Recession keeps even start-ups down

By Jim Hopkins
USA Today

SAN FRANCISCO — U.S. entrepreneurship is not what it was.

For the first time in more than 50 years, entrepreneurs are failing to lead the United States out of recession, government data suggest.

The impact is broad. Experts say flagging entrepreneurship might partly explain the wobbly rebound: Fewer start-ups mean fewer new jobs and innovations.

That differs from the past. In the previous nine recessions since 1948, self-employment rose as laid-off workers started companies. Walt Disney, Microsoft and others began during recessions.

But during the recession that began in March 2001, the share of all workers who are self-employed fell, a USA Today analysis of Labor Department data found.

Self-employment plummeted to a record low of 6.2 percent in February, a "dramatic shift" and possible reason the recovery has been so muted, says Mark Zandi, chief economist at Economy.com.

In February 1991, another recessionary period, the self-employment rate was 7.6 percent. The high was 12.7 percent in 1949. Experts say entrepreneurship has been hurt by:

• Health costs. Many would-be entrepreneurs say they can't afford to start a company because employer health insurance premiums are so high; they've jumped 12.7 percent in the past year. They are "prohibitively expensive," says Bruce Phillips, economist at the National Federation of Independent Business Research Foundation. Bob Slater, 45, an Emory University computer analyst, says insurance costs are one reason he's not chasing his dream of starting a tech-consulting firm.

• Financing problems. Many firms begin with less than $20,000, often borrowed with credit cards, the source of 39 percent of small-business loans, Federal Reserve data say. But consumers have piled on debt, hobbling their ability to finance a start-up. Consumer debt payments in last year's fourth quarter were 8 percent of disposable income, the highest in 16 years. Venture capital is also scarce. VCs pumped $5.7 billion into start-ups in the second quarter, down 53 percent from a year ago.

• Scandals. Would-be entrepreneurs might be hesitant because CEOs are in the doghouse amid alleged wrongdoing at Tyco, WorldCom, Enron and others.

Just 16 percent of parents want their children to become CEOs, a Harris Poll found in July, down from 28 percent in 1992. And 76 percent of adults respect entrepreneurs, down from 91 percent in 1999, a Babson College poll of 2,000 adults found last year.