Entrepreneurship and the Decline of American Growth
Entrepreneurs are alert to new opportunities, providing the new products, services, and methods that are foundational to economic growth. However, in the last half-century, entrepreneur-driven innovation has declined, leading to slower economic progress. Policymakers should remove barriers to entrepreneurship in order to unleash economic growth, and as a result, improve living standards for all Americans.
Entrepreneurship has declined since the 1970s, across multiple different measures—business formation, self-employment, and productivity growth. The decline in entrepreneurial innovation coincides with a more than 2 percentage point drop in average real Gross Domestic Product (GDP) growth.
Slow growth has large costs. Had growth rates since 1974 continued at their previous rate of almost 4 percent, the economy would have been approximately 50 percent larger in 2022.
Around the same time entrepreneurship and GDP growth began to slow in the 1970s, government activity became increasingly hostile to economic expansion—new regulatory activity peaked, and government spending passed the threshold where it becomes a net-drag on economic growth.
Policy reforms to support entrepreneurs should improve access to capital by removing barriers that raise the cost of financing new ideas. General policies to improve economic growth—such as institutional constraints on regulations, taxes, and spending—are also important reforms.