The Engine of Growth

Here's a bit from a posting on Robert X. Cringely's blog chiding Obama for missing the real engine of growth for the economy:

Small companies create jobs in America.

According to a recent study by the Ewing Marion Kauffman Foundation, companies less than five years old generated nearly two-thirds of the new jobs created in the U. S. in 2007. But what’s even more important is that without these startups more jobs would be lost than created, the U. S. economy would permanently shrink and America would eventually lose its superpower status, simple as that.

This is because big companies grow by increasing scale and productivity, which is to say by reducing the number of jobs per unit of sales, while startups grow by inventing cool stuff. See the difference?

The startups that most reliably become giant American corporations and creators of wealth are technology startups. Without startups to compete with or acquire, big technology companies would do almost nothing new. In the United States large companies depend on startups to explore new technologies and new markets. Startups play a particularly important role in growing jobs out of a recession. New companies produced all of the net new jobs in the U. S. from 2001-2007, and also from 1980-1983, the last big American downturn.

Why then, has U. S. economic policy been aimed almost entirely at saving large and dying industries (banks and car companies)? Because sometimes even Presidents don’t get it.

U. S. technology startups are born and die at astounding rates. Ninety-five percent of technology startups fail — ninety-five percent. With odds at 19-to-1 against success, why do entrepreneurs even bother to build these companies? Because the potential rewards are huge (Microsoft and Apple, Cisco and Intel were all startups, remember) and for real entrepreneurs there are some things even worse than failure, like boredom or being like everyone else.

Now here's a teaser... if you read the whole Cringely posting you will discover his personal plan for getting the US back on its feet and growing. Find out his secret! Go read his blog!