Report: New Business Formation Collapsed in Recovery; Jobs and Business Activity is Concentrated in a Handful of Large Counties

New research by the Economic Innovation Group examines business formation during the recovery, a recovery that has eluded much of the nation. (PDF of full report here.)

The findings show a dramatic increase in the geographic concentration of business and job growth and a national collapse in new business creation.

“The startup-less recovery should serve as a wake up call to policymakers,” said John Lettieri, EIG cofounder and senior director for policy and strategy. “The U.S. is entering an era in which growing geographic disparities and a missing generation of new enterprises could threaten access to opportunity for millions of Americans.”

We’ve written before about the uneven pace of recovery in our state, with the metro Puget Sound region enjoying economic vitality while many counties continue to struggle. The EIG report reinforces the finding that economic prosperity has become highly concentrated in a handful of thriving metros. As the chart below shows, King County is among the national winners in employment growth, but does not make the top 20 list of counties generating new business establishment.


EIG notes,

Hundreds of thousands of new businesses are missing from this economic recovery, which has seen just a 165,000 net rise in new establishments, compared to approximately 400,000 in past recoveries during the 1990s and 2000s.  The collapse is not due to a spike in business closures but a steep fall-off in the creation of new startups across wide swathes of the country—most notably outside a handful of major metropolitan centers.

In our foundation report, we cited the importance of entrepreneurial activity. 

A vibrant economy requires a healthy private sector to create jobs, foster economic activity, and generate the tax revenues that support essential public services and healthy communities…

Washington’s private-sector employers must continually overcome the challenges inherent in operating in a fast-moving, global economy…To expand opportunities for those living and working in Washington, state policymakers must create an investment climate that encourages and rewards innovation and risk-taking.

Washington’s economic prosperity depends on expanding its existing economic clusters and fostering the growth of new industries that hold the promise of creating new jobs. Enacting predictable and efficient fiscal, regulatory, and employment policies is a key strategy to hasten that economic expansion. 

Columbian business editor Gordon Oliver writes of the report, pointing out that 

…it’s hard to bottle up the entrepreneurial gene that drives some people to plunge into businesses of their own…

Buck Heidrick, a certified business adviser at Washington State University Vancouver’s Small Business Development Center, says his frontline experience doesn’t reflect the data in the report. Heidrick and his colleagues statewide are swamped with helping people who have good ideas. The ease of obtaining financing ebbs and flows, but there’s plenty of assistance and even government encouragement for those who see their futures in launching a new business.

The EIG report concludes by noting,

The new map of growth and recovery points to very different futures for American communities. These findings suggest that the gains from growth have and will continue to consolidate in the largest and most dynamic counties and leave other areas searching for their place in the emerging economic landscape. While many will benefit, the new map also calls for a new toolkit for ensuring broad access to opportunity and helping both people and places realize their economic potential.

We share the concerns and believe our roadmap for expanding the culture of opportunity belongs in the “new toolkit.”