David Frum

07.10.12

Entrepreneurship in Decline

A new report from the New America Foundation says that entrepreneurship has markedly declined over the last generation and that the official statistics missed the trend:

The fact that entrepreneurial activity has – by many measures – sharply declined over the last generation will surprise many of us. This in turn raises the question of why so few analyses have picked up on the trend, especially given the level of scrutiny the subject generally draws.

Perhaps most surprising is the widespread failure of researchers to adjust for the robust growth of the working-age population over the last generation. A more fundamental, structural reason is that U.S. government databases are designed to count in ways best suited to measuring the health of big businesses and their macroeconomic impact.
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A good way to understand how captive workers and suppliers can be mistaken for independent entrepreneurs and small businesses is through specific examples. Consider, for instance, FedEx’s once routine practice of hiring its truck drivers as independent contractors. Under these agreements, drivers are obligated to lease FedEx trucks, wear its uniform, and deliver its packages along routes assigned by the company. But were the FedEx contract drivers really in business for themselves? Or was their status as “independent” drivers more of a useful myth that enabled the company to protect itself against unionization, to avoid paying benefits, and to win more business by being able to charge less? (In 2005 it was estimated that this contractor model enabled FedEx to deliver packages at an average rate $1.35 lower than its main rival, United Parcel Service (UPS), which uses unionized, salaried drivers.