Where Have All the Startups Gone? New Research from eBay and EIG

Recently eBay’s public policy team here in Washington, D.C. presented a fascinating program on economic growth and new business startups. The presentations and panel discussion focused on two studies relating to the long-term decline in new business ventures and the geographic distribution of the business growth that we’ve seen over the last few post-recession economic recoveries.

The first study, The New Map of Growth and Recovery, published late last year by the Economic Innovation Group, highlighted the dramatic decline in new firms during the Great Recession and the unprecedentedly anemic recovery since. Moreover, most of the new firm growth we have seen has been geographically narrower than in the past – confined to a smaller number of counties representing a smaller share of the total U.S. population. From 2010 to 2014, only one-quarter of all counties added new businesses at the same rate as the national economy and a mere 20 counties accounted for half of all new business establishments.

The second study, piggybacking on the first, was published this month by eBay’s Public Policy Lab. When the eBay team looked at their own proprietary data on the company’s users with more than $10,000 in annual sales, they found “a significantly more geographically inclusive spread of new enterprise formation on eBay compared to the brick and mortar economy as reported by EIG.” According to Platform-Enabled Small Businesses and the Geography of Recovery, there seems to be something about an online business platform like eBay that makes it easier for small businesspeople to start and maintain a business, particularly outside of the most prosperous American counties.

According to John Lettieri of EIG, the prosperous areas that are dominating the recovery generally have high levels of immigration, up to date infrastructure, easy access to capital, and are part of one or more large university communities. It’s difficult, and probably impossible in the short term, for an economically depressed community to try to replicate those conditions. An online business that allows entrepreneurs to have easy access to millions of potential customers, ship and receive internationally, and scale easily, however, helps balance the disadvantages of less-vibrant locales.

When it comes to leveraging these findings, EIG’s Lettieri and eBay’s Brian Bieron had several policy recommendations, both for individuals who are confronting the geographically asymmetrical recovery in general, as well as those looking to build a business on an online platform.

• Reform occupational licensing laws that keep people with valuable skills from moving between jurisdictions. The Institute for Justice and the Charles Koch Institute have been leaders in the fight for licensing reform.  
• Reduce regulatory and tax complexity for small businesspeople. New legislation in the 115^th Congress, like the Regulatory Accountability Act, would go a long way toward achieving this goal. Reforming the tax code’s treatment of so-called “pass-through” small businesses is also a promising option.
• Increase access to capital for small businesspeople. My colleague John Berlau has written extensively on recent legislation aimed at that goal, like the Jumpstart Our Business Startups (JOBS) Act and the Fix Crowdfunding Act.
• Oppose expanding state tax authority over online transactions, especially as envisioned by legislation like the (misnamed) Marketplace Fairness Act. My colleague Jessica Melugin has been making the case for years that an MFA-style approach is terrible policy, though its proponents still seem to be hoping for a miracle in Congress.

Beyond the immediate conclusions of their current study, the huge volume of user data that eBay is sitting on has the potential to produce all kinds of interesting findings in the future. Watch their Main Street site for updates on future research.