An article in The Modern Libertarian reveals that, for this time in history, there are more businesses shutting down than there are businesses starting. The article cites a 20% increase in federal regulatory restrictions involved in starting a business. As I have been saying, the fear of competition is the source of power for the state. In this case, powerful businesses are using their influence with government to push through regulations that raise the cost of entry for potential competitors. The result?Ossification, stagnation, and even greater concentrations of power and wealth at the top.
Here is an excerpt from the article:
For the first time in US history, the rate of firm exit exceeds the rate of firm entry. The new trend represents a shift in our economic structure towards entrenched industries instead of “creative destruction” – or the process by which more productive firms drive out less productive ones through competition. Our economy becomes less competitive when entrepreneurial growth slows.
As Brookings explains: “the level of business deaths kept growing along with the overall level of businesses in the economy, but the level of business births did not”. The decline in “business dynamism” has not been isolated and its decline represents a threat to long-run growth.
What caused this new phenomena? Simply put, firm creation reduces because of increases in the regulatory burden and complex tax law. Both adversely affect small and new firms because they are more cost sensitive than big firms. The latter can navigate through regulations and tax law as well as reduce costs imposed by each.
Since 1997, federal regulatory restrictions have increased 20% and now exceed 1 million. Regulatory accumulation reduces new entrants to industry and inhibits competition.