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Startup rules

In a recession, opportunity abounds for those with the entrepreneurial spirit. At least, that’s what a number of economists believe.

But recessions are not all alike. And the one that occurred from December 2007 to June 2009—the most severe downturn since the Great Depression—was not a boon to entrepreneurial endeavors.

In a 2011 article, Federal Reserve Bank of Cleveland visiting scholar Scott Shane examined a range of data and concluded that “the Great Recession was actually a time of considerable decline in entrepreneurial activity in the United States.”

Among the measures Mr. Shane studied were self-employment and employer firms. He found that while the number of people who became self-employed increased from 2007 to 2009, as some laid-off workers opted to go into business for themselves, even more people exited self-employment.

And during the same period, the number of employer firms—of which more than 99 percent are small businesses—declined by roughly 2.5 percent. This is particularly significant, he noted, because “employer firms account for 97 percent of private-sector GDP.”

This drop in entrepreneurial activity no doubt stemmed from the severity of the Great Recession; at the same time, it surely contributed to it.

Fortunately, there’s good news to report now: U.S. entrepreneurship appears to be rebounding. The 2015 Kauffman Index: Startup Activity, a measure of new business creation from the Kauffman Foundation, shows a five-year downward trend reversed course last year. In fact, the growth in the number of new entrepreneurs was the largest in two decades.

“Startup activity is growing again in America,” the foundation said. But it added a note of caution: The new numbers still reflect a long-term decline in startup rates.

How to turn this trend around? Here’s one step: Government could help by easing the burden of startup regulation. It’s not the only barrier to entrepreneurship, but unlike trying to steer the economy, positive change requires only political will.

6/19/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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