Wednesday, August 1, 2012

US Entrepreneurship Dead? (The Market Ticker)

US Entrepreneurship Dead?

An interesting report was posted this morning...

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.

"We see entrepreneurship declining per person and what figures there are have over-counted the number of small businesses," Khan says

There are several problems that are all interconnected here.

One of the common mantras is that "financing" is critical to small business. This is a lie. What's critical to small business is capital. Financing is not capital -- it spends the same way (credit) but is the near-opposite of capital as capital is previously-earned economic surplus, while credit is tomorrow's expected economic surplus.

One comes from industry and hard work, the other from leverage. One is a measure of success previously put forward and then risked in an effort to compound one's gains, the other is an attempt to skim off a piece of the action without putting up one's former success first.

This is almost-universally intentionally misrepresented in the media. Yet throughout American history, most small businesspeople did not rely on financing to start and build their businesses. They began in their garage or with equity infusions from their relatives and friends, often as co-conspirators (partners, etc.) All were exposed to the risk of personal loss of funds already made in the new venture, not a speculative bet "on the come" financed with some sort of hinky loan (or worse, a draft written on their family residence!)

The SBA has made this situation worse rather than better, as it has reinforced a false paradigm.

By doing this they have damaged entrepreneurs who actually start businesses and risk their own capital in doing so. This in turn means that reckless skimmers, who simply do not care if their venture is sustainable as their own ass is not on the line, become "competitors" and engage in practices that nobody would if it was their own money. Reckless lending is just one example; would Lehman have gotten as far upside down as it did were the executives actual money on the line as partners? Nope. But as soon as you allow people to counterfeit credit competition is no longer about calculation of risk and reward since the risk is not yours.

Second, offshoring has made the large business able to smash into the dirt the small operator who cannot possibly compete at that scale. This works fine for someone in a niche business, but as soon as you find mass-market appeal you get pounded through blatantly-unethical acts by far-larger firms. Leaving aside ability, entrepreneurs who have an ethical problem with slave labor and poisoning the environment to get a 25 cent advantage in price with which to undercut their competitors have no clear options available to them.

Then there are government costs and intrusions. I dealt with this when I ran MCSNet; some of the rules, regulations and taxes were just plain silly, but the cost of compliance was real. It's only gotten worse since the 1990s.

Finally there are situations like Blitz. You probably have one of their gas cans in your garage. The tort bar claims they sold "defective" gasoline cans. You'd think that the "defect" would involve a can that, for example, split open and spilled gasoline where it could catch fire.

You'd be wrong.

“The lawsuits have involved adult individuals who have used gasoline to start a fire or accelerate a fire,” she said.

Got it?

Let's put in plain language -- the lawsuits involved people who poured gasoline out of a Blitz can either onto something they then lit on fire (and got burned when it flashed) or poured gasoline on an existing fire.

As a result of our so-called "liability" system when someone is a five-alarm dumb-ass and lights themselves on fire by pouring gasoline on a lit fire, or uses gas as a firestarter and fails to do so in a way that precludes themselves from being immolated, it's the container manufacturer's fault.

And as such this small business, which employed 300 people, is gone.

I have a number of ideas for small businesses. I have capital to deploy in an attempt to start and run them too.

I will start and run exactly zero of them until and unless the three points above are addressed.

And that, my friends, is why entrepreneurship in America is in decline.

1 comment:

Anonymous said...

The main impediment to entrepreneurship is government red tape. It happened in the Soviet Union when people finally gave up having to deal with all the petty bureaucrats who thought the best method for advancing in the system was to hang the trophy scalp of some poor schmuck who was trying to start a business. The same thing is happening in the U.S. and Canada.