One of the more positive trends of the past few years has been the acknowledgement by at least some New York politicians, staring with Mayor Bloomberg and including Governor Cuomo and those in some cities upstate, that new businesses and new types of businesses are important. And that economic development involves acts of creation, rather than just being an excuse for the government to redistribute wealth to powerful existing interests through tax breaks and subsidies. A lesson not yet learned in New Jersey and Connecticut. At the same time, there has been a surge of new businesses in the Bay Area of California, and a cultural interest in early stage companies as a result of TV shows such as Shark Tank.
While there has been increasing interest in entrepreneurship, however, there is some evidence that there has been decreasing entrepreneurship. According to an article in the Wall Street Journal
Across the country, the rate of new-business formations has been trending down for decades. According to Census data, the number of new firms in 2012 was equal to just 8% of the total, slightly below the number that closed. While that “entry rate” was up from the 2010 trough, it remains well below the levels that prevailed until the recession hit in 2007.
We are heading, the article’s author fears, toward an oligopolistic economy with less creativity, less investment, a less good deal for consumers and lower returns for investors, as a business/political elite seeks wealth not by starting small businesses and growing them into large ones, but seizing control of large existing organizations and pillaging them. Is this true, and how do New York and New Jersey compare? Let’s look at some data.
One of the most positive trends of the past few years has been an emphasis on creating a culture of entrepreneurship in New York City and State. Until the last few years of the Bloomberg Administration economic development had meant bribing existing large companies, companies that were shrinking over time and threatening to move away, to promise to keep some jobs in New York. Bribing them with tax breaks and subsidies. New York had played this losing hand for years. More recently encouraging people to start new businesses, and at the very least not throwing obstacles in their path, has been the policy. Here as elsewhere the trend has been to latch on to whatever is trendy – new and social media, information technology, biotech, artisanal food products, artisanal alcohol, Greek Yogurt – and ignore everything else. But at least there has been some sense that economic development means encouraging and providing an environment for acts of creation, not just taxing the suckers and transferring money to existing business and unions that are failing in the marketplace but contributing to political campaigns.
With the Democrats back in charge of City Hall I feared that economic development would revert to the bad old days. After all, Bill DeBlasio is yet another ambitious politician who will require campaign cash for his next move, and businesses that do not exist yet do not make campaign contributions. Moreover entrepreneurs have not been part of the Democratic Party coalition since the New Deal, which favored existing large corporations, and entrepreneurs have generally been seen by Democrats as a source of revenues and a foil to be demonized, while existing companies are seen as a source of jobs. The good news, according to some recent reports, is the DeBlasio Administration is apparently unwilling to get in a tax break bidding war with New Jersey over large existing financial businesses threatening to leave the state. http://www.capitalnewyork.com/article/real-estate/2014/05/8545812/de-blasio-deputy-says-city-wont-try-top-christies-tax-subsidies It would be better news, however, if the DeBlasio Administration (and Cuomo Administration) would double down on Bloomberg’s late term policy of encouragement for new companies. Particularly those in a decidedly non-trendy sector: banking.