The start-ups in an upstart US economy

The US rose in a global ranking on competitiveness, in part because its innovation ‘ecosystem’ lessens fears for entrepreneurs.

The Monitor's View

Since the end of the Great Recession in 2009, the United States has not only enjoyed a steady economic recovery, it has also improved on many key measures that drive future prosperity. That fact is reflected in its position on the Global Competitiveness Index. The US went from third to second this year, coming in just behind Switzerland.

The main reason for this progress is that Americans have maintained a “vibrant innovation ecosystem” that helps improve worker productivity, according to the World Economic Forum, which publishes the Global Competitiveness Report with country rankings.

Just how to maintain that vibrancy is the background for many debates about the US economy today. How should Congress reform taxes? Which cities will win Amazon’s second headquarters? Will electric vehicles or driverless cars create more jobs? Amid such debates, it is easy to forget the underlying strengths of the US economy.

It is No. 1 in how it finances entrepreneurs, for example. It has the world’s most sophisticated consumers. And it ranks second in its capacity for research and its availability of scientists and engineers. In its report, the World Economic Forum also cites the US for its strength in “efficiency enhancers.”

“Efficiency” is another way of saying that the US, like many other countries, has been able to reduce the fear of starting a business or inventing a product or service. Economists like to chart whether a nation’s culture, or its system of values, has a certain “tightness” that discourages risk-taking. American culture is rather “loose” in being open to go-getters. Its upstarts led to more start-ups.

Yet making the economy safe for innovation and entrepreneurship is no easy task, especially as conditions can rapidly change. The report notes one global trend: “During the last decade, the nature of innovation has shifted: From being driven by individuals working within the well-defined boundaries of corporate or university labs, innovation increasingly emerges from the distributed intelligence of a global crowd.”

New ideas for business, in other words, are flowing more easily across borders and between individuals. If would-be entrepreneurs can have easy access to capital – such as crowdsourcing – they may be less fearful about launching a business. A survey last May found that half of Millennials in the US plan to start a business in the next three years. And according to The Economist magazine, a forthcoming report from the Kauffman Foundation finds that “high-growth entrepreneurship has rebounded in America from the trough induced by the global financial crisis....”

Countries that have grown the most since the world financial crisis a decade ago have largely done so by removing barriers for entrepreneurs, with the biggest barrier being fear of failure. Those nations with a vibrant “ecosystem” for innovation have the most to offer entrepreneurs. They also have the most to gain in global competitiveness.