Robert Litan, John Haltiwanger, Ron Jarmin and Javier Miranda have come up
with evidence that "young firms", i.e., entrepreneurial ventures, are
key to job-creation in the US. I just returned from Peru, where the vast
majority of the labor force work in the "informal sector" and/or in
small firms. Even more than in the US, entrepreneurship is of the essence in
emerging markets.These topics will be discussed at this year's GBSN
5th Annual Conference (Washington, DC, June 10-11).
A "can-do" culture -- combining intense ambition with a
flexibility to adapt and an instinct for innovation -- ensures that the economy
will ultimately rebound strongly. The harsh recession may have actually
improved the long-term outlook by purging high-cost firms and forcing
efficiencies. Productivity (output per hour worked) has risen 4 percent in the
past year. Profits are already up 21 percent from their low; surviving firms
will soon expand.
Which vision will prevail?
The answer may hinge on two things: trade and entrepreneurship. Most
economists see stronger exports as a substitute for weaker consumer spending.
Unfortunately, that depends heavily on economic growth and trade policies
abroad. By contrast, entrepreneurship is a sleeper issue that depends on what
If you doubt its importance, consider this: All net job creation from 1980
to 2005 came from firms that were five years old or less, according to a study
by economists John Haltiwanger of the University of Maryland and Ron Jarmin and
Javier Miranda of the Census Bureau. In any one year, that may not be true; but
over time, mature firms lose more jobs than they create. "It's not
small firms but young firms that count," says economist Robert Litan
of the Kauffman Foundation, which sponsored the study.
If Americans don't continue to create firms -- not just high-tech start-ups
such as Facebook but construction companies, florists, restaurants, dry
cleaners, engineering firms -- the economy may languish. Beginning a business
is a risky, exhausting, chaotic process. Every year, there are roughly 500,000
to 600,000 company "births" and almost as many "deaths."
Half of new firms don't make it to year five, says Litan.
Read "In the aftermath of the Great Recession" by Robert J. Samuelson
on the Washington Post
Guy Pfefferman is the founder and CEO of the Global Business School Network.