There is an ongoing boom in small business creation in America. We look at what types of new businesses are thriving and why this type of trend has brought economic growth in the past.
AILSA CHANG, host:
There is a boom in new businesses in America. It begins in the summer of 2020, during the pandemic, during lockdowns and pandemic aid flowing freely. For a while, it looked like it would be a short-lived clash, but it’s still going on. And here to talk more about that is Greg Rosalsky from NPR’s Planet Money. Hello Greg.
GREG ROSALSKY, BYLINE: Hey, Ailsa.
CHANG: OK, why is this startup boom so persistent? Like, what drives this?
ROSALSKY: Initially, these businesses were started for a number of reasons related to the pandemic. We saw huge booms in online retail and, both in warehousing and trucking. Also, like, some unemployed people may turn to entrepreneurship, like, out of necessity or, you know, they’ve used the help of the pandemic to try to manifest that, like the long-held business dream that they always had. But now four years later, there has been a wider boom in new businesses.
And we’ve crunched some numbers here at Planet Money comparing the three years before the pandemic started with the three years after. Data suggests that now on average 60% more new businesses are created each year.
CHANG: It’s very interesting. And, of course, that matters to other people, because startups are a source of job creation and innovation, right? So what kind of businesses are we seeing created?
ROSALSKY: There are two big buckets. And I talked to this guy, John Haltiwanger. He is one of the top experts on creating new businesses in the United States. And he says, the first big bucket is businesses that are benefiting from a large displacement of population after the pandemic. Many office workers are no longer spending five days a week in the office in central areas. They are remote or hybrid.
JOHN HALTIWANGER: And we know it’s going to hurt the downtown areas. And so one of the things we know now is – in big cities after big cities, there’s a donut effect in terms of the growth of new businesses.
CHANG: A donut effect? What will she say?
ROSALSKY: A donut effect – it’s like this hole lacks new business creation in the downtown areas and then, like a delicious fried dough of business opportunities in the suburbs.
CHANG: (Laughter).
ROSALSKY: Yeah, it makes sense, doesn’t it? For example, people need their coffee, their sandwiches, like, their gyms closer to their office, which is now more often at home.
CHANG: Right. OK, so many new businesses in the suburbs – but I imagine there were a lot of businesses closing down in the inner cities too, right? So with that in mind, how much of a total boom is it really?
ROSALSKY: You know, I think you’re right to question that, because if the startup boom was, you know, just limited to, like, a realignment of economic activity in places like new, the upheaval for the economy would be such as , limited. Like, you know, more coffee shops in New Jersey and Brooklyn, if you were in Manhattan — which is why Haltiwanger is much more excited about the next big group of new businesses, tech startups.
CHANG: Wait, you’re saying this is more than the usual hype for tech startups?
ROSALSKY: Yes. Actually, what’s interesting is that there was a little while when it looked like venture capital was drying up after, you know, the Fed started raising interest rates. This has hurt some startups in Silicon Valley. But now there is a comeback and an increase in startups working in the field of artificial intelligence.
And that’s where startups play a kind of, like, kind of special role in driving the economy. They are smaller and more scrappy, and tend to be the ones testing new technologies. They experiment, force competitors to adapt and innovate and become more efficient.
And that’s something that can make the economy more productive overall. This can make, you know, products and services more abundant and cheaper. It’s like fairy dust sprinkled over the economy, raising, you know, people’s living standards. The last time we saw a significant increase in productivity growth was, like, all the way back in the 1990s, during the dot-com boom.
CHANG: Wow.
ROSALSKY: So, maybe good news for America.
CHANG: Let’s hope it’s good news. Thanks a lot, Greg.
ROSALSKY: Thank you.
CHANG: It was Greg Rosalsky, who writes Planet Money newspaper. That’s where this story first took place. Sign up for the Planet Money Newsletter at npr.org/planetmoneynewsletter.
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