May 27, 2018

U.S. startups are in a surprising 13-year slump

Illustration: Rebecca Zisser/Axios

For decades, U.S. tech startups have been the beating heart of Silicon Valley. But almost unnoticed by economists, they are now in the same funk dogging some other sectors of the American economy.

Why it matters: In the booming 1980s and 1990s, much of U.S. job and productivity growth was the handiwork of a few young startups and their hit innovations. But the decline, which began in 2005, has stripped the economy of one of its most vibrant engines of wage and productivity growth, says John Haltiwanger, an economist at the University of Maryland.

Quick take: American startups are in a 13-year slump, their numbers shrunken from their heyday and, with a few conspicuous exceptions, their inventions not the financial world-killers of prior kin, according to new research.

  • As you see in the chart below, the decline began long before the financial crash — in fact, halted there — and entrepreneurs have barely picked up the pace since then despite the economic recovery.
Expand chart
Data: Census Bureau; Chart: Chris Canipe/Axios

The background: For years, economists have been trying to figure out why productivity growth in major western economies has been flat despite soaring corporate profit, low joblessness and low inflation. Apart from the dotcom spurt in the 1990s, U.S. productivity growth has been flat since about 1970. It was 2.9% a year from 1995 to 2004, but halved to 1.3% on average from 2005 through 2017. The same has been true across the world's advanced economies. Among the reasons they have come up with:

  • We've created all the big inventions: The University of Chicago's Robert Gordon says in his seminal 2016 book, The Rise and Fall of American Growth, that we have already produced the most consequential inventions like electricity and internal combustion. Anything else isn't going to have the same punch.
  • We're in a transition period: Economists from MIT and the University of Chicago cite a lag between the launch of a new technology, such as artificial intelligence and its visibility in productivity numbers. We are in that period now, they say.

Haltiwanger dismisses neither of those reasons, but told Axios at conference Thursday at the Dallas Fed that the loss of the propulsion of startups is a primary reason for the current malaise. He speculates that Big Tech companies may be buying up a lot of them before they make their big splash, thus smothering their potential.

  • To the degree that's true, the result is that society loses, he said. "The large companies are engaged in defensive innovation," he said.
  • In the real world: Last week, Axios' Dan Primack wrote about "killer acquisitions" in the pharma industry, highlighting that mergers prevent about 5% of new drugs from reaching the market.

Go deeper

Updated 1 hour ago - Politics & Policy

U.S. enters 6th day of nationwide protests over George Floyd's killing

A protest in Philadelphia on May 31. Photo: Mark Makela/Getty Images

The D.C. National Guard is being called to assist police with protests, per AP, as protests continue past the city's 11 p.m. curfew.

What's happening: Police fired tear gas into a crowd of over 1,000 people in Washington, D.C.'s Lafayette Square across from the White House one hour before Sunday's 11 p.m. curfew, AP reports. Earlier in the night, protestors held a stand off in Lafayette Square, after previously breaking through a White House police barricade. A fire in the basement of the city's historic St. Johns Church was extinguished.

Updated 4 hours ago - Politics & Policy

Journalists get caught in the crosshairs as protests unfold

A man waves a Black Lives Matter flag atop the CNN logo outside the CNN Center during a protest in response to the police killing of George Floyd, Atlanta, Georgia, May 29. Photo: Elijah Nouvelage/Getty Images

Dozens of journalists across the country tweeted videos Saturday night of themselves and their crews getting arrested, being shot at by police with rubber bullets, targeted with tear gas by authorities or assaulted by protesters.

Driving the news: The violence got so bad over the weekend that on Sunday the Cleveland police said the media was not allowed downtown unless "they are inside their place of business" — drawing ire from news outlets around the country, who argued that such access is a critical part of adequately covering protests.

Updated 4 hours ago - Politics & Policy

Tanker truck plows into Minneapolis protesters

The tanker after plowing into protesters on the shut-down bridge in Minneapolis on Sunday evening. Authorities said it appeared protesters escaped injury. Photo: Jeff Wheeler/Star Tribune via Getty Images

Minnesota authorities said in a statement they're investigating as a criminal matter what happened with a truck that "drove into demonstrators" on a Minneapolis bridge Sunday evening while the eight-lane road was closed for a protest.

What they're saying: Minnesota Department of Public Safety tweeted, "Very disturbing actions by a truck driver on I-35W, inciting a crowd of peaceful demonstrators. The truck driver was injured & taken to a hospital with non-life threatening injuries. He is under arrest. It doesn't appear any protesters were hit by the truck."