It’s a hard world to get a break in, all the good things have been taken. But girl there are ways to make certain things pay. Though I’m dressed in these rags, I’ll wear sable some day – hear what I say. I’m gonna ride the serpent, no more time spent sweatin’ rent. Hear my command. I’m breakin’ loose. It ain’t no use holdin’ me down, stick around. When the Animals released this song (by Roger Atkins and Carl D’Errico) in October 1965, about 9.6 percent of the labor force consisted of entrepreneurs – self-employed small business people who were mainly sole proprieters. The song was considered a protest – an angry declaration of independence- but it also describes exactly how entrepreneurs look at their world.
Since 1965, the number of entrepreneurs, as measured by the Department of Labor, has risen by 49 percent although the overall labor force has grown 133 percent. This means that the percentage of entrepreneurs in the country has fallen. In fact, since the Animals sang It’s My Life, the percentage of entrepreneurs has fallen steadily, and only accounts for 6.1 percent of the labor force today.
As the chart shows, the decline has been slow and steady since the late 1960s, spiking a bit during the recessions of the early 1980s (which were actually the worst since the great depression). So this slow decline has occurred through both Republican and Democratic administrations, with the worst performance happening during the George W. Bush Administration, and the best during the Reagan Administration. Interestingly, self-employment grew quickly during the Carter Administration, but growth was mediocre at best during the Obama and Clinton years.
During the Carter and Reagan years, entrepreneurship grew at a faster rate than overall jobs, a sharp contrast with the Clinton Presidency, when entrepreneurial growth was mediocre in spite of rapid economic growth overall. Although these Presidents had very different economic policies and agendas, but both were also proponents of deregulation. On the other hand, regulatory growth has been rapid particularly since President Clinton left office.
When politicians and bureaucrats discuss ways to encourage business growth or what they like to call economic development, they focus on tax policy, on education and training, and on financing. However, when you speak with small businesspeople and particularly sole proprietors, what worries them most (after finding business and markets of course) is regulations. Local, regional, state, federal and even international rules and regulations are the one thing that can stop a business cold. Want to close restaurants – make them invest in new transgender bathrooms, expensive menu labeling requirements, and costly safety equipment. Want to put trades people out of business – make it easy to sue them while at the same time making liability insurance expensive. Or better yet, randomly change around building codes. Want to make it expensive to run an office – simply require ergonomic furniture, generous family leave and sick time, or unnecessary provisions for non-present disabled workers. Want to shut down mom & pop retail stores – simply make the minimum wage economically unfeasible.
All too often economists, politicians and pundits worry about the macro economic environment. They discuss ways to stimulate spending, or ways to manipulate the currency to encourage exports, or enact broad tax policies. But what really impacts the establishment and growth of new business is a regulatory environment that discourages or even punishes risk. If firms can’t break loose and are held down by the heavy hand of government regulators, then there aren’t any ways to make certain things pay. The economy will continue to falter as it has for the past 16 or so years and we will continue to be dressed in these rags – hear what I say.