WASHINGTON — The U.S. House of Representatives’ Small Business Subcommittee on Contracting and Workforce, under the chairmanship of Rep. Richard Hanna, R-New York, conducted a hearing to examine the declining rate of small business creation over the last three decades and the state of entrepreneurship during this latest economic recovery.

The rate of new business creation has dropped by nearly 50 percent from 1978. In 1978, there were 12 new businesses created for each existing business while in 2011 this dropped to 6.2 new firms.

“Our economy is facing a crisis that most Americans are not aware of — a decline in entrepreneurship,” said Hanna. “For the first time in over 30 years, more businesses are dying off than being created. Today’s hearing provided further evidence that Washington must do more to provide a better regulatory and tax environment for enterprise growth. We must not allow a declining rate of business formation and sluggish growth to be considered the new normal, and we should pursue policies which unleash the economic power of entrepreneurship and the American spirit.”

John Dearie, executive vice president, Financial Services Forum, Washington, District of Columbia, said, “New businesses create an average of 3 million new jobs annually, while existing firms of any age, type, or size, in aggregate, shed a net average of about 1 million jobs each year, as some businesses fail and others incorporate technology and become more efficient. Were it not for new businesses, there would be no net new job creation in most years.

“…the policy needs and priorities of new businesses are unique. Start-ups are different from existing businesses. While they confront challenges similar to those of existing businesses, their ability to successfully navigate those challenges is more limited.”

Jonathan Ortmans, senior fellow, Kauffman Foundation, Washington, District of Columbia, said, “Congress should… examine the role regulatory accumulation may play in depressing entrepreneurial activity. As new regulations are enacted on top of existing rules, businesses are faced with the challenge of navigating an increasingly complex regulatory regime. A handful of ideas have been proposed to address this challenge, including the establishment of a Regulatory Improvement Commission and the automatic sunset of major rules after a set amount of time.”

Chad Moutray, chief economist, National Association of Manufacturers, Washington, District of Columbia, said, “Beyond these issues, the best way to increase firm formation is to have a growing economy. Policymakers need to adopt pro-growth measures that will enable manufacturers and other businesses to expand, to hire more workers, and to invest in more capital spending. A healthy economy will encourage more participants, and that should spur more entrepreneurship and innovation. The pro-growth priorities of manufacturers include, but are not limited to: passing comprehensive tax reform, providing regulatory relief, expanding trade opportunities, enacting sensible energy policies, investing in more infrastructure, encouraging research and development, and developing the next generation of workers.”

Publication date: 9/29/2014

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