America’s problem is not that it does not work like China. It is that it no longer works like America. ~ Richard McGregor
[T]his paper shows that without startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data going back to 1977…. Startups create an average of 3 million new jobs annually. All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combined per year. ~ The Importance of Startups in Job Creation and Job Destruction by The Kauffman Foundation
[A] critical aspect of improving the U.S. economy is actually improving the small business economy and making it easier to start a business and to grow small businesses.
[A] magisterial study by Deloitte’s Center for the Edge… shows the rates of return on assets and on invested capital for 20,000 US firms from 1965 to 2011. It shows that “managerialism” has been steadily failing for the last half century.
The graphic shows that something has gone so terribly wrong with the US private sector—the supposed engine of economic growth and the supposed creators of jobs. When the best firms have rates of return on assets or on invested capital of, on average, just over one percent, we have a management catastrophe on our hands.
An ROA of just over one percent means that firms are dying faster and faster: the life expectancy of firms in the Fortune 500 is now less than fifteen years and declining rapidly.
Fifty years ago, big firms were in charge of the marketplace. Then globalization, the internet and finally social media changed everything. Customers have choices, reliable information and an ability to connect with each other. The result for hierarchical bureaucracies is devastating: game over. Now the power in the marketplace had shifted from seller to buyer. And in this new ecosystem, big lumbering hierarchical bureaucracies of the 20th Century just aren’t agile enough to compete.
The rate of return on assets and on invested capital is a quarter of what it was in 1965. The life expectancy of firms in the Fortune 500 is down from 75 year half a century ago to less than 15 years. Only one in five workers is fully engaged in his or her work.
America today is in a macroeconomic paradox that we might call the capitalist’s dilemma. Executives, investors and analysts are doing what is right, from their perspective and according to what they’ve been taught. Those doctrines were appropriate to the circumstances when first articulated — when capital was scarce.
But we’ve never taught our apprentices that when capital is abundant and certain new skills are scarce, the same rules are the wrong rules. Continuing to measure the efficiency of capital prevents investment in empowering innovations that would create the new growth we need because it would drive down their [rates of return]….
Our approach to higher education is exacerbating our problems. Efficiency innovations often add workers with yesterday’s skills to the ranks of the unemployed. Empowering innovations, in turn, often change the nature of jobs — creating jobs that can’t be filled.
Today, the educational skills necessary to start companies that focus on empowering innovations are scarce. Yet our leaders are wasting education by shoveling out billions in Pell Grants and subsidized loans to students who graduate with skills and majors that employers cannot use.
Despite cheaper labor abroad, currency manipulation, intellectual property theft, and subsidies to foreign competitors… American manufacturers are winning. Many of them are small or medium-sized businesses that are family owned. Some are large corporations led by executives who still believe that America is the best place to set up a factory. What they have in common is that they’re creating jobs in local communities, defying the stereotype of our manufacturing going off-shore. In an era when we hear weekly about plant shutdowns, know friends and family members who are being laid off, and are anxious about the career prospects for young people, they are the embers of hope.
These manufacturers help explain why, against all odds, our nation held the global lead over China in manufacturing output until 2009. What’s extraordinary is that our aggregate output remains competitive with China’s, even though the sector constitutes only 10 percent of our economy compared to nearly 40 percent of theirs. We are a global leader, in part, because our labor productivity (the value that a worker produces annually) is more than six times as large as China’s or India’s and significantly larger than Japan’s or Germany’s. Strong productivity has enabled the United States to increase its manufacturing output over the past 30 years to a greater extent than any other developed nation, more than doubling in size. American manufacturers often have an advantage over their competitors in more authoritarian or bureaucratic nations because participatory governance is preferable to top-down governance, even in the business world. The best American manufacturers consider the intellectual contributions of all their employees. As a result, they provide those employees with healthy work environments and encourage them to be critical and divergent thinkers. Their inclusionary approach enables them to make high-value products through customization, economization, and incessant innovation. This bottom-up philosophy also gives rise to organic clusters that drive collaboration and nurture the entrepreneurial spirit in places like Wichita and Silicon Valley.
Counties and parishes with a greater concentration of small, locally-owned businesses have healthier populations — with lower rates of mortality, obesity and diabetes — than do those that rely on large companies with “absentee” owners, according to a national study by sociologists at LSU and Baylor University.
Six steps to helping startups and small businesses
- Restructure the Banking System
- Close Corporate Tax Loopholes
- Extend Sales Taxes to Large Internet Retailers
- Get Corporate Money Out of Politics
- Cap Credit Card Swipe Fees
- Increase the Small Business Share of Government Purchasing
We, the people, must redeem The land, the mines, the plants, the rivers. The mountains and the endless plain— All, all the stretch of these great green states— And make America again! Let America Be America Again Langston Hughes