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America may be going out of business when it comes to starting new businesses, according to a recent report.The study—from the non-profit New America Foundation—argues the U.S. is seriously in danger of losing its entrepreneurial spirit because the number of small business created has been declining since the 1970s.
“Most numbers collected on entrepreneurship haven’t reflected the increase in population,” says Lina Khan, co-author of the report and a policy analyst for the New America Foundation.
“We see entrepreneurship declining per person and what figures there are may have over-counted the number of small businesses,” Khan says.
What the report reveals is that—beyond the impact of the Great Recession—small businesses declined by 53 per cent between 1977 and 2010. Meanwhile, the reports says, the share of self-employed Americans has been declining since 1991—dropping more than 20 per cent by 2010.
The survey contends that the U.S. government has largely “failed to adjust how it gathers data to reflect the outsourcing revolution of the last two decades” and counts as small businesses independent contractors who actually depend on one big company for work.
The Small Business Administration says there are more than 27 million small businesses—with 500 employees or less— according to its latest figures. But the number is anything but accurate, says Khan.
“Wal-mart used to run its own warehouses, but now it contracts them out,” Khan explains. “Firms that now exist for serving one client are counted as independent. The government has not adjusted its data collection to reflect fundamental changes in our political economy.”
So is the American entrepreneurial spirit dying? Analyst reaction to the New America Foundation survey is mixed, but some experts admit there’s a long-standing difference between what makes an entrepreneur and someone who is self-employed.
“We confuse the two for historical reasons because it is difficult to measure one without the other,” says Daniel Isenberg, a professor of management practice at Babson Global and executive director of the Babson Entrepreneurship Ecosystem Project.
“But entrepreneurship is inherently growth oriented, whereas self-employment may or may not be,” Isenberg adds. “And so the conclusion that small businesses create the large percentage of jobs is almost inaccurate.”