail, you keep going. America, a nation of immigrants, has always appealed to the risk takers of the world. Our bankruptcy laws may be the most lenient in the entire world. It you go bankrupt in many European provider states you spend the rest of your days paying off your creditors. Here you can come off the deck and keep fighting. America tolerates the risk takers unlike no other nation in my view. Immigrants with the right spirit can only help us grow.

If we can turn this entrepreneurial dip around, it could mean great things for our nation.

**Amazon.com, Inc. 2016 letter to shareholders

If you would like to contact Don Cole directly you may reach him at doncolemedia@gmail.com or leave a message on the blog.

TARIFFS

 Over the last week, I have received requests from Media Realism (MR) readers in four countries plus a few emails from friends asking me to comment on the proposed Tariffs from the United States on countries throughout the world.

While I have strong opinions on the topic, the request gave me pause. I have tried hard (not always successfully) from making overtly political comments in my posts. So, what follows essentially the reasons why I am personally a free trade advocate.

It all began amazingly back in 1969 when I took my first course in Economics. The professor, who had covered Free Trade in a class and I had dozens of questions after class, told me to go to the campus library and dig up one of the copies of AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS (almost universally referred to as THE WEALTH OF NATIONS). The book would be a bit much for this 19-year-old, but he suggested that I first restrict my reading to Smith’s sections on Mercantilism and Free Trade. Two years later, during an amazing independent study, we tackled other Smithian issues when I was better prepared for them. 

Okay, prior to Smith’s Wealth of Nations (published in 1776), a few early economists and politicians also recommended free trade among nations. Among the most prominent, known only today to economic geeks, were Henry Martyn, Sir Matthew Decker, and Josiah Tucker. All felt that open trading with other nations was positive for a country and some prices, especially certain foods, would be less expensive for their poorer citizens.

Prior to these three gentlemen and a handful of others, Mercantilism drove the economic bus. The theory was that wealth in a nation consisted in how much gold and silver that you had on hand. So, the goal was to always have a trade surplus with other nations so that your precious metals stash grew each year as that was real wealth. To insure that you had a trade surplus, Tariffs were initiated. A tariff is a tax placed on items brought in from a foreign country.

Adam Smith took on the “mercantile system” as he called it and said that imports can be a good thing. He stated, “never to attempt to make at home what will cost him more to make than to buy.” He went on to say that if it works for a family, it would work for a sovereign nation.

At one point, he cracked me up with the comment that if Scotland decided to make wine, they could perhaps generate some good grapes with hotbeds and hot walls. The cost of this locally produced wine would be approximately 30 times that of what could be imported from Portugal. Somehow, Scottish wine, no matter how carefully crafted, could never compete with a fine Alberino, Bordeaux or Burgundy. 

His theme was do what you do better than others and buy things that are of better quality and less costly from other nations. Real wealth was not your pile of gold and silver—it was what you produced and how your people lived. Tariffs protected local manufacturers who may be inefficient producers or corrupt and are getting favors from politicians. And they caused inflation which hurt the downtrodden the most.

Smith made it clear that trade was not a zero-sum game with one nation a winner and the other the loser. Imports or a trade deficit were not harmful to the ultimate well-being of a nation. He wrote, “in every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheaper.” 

If you look at statistics, trade and economic exchange translate to economic growth. Yes, the affluent tend to do well when profits increase but a growing company or nation has an increased demand for labor which helps many more. And, when you trade with poorer countries, many of their citizens will then be able to buy more of your products. 

Some people tell me that I do not understand, and the proposed Tariffs are really a new industrial policy. They may be right but the precedence for this is a closed economic system known as Autarky. Such a country avoids international trade and strives to be almost totally self-sufficient. Japan tried this in the 1600 hundreds and Mussolini leaned that way in the 1920’s and 30’s. Japan finally opened and had strong trading success, and I find it chilling that we would consider using a modified version of Mussolini’s Italy as an economic role model.

President Trump has said several times since the 1980’s that Tariffs is the most beautiful word in the English language. I am so naïve that I always have thought the most beautiful word was love.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com