Commerce Department, SBA try to kickstart entrepreneurship engine

WASHINGTON - By many accounts, the American economy is rebounding. Hiring is accelerating, wages are rising and the labor force is growing. Confidence among business leaders is up, too.

In one area, though, the economy seems to be in serious trouble: entrepreneurship.

"It all feels pretty good," Mark Zandi, chief economist at Moody's Analytics, said during a forum on entrepreneurship this past week in Washington. "But I think there are things to be worried about, and the state of entrepreneurship is one of those things."

New research shows that the country's rate of business creation, which peaked about a decade ago, fell 31 percent during the recession and has been slow to bounce back. That's despite the fact that the share of the U.S. population between ages 25 and 55 - usually the prime years for starting a business - has expanded, according to new data released by the Kauffman Foundation, a research and advocacy group, at its annual state of Entrepreneurship symposium Wednesday.

Not surprisingly, fewer new businesses means fewer new jobs. Zandi noted that firms less than a year old contributed 5.2 million jobs in the year ended June 2014, down from the usual 6 million they generated in the years leading up to the recession and well off the pace of the more than 7 million jobs a year they created in the 1990s.

"We're getting less bang from our fast-growing companies," Wendy Guillies, Kauffman's acting president, told attendees. "I know the headlines look good, but when you dig a little deeper, something's not quite right."

Meanwhile, as the rate of business formation slowed, the pace of business closures started to rise in 2005 and spiked in 2008, according to data from the Brookings Institution. As a result, business deaths now outpace business births for the first time since researchers started collecting the data in the late 1970s.

The result is that long-established companies represent an increasingly large share of U.S. firms, with those that have been in business for more than five years now accounting for more than two-thirds of companies. Meanwhile, the proportion of companies of every age from one to five years old has shrunk over the past 35 years.

One of the major problems there is that research has shown young businesses account for nearly all net new jobs (job gains minus job losses) created annually in the United States. Older businesses, by comparison, tend to shed almost as many workers as they add.

The Obama administration has taken note of the slump, as the leaders of two federal agencies in the past week announced new initiatives intended to support early stage companies and kick-start the nation's entrepreneurship engine.

Commerce Secretary Penny Pritzker unveiled a pilot program designed to teach entrepreneurs the ins and outs of exporting. The program will send agency officials out to business incubators to help new companies navigate various trade challenges ranging from customs rules to currency issues to patent protections. The department will offer the training starting at the 1776 incubator in Washington, as well as three other incubators in Arlington, Texas, Nashville, Tennessee and Cincinnati.

"As many entrepreneurs will tell you today, you have to be born global," Pritzker said in an interview. "Our plan is to help train these early stage companies on how to export."

On the same day, the Small Business Administration rolled out a new online portal designed to quickly connect entrepreneurs with private microlenders. During an event late last week at The Washington Post, SBA Administrator Maria Contreras-Sweet described the portal as a "matchmaking" service that can save small (and often relatively new) companies time over going door-to-door to banks seeking a loan.

Zandi and Guillies urged Washington's elected leaders to continue those efforts and pursue policies that encourage more Americans to start and grow businesses.

"Unless this changes, unless we do see more entrepreneurship," Zandi said, "the kind of economic growth we're seeing now will not continue."