America Killed the Start-Up By Ted Baumann, Offshore and Asset Protection Editor Dear Sovereign Investor, In my travels (over 60 countries and counting) I've seen firsthand just how important myths can be to a country's self-image. Many people in Africa and the Middle East, for example, are convinced that their "national origins" can be traced back thousands of years, despite the fact that their countries are less than a hundred years old.
A critical part of America's national mythology is the notion that we're a country of entrepreneurs — or would be, if only government would get out of the way. We hear this myth all the time.
It's true, there's a lot of entrepreneurship in America, but it isn't the kind the purveyors of our national mythologies tell us it is ... it's a more sinister kind, the kind that is leading the U.S. to economic collapse. Advertisement Alert: Economists Predict Recession in Months You've seen the news… You heard the economy's already retracted in 2014… Even worse, economists predict another retraction, signaling a recession, by August…
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Discover a new asset class promising wealth preservation and growth… Through recessions, dollar devaluation, and more. Plus profits… Regardless of where the economy moves. Download your free catalog to learn more. When politicians praise "entrepreneurship," they inevitably conjure up the image of a mom-and-pop operation that does well, creating jobs and wealth in its local community.
But that sort of entrepreneurship is almost dead in America — killed by a combination of structural changes, anti-competitive behavior and systemic favoritism towards big business. In its place we have the "new entrepreneurialism" — people applying their smarts to undermine free markets for profit, and getting favors from government at all levels.
Consider the evidence. Annual start-ups as a share of U.S. businesses fell from nearly 15% in the late 1970s to around 8% in 2011. The proportion of firms aged five years or younger has dropped steadily over the past three decades, from around 50% in the early '80s to about 35% in 2012. The number of jobs created by these new firms has fallen accordingly. 
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See larger image Older and larger businesses are doing better relative to younger and smaller ones. Why, and what's the likely impact for people like you and me?
Most people understand why high-volume retail chains like Wal-Mart or Starbucks have killed smaller competitors: volume. But construction and manufacturing start-ups have also declined precipitously. The same is true for doctors, accountants, and even artisans, who increasingly end up working for big conglomerates rather than for themselves.
That suggests there's something other than volume and economies of scale that favor big firms and undermine entrepreneurship. What could it be? The Barriers to Entrepreneurship The most important issue is lack of demand. There's little point in starting a business if your potential customers are cutting back on their spending. But there's also the issue of access to capital. Once, the laid-off could borrow against home equity to finance a new business. But after the housing bust far fewer people have equity in their homes.
Of course, there's plenty of other equity capital out there — but it's concentrated in the hands of corporations and institutional investors. Small start-ups with modest returns aren't worth their while. So, the finance that's available tends to go to big established firms. The policies that favor this situation — like bank bailouts — are geared to the interests of big Wall Street banks.
Then there's the appalling financial obligations facing young people. College-educated 20- to 34-year-olds are the group least likely to start a business. That's because in the first five years, the average new entrepreneur pays student loans and taxes totaling almost half his or her income. It's just not worth risking a start-up under those circumstances.
By contrast, entrepreneurship among the least-educated remains significantly higher, precisely because they don't have student loan debt to worry about. Again, a special favor for the student loan industry — an act of Congress that makes student debt non-dischargeable — is the culprit.
The next barrier is rising health care costs and the skewed U.S. health insurance system. Soaring costs and unfair tax subsidies for employer-provided health insurance make it more attractive to work for a big company than working for a start-up. This also puts small companies at a disadvantage in hiring.
Soaring student debt and health care costs reflect government interventions that tend to undermine entrepreneurship. But as the Obamacare saga showed, big firms are able to manipulate government to create more direct barriers to competition. Large companies often support regulation because they know they can get "job-creating" exemptions, and have deeper pockets to challenge enforcement. And regulation imposes fixed costs that are far easier for larger corporations to bear. Learning the arcana of disability law, for example, requires the same amount of time and expense for one employee as for one thousand.
Finally, consider the subsidies that government showers on large firms who employ lots of low-skill workers. Wal-Mart, for example, gets $8 billion annually in indirect subsidies and tax breaks. The former includes $6.2 billion in food stamps, subsidized housing, and Medicaid benefits for its employees. It also includes millions in investment subsidies from state and legal governments. On the flip side, 18% of all food stamp money is spent at Wal-Mart — about $14 billion of the $80 billion food assistance budget in 2012. Wal-Mart just loves food stamps.
I'm not suggesting a minimum wage increase. But business models based on high volume and low-wage labor typically employ lots of easily-replaceable unskilled part-time workers. If one of them is too hungry to work productively, they can just be fired and replaced. That just won't work for a small businessperson relying on energetic and committed employees to get a start-up off the ground. No Future Here The dynamic at work is clear: as the U.S. economy has matured, advantages have accrued for the existing players. Some of those advantages are structural, but many are political, the result of a kind of entrepreneurship that concentrates on rigging the game. They stop newer firms from challenging entrenched ones. Subsidies, bailouts, and lobbyist-written industry rules protect the big boys.
The U.S. economy is headed for collapse. Some American firms are doing just fine, profiting from our decline, but the barriers that restrict real entrepreneurship are detrimental to our economy.
But it IS possible to escape from this America … to countries where true entrepreneurship is still honored in practice, not just in rhetoric. Kind regards,
Ted Baumann
Offshore and Asset Protection Editor P.S. America's future looks bleak, but that doesn't mean you have to follow the U.S. into a financial downward spiral. Knowing how to protect your assets takes a little planning and knowledge, but it puts you ahead of all those who are content to pull the covers over their head and pray that it all works out. To begin your first steps in protecting yourself and your wealth, click here. | |
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