While the president painted a deceptively rosy picture of our economy in his State of the Union address, a more reality-based assessment was delivered recently by Gallup CEO Jim Clifton in Business Journal. He argues that American leaders, having misdiagnosed the cause and effect of economic growth and job creation, are making our economic problems worse.”This economy is never truly coming back unless we reverse the birth and death trends of American businesses,” asserts Clifton. “When small and medium-sized businesses are dying faster than they’re being born, so is free enterprise. And when free enterprise dies, America dies with it.”

  • Approximately 6 million businesses with one or more employees in the U.S.—the real engines of economic growth—provide jobs for more than 100 million Americans and much of the tax base for everything, from military to social safety net spending.
  • Since 2008, U.S. business “deaths” (shut-downs) have outnumbered new business “births” (start-ups), and we have fallen to 12th among developed nations in terms of business start ups behind countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy.
  • Fewer businesses mean declining revenues and smaller salaries to tax, followed by declining aid for the elderly and poor and declining funding for the military, for education, for infrastructure — in short, for everything.

Citing Gallup polling data showing Americans believe the economy (59%) and federal spending and budget deficit (58%) are cause for a “great deal” of worry, Clifton argues that ordinary people seem to intuitively understand what America’s leaders do not: that businesses and entrepreneurs are the critical drivers of a strong economy.

Our leadership keeps thinking that the answer to economic growth and ultimately job creation is more innovation, and we continue to invest billions in it. But an innovation is worthless until an entrepreneur creates a business model for it and turns that innovative idea in something customers will buy. Yet current thinking tells us we’re on the right track and don’t need different strategies, so we continue marching down the path of national decline, believing innovation will save us.

Because we have misdiagnosed the cause and effect of economic growth, we have misdiagnosed the cause and effect of job creation. To get back on track, we need to quit pinning everything on innovation, and we need to start focusing on the almighty entrepreneurs and business builders.

Source: American Entrepreneurship: Dead or Alive?, Jim Clifton, Business Journal, January 13, 2015