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Growthology

Rewriting the history of small business: What you didn't know

The standard narrative is too simplistic about the role, origins, and impact of entrepreneurship. But the closer you look, the fuzzier it gets, finds guest blogger Dane Stangler.

By Guest blogger / January 17, 2011

The number of new incorporations exploded between the 1960s and 1970s and again between the 1980s and 1990s. New company listings rose from an average of 156 per year from 1973 to 1979, to 549 per year from 1980 to 2001. But that's mostly a function of population growth, it turns out. So what's the real story of business creation?

Photo illustration / Design Pics / Newscom / File

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The standard narrative about the American economy in the late twentieth century typically runs as follows: after four decades of quasi-statist capitalism (the 1940s through the 1970s) that brought the United States to the brink of economic ruin, the economy experienced an entrepreneurial explosion around 1980. The economy moved from the dull bureaucratic capitalism of the "Organization Man" to the exciting entrepreneurial capitalism of high-technology and, accordingly, more robust growth and productivity. Without questioning the importance of entrepreneurship to economic growth, I'm beginning to wonder about this.

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Writer, Kauffman’s Growthology.org

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For starters, let's take recent technological history. The information technology revolution that is associated with the 1980s and 1990s was born in the 1950s and 1960s, emerging out of government-funded research performed at universities and large company laboratories. We could probably mark the start of the IT revolution at the founding of Fairchild Semiconductor 1957 or, perhaps, the founding of Intel in 1968; Microsoft and Apple followed in the mid-1970s. Other companies typically associated with this entrepreneurial rebirth include FedEx and Southwest Airlines, which were also started in the late 1960s and early 1970s. Even within the confines of the conventional narrative outlined above, we can trace the roots of entrepreneurial capitalism to the final stages of bureaucratic capitalism, a pattern that aligns with other models of technological revolutions and transitions. In his wonderful book, The Age of Abundance, Brink Lindsey (who is now a Senior Fellow at the Kauffman Foundation), connects the counter-cultural ethos of the 1960s with the subsequent entrepreneurial revolution in business.

The typical narrative of entrepreneurial capitalism is also usually supported by reference to either changing rates of overall entrepreneurship or the high number of initial public offerings (IPOs) in the 1980s and 1990s, as well as the explosion of alternative forms of financing, from junk bonds to venture capital. And, indeed, according to at least one strand of Census Bureau data, the absolute number of new incorporations did increase dramatically from the 1960s to the 1970s and again to the 1980s and 1990s. New company listings, moreover, rose from an average of 156 per year from 1973 to 1979, to 549 per year from 1980 to 2001. From 1980 to 2001, in fact, newly listed firms comprised 10 percent of all listed firms in any given year. Venture capital, too, increased by several factors from the end of the 1970s and despite reverting from its astronomical heights in the late 1990s, VC remains at historically elevated levels.