When it comes to the American economy, one thing is certain: If you are looking for doom and gloom, it’s not difficult to find.
There’s this recent New York Times headline: “New Layoffs Add to Worries Over U.S. Economic Slowdown.” Or this one from Bloomberg: “U.S. Economy Not in a V-Shaped Recovery.” On a daily basis, Americans wake up to pessimistic projections about the COVID-19 pandemic and the economic growth that it has curtailed. Walking down the street, you are bound to run into a shuttered business or an unemployed worker.
Yes, the U.S. economy is struggling, but there is also hope. Where there is entrepreneurship, there is always a reason to be optimistic. The American dream is inextricably linked to private-sector innovation, and only when the flame of human ingenuity is extinguished will ours truly be a time of doom and gloom. As President Reagan once said, “Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.”
While that may be a slight exaggeration, America’s 31 million small businesses do generate nearly half of all U.S. economic activity. Indeed, the nominal gross domestic product (GDP) of American small businesses comes out to roughly $6 trillion—more than the entire GDP of Japan, the world’s third largest economy.
Now, you may ask: Why does that matter? Aren’t small businesses being crushed right now? Isn’t entrepreneurship fizzling out?
Not so fast. In fact, many Americans are embracing the entrepreneur’s lifestyle right now, seizing an opportunity (as they see it) that was created by an unprecedented pandemic. According to the Wall Street Journal, applications for new employer identification numbers (EINs) that small business owners need have passed 3.2 million in 2020—up from 2.7 million at the same point last year. Of course, these are not only job creators: The 3.2 million figure includes “gig” workers and other independent contractors.
However, even excluding those workers, new filings among small business owners who tend to employ others still reached 1.1 million last month. That is a 12 percent increase over the same period last year. More surprisingly, that’s the highest number of EIN applications since 2007—before the Great Recession.
Despite the current threat to financial security, hundreds of thousands of entrepreneurs are trying their luck at small business ownership, compounding pandemic-era insecurity with the long-established unpredictability of private innovation. More than half of new employer businesses fail within five years, yet such built-in risk is not stopping America’s dreamers.
Even more promising is the sheer variety of small businesses being formed. The Journal interviewed Madison Schneider, who used about $8,000 in personal savings to open Lela’s Bakery and Coffeehouse in Kansas, and she was joined by the head of a mobile bike-repair business in Wisconsin and the two owners of a meal-delivery service in Florida, among others. Moreover, there are countless stories that go unheard. These are coders and marketers and writers, and much, much more.
Their ingenuity bodes well for a U.S. economy that relies on start-ups for one-fifth of its total job creation. When entrepreneurs like Schneider take risks to live out their American dream, employees and job-seekers inevitably benefit from the career opportunities that are produced. When she hires another baker or cashier, that’s another career for a worker who needs one. That means financial security, at a time when it comes at a premium.
The perseverance of American entrepreneurship—during one of the most challenging years in recent memory—also reminds us all of the true source of American exceptionalism: The individual. Perhaps, one of the entrepreneurs who took the plunge in 2020 will lead the next Facebook or Google. Perhaps, one of those entrepreneurs will employ 50,000 workers in a decade, providing their families with financial security that wouldn’t be possible without the initial plunge in the first place.
In truth, the source of American exceptionalism is not any one political figure or the federal government. Nor is it one public policy that will make all the difference. A lower tax rate or regulatory relief may add fuel to the fire, but the fire needs to be lit first. The government is not in the business of creating prosperity, nor should it be. It is you and me—all of us put together, dreaming and doing.
Does that sound too aspirational? Maybe. But, in a world of doom and gloom, we can all use the hope, the optimism, and the jobs that entrepreneurship makes possible.