A trend that needs to change

I've been pretty vocal here before about the need for entrepreneurship and innovation (I mean real innovation, not consumption vehicles like iPads or new "innovative" financial products) to bring us out of our "jobless recovery" into a real recovery, because we can't rely on our big corporations to do so. So far, not so good...

The recession caused a sharp decline in new business start-ups, intensifying job market losses and potentially putting future economic growth at risk.

The Census Bureau on Wednesday said that 403,765 new firms were started in the 12 months ended March 2009, down 17.3% from a year earlier and the fewest on records that begin in 1977.

New businesses are an important source of new jobs — without them, there would be no job growth at all. Indeed, the new Census data show that one of the reasons that the job market declines were so severe in the recession was the dearth of start-ups. Firms less than a year old employed 2.3 million people in March 2009 whereas as a year earlier start-ups employed 3 million people.

In past recessions, start-ups didn’t take nearly as large a hit as they did in the downturn that began at the end of 2007, notes John Haltiwanger, a University of Maryland economist who has worked extensively with the Census start-up data. Even in the deep recession that ended in late 1982, start-up activity held up fairly well. “Start-ups weren’t immune, but the guys in the garages were going to try to do what they were going to do no matter what,” said Mr. Haltiwanger.

Unfortunately, things seem to be going in exactly the wrong direction. The Journal article attributes a significant amount of the dropoff in startups to a lack of financing from venture capital firms, banks, etc., but I think that's overly simplistic.

I think that this generation (my generation), in large part because of an excess of student loan debt, is extremely risk-averse and afraid to put their careers on the line for something that might not pan out. They tend to take the safe play, which increasingly isn't actually as safe (or as fulfilling) as it might appear. But sooner or later, I don't think they're going to have a choice. The big companies aren't going to start hiring any time soon, and more people are graduating from college (and high school) every day.

Some of the young and unemployed will eventually have no choice but to band together and start new ventures, and our country will be the better for it. It just isn't happening yet. I'm keeping my fingers crossed.

[Wall Street Journal]