Entrepreneurialism Under the Law

Matt Yglesias looks at a paper showing that entrepreneurship is remarkably stable across time in the US and says "It strikes me that asking "why do people start new businesses?" is one of these things where it might be easy to overemphasize the role of policy changes and underemphasize some other kind of more demographic or sociological factors."  

I think that both liberals and conservatives tend to overemphasize the "Man in the Gray Flannel Suit" aspect of the 1950s.  It absolutely existed, of course.  But at their very peak, unions represented about a third of the workforce; by 1955, that was already waning.  Most people did not work in those cushy, safe jobs-for-life that are romanticized in op-ed columns every Labor Day, and excoriated by conservatives on the stump.  My grandfather owned a gas station in a small town, which risked going under when the state built a new thruway in the 1950s, re-routing most of the traffic that had regularly driven by his pumps.  Blacks did not usually enjoy those glorious industrial jobs, nor did the surprising number of people who were still employed in agriculture or in various service industries.  In other words, the economy still contained a lot of room for churn even at the height of Galbraith's "New Industrial State".  

It's also worth looking at the regulations that made entrepreneurship more difficult--like the environmental rules that (for example) made starting or operating a gas station an adventure in bureaucracy; the erosion of the value of the bankruptcy homestead exemption in many states, eaten away by inflation; land-use regulations that made it increasingly difficult to find affordable space to run your business; and so forth.  These things did get more stringent in the 1980s and 1990s, exactly when entrepreneurship seems to have been flattening out; at the very least, they may have influenced the distribution of entrepreneurship, as people gravitated to places like Texas.  We tend to focus on the big political battles like tax rates, but the small issues that few people pay attention to may have been more important.

But ultimately I don't think you can escape the conclusion that there are cultural and institutional components to American entrepreneurialism, simply because it's so much more energetic than in other industrial places.  I don't think that tax rates are the reason that a clear majority of Americans have thought about striking out on their own, while the number in Europe is more like a third.