Startups are the Key to Ending the Recession

Today I read an article by Rich Karlgaard called, “What Grows An Economy?”. In it, he discusses how over the past few years of the Great Recession, the US economy has performed a little better than flat. This means we’ve actually grown during these difficult financial times, just not by the standards to which we are accustomed.

The United States expects growth, significant growth, annually. When the annual growth is around 2%, it feels awful, whereas a 4% growth feels like a boom. Right now, we are in what Karlgaard calls a “growth recession,” growth at a sub-par rate, between 0-3%. Since World War II, the American economy has experienced an average of 3.3% growth annually. However, the stock market is subject to a ripple effect. Small changes in the GDP result in big swings in the stock market values and consumer sentiment. That’s why a flat growth rate feels so terrible.

As stated in the article, “3.3%-plus growth, sustained over multiple years, and not just captured in a quarterly spike, sustains a positive feedback loop. Investors feel good and start pulling their money out of non-productive assets like gold. Employers feel good and start hiring. Consumers feel good and start buying. That’s what real 3.3%-plus growth would do for America, and what sickly 0% to 3% growth can never do.” What Karlgaard calls the economic question is: How can America get back to 3.3%-plus growth?

Carl Schramm, head of the Kauffman Foundation, America’s top entrepreneurial think tank, gives a quote in the article to answer that very question: The single most important contributor to a nation’s economic growth is the number of startups that grow to a billion dollars in revenue within 20 years.” In order to match the post World War II rate of growth, Schramm estimates that we need to spawn somewhere between 75-125 billion-dollar companies per year, having them grow and prosper into the fuel for the booming economy we desire.

The key to big growth rates is not the Apples or IBMs or Wal-Marts, nor is it the “cottage businesses.” It is the startups that get big. Not examples of hypergrowth like Google and Facebook, but a hundred or so companies each year that evolve into a billion dollar enterprise within 20 years. In order to ensure that these startups can prosper, limitations need to be removed from their paths. The government needs to remove tax and regulatory barriers for these kinds of companies and give the struggling economy the shot of adrenaline it needs to pump capital back through the country.

One Response to “Startups are the Key to Ending the Recession”
  1. Bob McEwen says:

    Amen to that. We need start-ups like “My Town Cards” to be successful.

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