Did Reagan kill entrepreneurialism?
American entrepreneurialism is dying a slow and steady death. A new report out from The Brookings Institute paints a pretty dreary picture of entrepreneurialism in America over the past 30 years. As Brookings points out, the firm entry and exit rates (essentially the creation and death of businesses in America), a good measure of the vitality of entrepreneurship, decreased by nearly 50% percent between 1978 and 2011.
Similarly, the job reallocation rate, another measure of entrepreneurship, also declined between 1978 and 2011. While the Brookings Institute report stops short at addressing why entrepreneurship has been on the decline, it’s pretty clear who and what the culprits are.
First and foremost, Ronald Reagan is to blame. Before Reagan came to Washington, small mom and pop shops were the backbone of our economy. You could walk down any main street or strip mall in this country, and it would be rare to find a big box retailer or a large chain store. If you needed groceries, you went to the local grocer. If you needed a new hammer, you went to the local hardware store.
But then Reagan came along. He stopped enforcing the Sherman Anti-Trust Act in 1982, and handed out massive and unfair tax breaks to large corporations and their executives and stockholders, all at the expense of the small businesses that had built the American economy. As a result, mom and pop stores began to close, because they simply couldn't afford to compete with the big box stores that were growing out of control.
This is a trend that has been going on ever since Reagan stepped foot inside the White House. To this day, local family-owned stores are being run out of business, because they can’t compete with the Home Depot’s, Best Buy’s, and Walmart’s of the world that are growing larger and larger. But Reaganomics isn’t the only thing that’s crippled small businesses and entrepreneurship in America.
For the past 30+ years, healthcare costs have been through the roof. Between 1980 and 2005, spending on healthcare as a percentage of GDP nearly doubled. That means that Americans had to pay more out of their pockets for health insurance, and had less to spend on other things, like starting a small business.
A study by the Center for Economic and Policy Research found that the U.S. has one of the smallest small business sectors of the 22 industrialized nations it studied, and the study’s authors pointed to high healthcare costs as one of the main reasons why. Fortunately, Obamacare is addressing some of the healthcare cost concerns that have hampered entrepreneurship in America.
A recent report from the Congressional Budget Office revealed that thanks to Obamacare, by 2017, the number of hours workers in America put in will decline by roughly the equivalent of 2.3 million people leaving the workplace - all thanks to Obamacare. While Conservatives jumped at the report, what the findings really mean is that Americans no longer have to work crappy jobs just so they can have health insurance.
Studies suggest that there are millions and millions of Americans who hate their jobs - but they're working because they have to just to get health insurance. But now, thanks to Obamacare, people in dead-end, low-paying, lousy jobs are going to be able to say, “I don’t need this job anymore just because it has health insurance associated with it, and I am going to take a job where I can work fewer hours.” And they’re also going to say, “Hm. I've always wanted to start my own business and now I can do it.”
While declining healthcare costs are good for entrepreneurship in America, there’s still another major factor that’s keeping entrepreneurship down. Right now, more than 40 million Americans hold student loan debt, with the average loan debt being around $23,000. Over the past decade, the average debt for a 25-year-old has risen a staggering 91 percent, and most of that debt is from student loans. And that’s bad news for entrepreneurship, because according to the Y Combinator, one of America’s top business accelerators, the average age of entrepreneurs is 26.
It’s pretty hard to start a business at 26 when you're strapped with tens of thousands of dollars of student loan debt. From 33 years of failed Reaganomics, to mountains of student loan debt, to soaring healthcare costs, it’s pretty clear why entrepreneurship has been on the decline for the past 30+ years.
It’s time to reverse this trend, and for entrepreneurship to thrive again in America. That starts with undoing 33 years of failed Reaganomics. Giant transnational corporations shouldn't be able to play monopoly, and they shouldn't be getting tax breaks at the expense of small business. Similarly, it’s time stop giving massive subsidies to large corporations, and instead encourage the Small Business Administration to give more money to true mom and pop kinds of businesses.
We should also listen to Senator Bernie Sanders, and strip federal highway money from any state that tries to lure business away from another state. Next, we need to bring back the Sherman Anti-Trust Act, so that corporations can no longer grow out-of-control and eat up Main Street USA.
We also need to continue working on making healthcare more affordable for Americans, so that healthcare costs aren’t hindering small business growth and our economy. Finally, we need to wipe out all outstanding student loan debt, and make a public college education free in America for every student who is eligible. Millions of Americans will can then realize their dreams of becoming a small business owner.
Entrepreneurship may be on the decline, but we have the power to reverse the trend. It’s time for mom and pop shops to return to Main Street USA.