From Startups to Jobs, America’s Lopsided Economic Recovery


twenty20_0c8ba4f6-db4c-4006-b0f8-ec1a4aa7dc73_startups_office_work-e1464018155556A new report from the Economic Innovation Group, “The New Map of Economic Growth and Recovery,” examines America’s startup scarcity in the 2010s. As the report explains, “New businesses play a disproportionate role in commercializing innovations, stoking competition, and driving productivity growth. They also create the bulk of the nation’s net new jobs and provide the extra demand that is critical to achieving wage-boosting full employment.”

And the numbers are distressing. Looking at other recent recoveries, the EIG report notes the 1990s saw a net increase of nearly 421,000 business establishments, and 405,000 in the 2000s. By contrast, over the first five years of the 2010s recovery, the number of business establishments increased by only 166,500.

That’s means we’re missing more than 300,000 startups and presumably all the good stuff that would have come with them. So less growth, less dynamism, less opportunity. Policymakers need to think hard about creating a better ecology for both startups overall and the ability of entrepreneurial/transformational startups — ones with the aim of getting really big —  to scale.

Now I have written a lot about the many facets of the startup dearth issue. But EIG also raises an issue, which has gotten less attention — at least from me. The dynamic bits of the American economy are becoming more concentrated in a smaller and smaller of superperforming regions: “A mere 20 counties accounting for only 17 percent of the U.S. population were responsible for half of the net national increase in business establishments from 2010 to 2014. ” And here they are: 052316eig1-1


Indeed, startup growth is just one way of looking at the lopsided nature of the recovery. EIG: “The largest counties produced 58 percent of the country’s new business establishments. The largest counties produced more than twice as many jobs during the 2010s recovery as they did in past ones. The most populous counties have become the fastest growing. Only 15 large counties enjoyed their strongest recovery in the 2010s.”


So once again, the new map of America. It is one based not on state boundaries but instead on clusters of knowledge workers, high-impact startups, and innovation — all creating powerful spillover effects for these regions. These megahubs are where the action is. From a recent New York Times piece:

To an extent, America is already headed toward a metropolis-first arrangement. The states aren’t about to go away, but economically and socially, the country is drifting toward looser metropolitan and regional formations, anchored by the great cities and urban archipelagos that already lead global economic circuits. The Northeastern megalopolis, stretching from Boston to Washington, contains more than 50 million people and represents 20 percent of America’s gross domestic product. Greater Los Angeles accounts for more than 10 percent of G.D.P. These city-states matter far more than most American states — and connectivity to these urban clusters determines Americans’ long-term economic viability far more than which state they reside in.

This reshuffling has profound economic consequences. America is increasingly divided not between red states and blue states, but between connected hubs and disconnected backwaters. Bruce Katz of the Brookings Institution has pointed out that of America’s 350 major metro areas, the cities with more than three million people have rebounded far better from the financial crisis. Meanwhile, smaller cities like Dayton, Ohio, already floundering, have been falling further behind, as have countless disconnected small towns across the country.

The problem is that while the economic reality goes one way, the 50-state model means that federal and state resources are concentrated in a state capital — often a small, isolated city itself — and allocated with little sense of the larger whole. Not only does this keep back our largest cities, but smaller American cities are increasingly cut off from the national agenda, destined to become low-cost immigrant and retirement colonies, or simply to be abandoned.

The New York Times piece focuses on infrastructure connectivity — to make sure those “backwater” regions aren’t left behind — and policymakers thinking about strategies that aren’t limited by dotted lines on a map. But we also need to make we are getting the most out of the hubs in their role as GDP and innovation generators. For instance: If high-skill workers want to move to these places, let’s make sure they can afford to live there. Let’s make sure they can move there. And let’s guarantee workers can move from company to company once they arrive without legal obstacle. From the EIG conclusion:

The United States has undoubtedly enjoyed more robust GDP and job growth following the global financial crisis than most developed economies. Its relatively swift recovery is a sign of national resilience. However, in light of the findings presented here, that resilience seems due more to the dynamism of its major metropolitan centers than to grassroots economic vibrancy nation-wide. … The dynamics captured in this report result to some extent from a global trend towards the clustering of knowledge-based economic activity (the modern economy’s growth sector) in large, connected cities. People are following economic opportunity to cities as well — the share of the country’s population residing in counties left behind by economic recoveries has not significantly increased over time.  … The new map of growth and recovery points to very different futures for American communities. These findings suggest that the gains from growth have and will continue to consolidate in the largest and most dynamic counties and leave other areas searching for their place in the emerging economic landscape. While many will benefit, the new map also calls for a new toolkit for ensuring broad access to opportunity and helping both people and places realize their economic potential.

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  1. I Walton Member
    I Walton

    The knowledge industries are by definition new so they do not face the same regulatory hurdles as all established business.  This is what should be expected in an administrative state.  All investment, all entrepreneurial activity takes place in an unknowable future so that expectations about that future are everything.  Our government and most economists believe that new investment is about aggregate demand which should be seen as nonsense.   This means the government spends and engages in activities that harm expectations about the future.

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  2. RyanFalcone Member

    Start-ups happen in urban centers. Urban centers are the best incubators for start-ups due to concentrations of capital and infrastructure. It seems like urban centers are becoming near city-states as they begin to cater more to larger markets than the traditional regional markets. Thus regional cities are stagnating and cities with access to international markets are growing in influence and start-up/job growth.

    That’s my take anyway.

    I do think this is dangerous. As our culture continues to deteriorate. People will move to these centers and they all seem to have a very Marxist bent. We are looking at a new feudalism. The more conservative, rural, agricultural, industrial areas will be relegated to serfdom. Isn’t that what Marx/communists really longed for all along?

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  3. David Foster Member
    David Foster

    RyanFalcone:Start-ups happen in urban centers. Urban centers are the best incubators for start-ups due to concentrations of capital and infrastructure.

    Start-ups happen in urban centers largely because (a) that is where prospective employees with the desired skills sets live or want to live, and (b) that’s where the founder and his associates already live.  But at some point, the cost premium for locating in SV and other startup hubs becomes extreme.

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  4. David Foster Member
    David Foster

    Many local governments are very eager to attract ‘technology’ businesses, but have a very limited and confused attitude as to what ‘technology’ is.  You are more likely to qualify as a technology business, in the view of local pols and their agents, if you are selling underwear online than if you are manufacturing an innovative product that actually requires metal-cutting.

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