The Necessity of a Dynamic Business Environment

I wrote almost 2 months ago now that the startup rate in the US, and in many mature economies, has been going down. Given that I am surrounded by startups and new businesses in my work, I was flabbergasted by learning this fact and sought to learn more, and so embarked on an amateur research journey.

I learned that, indeed, the rate had been dwindling since the 70s, and that the millennial generation is the least likely to start a business — even though they are a fairly large generation (when compared to Gen X) and have technology and the lower cost of starting a business at their disposal.

Business dynamism — defined as the perpetual process of new firms forming, growing, shrinking, and dying — and the accompanying reallocation of resources toward more productive activities is a fundamental source of productivity growth in a healthy economy. Local, regional, and national economies all depend on a cycle of creative destruction in which new ideas, technologies, and industries are constantly — often quite subtly — disrupting and replacing those of the past. This cycle ensures an economy evolves rather than calcifies.

Because this the destruction/creation cycle has been slowly, many economists and several chairs of the federal reserve system have been studying the data and looking for clues on how to arrest the decline.

Several characteristics define a calcifying sector or economy. The table below is cited by many known business dynamics academics and…