Robert Litan and Ian Hathaway began three years ago to examine why fewer new businesses are being created. Their first attempt to explain things in 2014 found that slowing population growth and business consolidation were the two main factors. They acknowledged policy differences could have independent roles and could also contribute to population changes and business consolidation.
Litan and Hathaway now see evidence from a number of sources that firms are pursuing destructive entrepreneurialism, exploiting ties to government to prevent competition, instead of creating new firms and new products based on new ideas. They conclude, “If the U.S. is going to tackle its many problems, we are going to have to find ways to encourage would-be entrepreneurs to start innovative, productive businesses, rather than dedicating their efforts to co-opting government in order to secure economic advantage.”
A simple, but not easy, way to do this is to cut back on government economic development programs, regardless of industry or location. We see innovations in the cracks and crevices—food trucks, craft beers and liquors, ride hailing companies, and hotel alternatives—but once they grow large enough, either run into regulatory hurdles or get bought by larger companies.