Acton Institute Powerblog

The state of entrepreneurship in America

Alexis de Tocqueville’s Democracy in America is primarily and rightly regarded as a work of political science. But the book is also replete with economic observations. One of the most significant was Tocqueville’s astonishment at “the spirit of enterprise” that characterized much of the country. Americans, Tocqueville quickly realized, were “a commercial people.” The nation hummed with the pursuit of wealth. Economic change was positively welcomed. “Almost all of them,” Tocqueville scribbled in one of his notebooks, “are real industrial entrepreneurs.”

America and entrepreneurship were, to Tocqueville’s mind, synonymous. That’s one reason it remains very important to keep an eye on the state of entrepreneurship in the United States. There are few better insights into this than the Indicators of Entrepreneurship produced on a regular basis by the Ewing Marion Kauffman Foundation.

Perusing one of their latest publications, 2017 State Report on Early-Stage Entrepreneurship (February 2019), provides a revealing look into how entrepreneurship in its rawest form is doing on a state-by-state basis. Looking at all 50 states and the District of Columbia for 2017, some of the report’s most salient points include the following:

  • “The rate of new entrepreneurs ranged from a low of 0.16 percent in Delaware to a high of 0.47 percent in Wyoming, with a median of 0.30 percent. Nationally, the rate of new entrepreneurs in 2017 was 0.33 percent, meaning that an average of 330 out of every 100,000 adults became new entrepreneurs in a given month.”
  • “The opportunity share of new entrepreneurs estimates the percentage of those new entrepreneurs who created their businesses out of opportunity instead of necessity. This indicator ranged from a low of 68.7 percent in Rhode Island to a high of 94.0 percent in Nebraska, with a median of 84.7 percent. The national opportunity share of new entrepreneurs in 2017 was 84.4 percent.”
  • “Startup early job creation captures job creation, measured as the total number of jobs created by startups per capita. This indicator ranged from 2.95 jobs per 1,000 people in West Virginia to 10.34 in the District of Columbia, with a median of 4.71. The national startup early job creation in 2017 was 5.27 jobs per 1,000 people.”
  • “Startup early survival rate reflects the one-year survival rate for new firms. It ranged from 73.48 percent in Georgia to 88.13 percent in Maine, with a median of 79.1 percent. Nationally, the startup early survival rate was 79.8 percent in 2017.”

These numbers tell that the picture for entrepreneurship is quite mixed throughout America, the exception being the survival rate of new firms. That’s relatively consistent across the nation.

It’s also revealing that states as culturally and politically different as Wyoming (0.47) and California (0.44) share very high levels of new entrepreneurs entering the marketplace. Among other things, I think this tells us that entrepreneurship is very much a question of attitude and can flourish in very different settings.

At the same time, the report underscores that economic conditions are crucial for shaping people’s motivations for starting new businesses. Over time, the more prosperous the economy, the more likely it is that entrepreneurship will be embarked upon as a question of opportunity than simply a matter of necessity (e.g., someone loses their job). That’s important because businesses established through opportunity entrepreneurship tend to have higher survival-rates than necessity entrepreneurship.

This, I’d suggest, affirms one of the crucial insights of perhaps the world’s foremost scholar of entrepreneurship, the economist, rabbi and Talmudic scholar, Israel Kirzner. In his work on this subject, Kirzner maintains that entrepreneurship is partly a question of people looking through “the fog” of the future that looms before them, seeking opportunities to actualize hitherto unknown potentialities. The term used by Kirzner to describe this process of searching is “alertness.”

Is America still the land of entrepreneurs that Tocqueville suggested it was in the 1830s? Is it a land of “alertness?” The answer is, generally-speaking, yes, though some parts—such as Delaware, Rhode Island, and Pennsylvania—are clearly not.

Obviously not everyone is called to be an entrepreneur. But the unevenness of this vocation across the United States is something that legislators and the shapers of culture need to be concerned about. For entrepreneurs are crucial to the wealth-creation process. When they are absent from a community, everyone in that community loses—and not just economically.

Image source: Pxhere

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Samuel Gregg

is director of research at the Acton Institute. He has written and spoken extensively on questions of political economy, economic history, ethics in finance, and natural law theory. He has an MA in political philosophy from the University of Melbourne, and a Doctor of Philosophy degree in moral philosophy and political economy from the University of Oxford.