How New York stole Silicon Valley’s crown
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If you want to break the ice at a corporate seasonal party in America these days, try popping this revealing question: which part of the US has the highest proportion of entrepreneurship?
“Silicon Valley” would be a predictable, and understandable, answer. After all, in recent years, the San Francisco region has been an epicentre of US innovation. Mark Zuckerberg, the founder of Facebook, seems to epitomise the entrepreneurial dream; particularly since his recent announcement that he plans to donate most of his fortune to social causes.
But here is a curious little detail of America’s economy today: if you want to understand the real nature of entrepreneurial activity, do not look to Silicon Valley or Mr Zuckerberg. The biggest hotbed of urban entrepreneurship, as measured by the number of small companies per head, is now New York, not the West Coast, according to research by the Kauffman Foundation, a think-tank. Boston sits in second place in terms of “entrepreneurship”, followed by Providence, Rhode Island. Meanwhile, San Francisco is fourth, just ahead of Miami in Florida and Portland in Oregon. Main Street is giving the Valley more than a run for its money.
Geography is not the only surprise. The word “start-up” tends to conjure up images of baby-faced, hoody-wearing youngsters such as Mr Zuckerberg. But the Kauffman data suggest that the average age of entrepreneurs and small business owners is far higher — and rising. People aged 45-54 now own 32 per cent of small businesses, the engines of economic activity and job creation.
These middle-aged entrepreneurs are the biggest single cohort among business owners. Those following on behind, the 20-34 year olds — Mr Zuckerberg’s cohort — own just 16 per cent of small businesses, down from 28 per cent when the series started in 1997. Start-up activity among the younger cohort is also falling, as it increases among the middle aged. Meanwhile, the educational qualifications of entrepreneurs are rising: a majority now hold a graduate degree. And immigrants now own 20 per cent of all small businesses, twice the level in 1997.
What accounts for these trends? Data on small business activity in general — and entrepreneurship in particular — are notoriously patchy. However, Kauffman suggests that the heavy burden of student debt may be deterring young people from becoming entrepreneurs. The broader ageing of the American population is also affecting the statistics.
The more intriguing issue is whether the pattern of older entrepreneurs also reflects the changing profile of work. Digitisation is wiping out swaths of once-secure middle-class corporate jobs, tossing out middle-aged employees; indeed, the Oxford Martin school forecasts that half of all US jobs will be replaced by robots in the next two decades. Americans are living longer and their pension provision is shrinking. Some of this middle-aged entrepreneurial activity, in other words, is probably sparked by necessity as much as by active choice — a consequence of economic insecurity as well as economic freedom.
That, in turn, may have bigger policy implications, particularly given the rising level of income inequality. One encouraging piece of news in the data is that overall entrepreneurship rose last year, after declining during the Great Financial Crisis. But it remains below the levels seen a couple of decades ago. There is a great deal that American policymakers could do now, however, to raise those entrepreneurship levels.
Instead of just talking about lowering taxes for big corporations (which is where the debate is focused in Washington), there should be more effort made to streamline America’s nightmarishly complex small business tax code. Healthcare provision should also be simplified. Small business also requires a wider range of financing channels, particularly since one very unfortunate consequence of the post-2008 financial reforms is that banks are now very unwilling to provide funding for smaller companies.
There also needs to be a cultural change. Most notably American policymakers (and voters) need to recognise that not all successful entrepreneurs today wear hoodies, or get to soak up the California sun. On the contrary, most do not. And finding ways to champion and support that older cohort of entrepreneurs will be a crucial step for dealing with the disappearance of traditional corporate jobs; or the curse of the shattered middle class. And that would make for a healthier economy and jollier seasonal festivities.
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