How to Build a Stronger Economy [Archive.org URL]

In 2012, I noticed that our clients were having trouble with growth in the United States. Everything we read in the press said we were in a recovery, but when we looked at GDP figures, we saw we had averaged only 2 percent annual growth since the recession. I checked with Gallup’s chief economist, and he told me we’re not in a recovery.

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So we did a project where we pulled together proprietary and public business data to figure out what was going on. […] First of all, while GDP is growing, the more important figure is GDP per capita. It’s increasing, but at a declining rate. If you asked our chief economist, he’d say it’s down to about half a percent of growth per year, it’s the lowest it’s ever been, and it’s still going down. It’s going to hit zero and go below it.

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Incomes and salaries are staying level, on average. There are more jobs, but they’re largely crappy, low-paid jobs. Those with high pay are getting paid more. We’re indeed losing the middle class.

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The number of publicly listed companies in the U.S. has crashed from almost 8,000 in 1998 to about 3,600 in 2017. It will probably decline further, because M&A has been accelerating.

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The number of startups in the U.S. per capita is the lowest it’s ever been, since we started measuring it at Gallup. It’s right there in the federal government data. We have a very serious startup problem, and we’ve hit a place where the number of business deaths per year, through M&A and bankruptcies, is larger than births.

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There are 6 million firms in this country. This doesn’t include self-employed people, many of whom can’t find regular work. A firm, in this context, is a company with a payroll. It has employees who are not the proprietor. About two-thirds of these firms, or about 4 million, have four employees or fewer. […] The next group, with five to 10 employees, numbers about a million. Another 500,000 have between 10 and 20. Another 360,000 or so have between 20 and 100 employees. And then the numbers get tiny. Only 80,000 have between 100 and 500 employees. Only 18,000 have between 500 and 10,000. And only 1,000 companies have more than 10,000 employees. Each one of those 1,000 largest companies is getting smaller.

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We got a list of the Inc. 500 — the fastest-growing companies and their CEOs, as tracked by that magazine. When we looked at correlating factors, we found that the fastest-growing companies were predominantly led by first- or second-generation Americans: immigrants or sons or daughters of immigrants. No other factor stood out: not born rich or poor, race or ethnic background, or even IQ.[…] You’ve got to be careful in analyzing this, because people emigrate for different reasons. Some people are looking for security, some are escaping a very uncomfortable situation. They are less likely to have this quality. But others are looking for new opportunities. They’re the hard-core, driving, entrepreneurial immigrants.

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Most well-meaning people are wrong about where startups come from. They believe startups come from innovation. But we found that startups come from what we call the “builder” quality: the entrepreneurial personality that leads people to start new ventures and bring them to success.

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I would disagree [about innovation halting]. Productivity gains come from successful entrepreneurs, and that’s what the economy is lacking. There aren’t enough people starting companies or creating customers.