According to a Study by The Kauffman Foundation, new businesses are crucial to economic recovery.
“The Economic Future just Happened,” examines business start up’s during previous economic downturns, and concludes that over half of America’s Fortune 500 companies, started up during a recession or bear market.
The study provides a silver lining to the dark cloud that is currently hanging over the economy and shows that new businesses could lift the USA (and subsequently the UK) out of a recession through;
- Job Creation – economic policy’s top priority
- Innovation – driving economic growth
“Every generation of start-ups is often invisibly, both a renewal and restructuring on the economy.”
Kauffman Foundation: The Economic Future Just Happened. June 2009
The media is saturated with doom and gloom stories about companies making large job cuts, or collapsing altogether, resulting in high levels of un-employment.
However, in the background many new companies are starting up every day, creating 6-8 jobs on average each time, thus silently lifting the economy.
A poll conducted by the Kauffman Foundation in March 2009 on Entrepreneurship and the Economic Recovery draws the same conclusions;
“Seventy-nine percent of Americans say entrepreneurs are critically important to job creation, ranking higher than big business, scientists and government.”
(Statistics taking from a random national sample of 2000 Americans.)
Vince Cable, Deputy Leader for the Liberal Democrats, speaking to business leaders in Milton Keynes recently said;
“Compared with a generation ago, we have more flexible labour markets, excellent entrepreneurs and companies who have niches, intellectual property rights and a very good position in international markets.”
“I suspect that some of them will become big players in the world. I also believe there is sufficient entrepreneurial spirit here to get us through this crisis.”
The Kauffman study shows that during the 2001-2002 recession, the number of new business start ups actually increased.
During an economic down turn, people may be less likely to leave secure job to ‘go it alone.’ However, with un-employment increasing rapidly there is a higher number of potential entrepreneurs, who may prepared to take a risk.
Therefore, it seems that the recession does not have a significantly negative impact of the formation and survival of new businesses, and entrepreneurship could be providing the economy with the lift that it needs.
NCGE Blog 