Business start-ups hit hard by recession

May 13--The number of new businesses popping up in the region fell by more than half from 1978 to 2011, underscoring the devastating impact of the last recession, which poured cold water on entrepreneurship across America, according to a recent study from the Brookings Institution.

Business start-ups declined up to 57 percent in some areas in the three years from 1978 to 1980, compared to the three-year period from 2009 to 2011, according to the study, which used U.S. Bureau of Labor Statistics data to chart the level of business births and failures over time.

Business creation in Dayton declined at 53 percent, slightly faster rate than for the state, which saw business start-ups drop off by 47.2 percent over the same period, while the U.S. as a whole saw a decline of 47.9 percent. In the Springfield area, business creation fell by 57 percent immediately following the recession. Meanwhile, Columbus and Cincinnati saw business creation slide by 43-45 percent.

The decline in new businesses was so steep that business deaths outpaced births for the first time in more than three decades in 2009, stalling economic growth and contributing to record high unemployment, the study's authors concluded.

"Research has firmly established that this dynamic process is vital to productivity and sustained economic growth," Researchers Ian Hathaway and Robert Litan wrote, referring to the process by which firms are continually born, fail, expand and contract. "Entrepreneurs play a critical role in this process, and in net job creation."

The researchers acknowledged, however, that more than three years has passed since the data was collected in March 2011, and added "it's entirely possible that some of these negative trends have reversed -- or at least stabilized -- since then."

Chris Kershner, vice president of public policy and economic development at the Dayton Chamber of Commerce, said while the recession officially ended in June 2009, the economy had not fully recovered by 2011.

"The first thing that jumps out at me about the (Brookings) study is that we were still in recession for part of the time," Kershner said. The decline in business start-ups "was reactionary to the economic recession, but I don't think that's still the trend today.

"Since 2011, start-up companies have been doing well. Entrepreneurism and new business opportunities have been on the rise, and we're seeing small business owners really start to see some new success," he said. "Dayton, particularly, is seeing the success because we have a culture that really breeds entrepreneurism and opportunities for small businesses. There's a reason why the Dayton area has held more patents than any other area in the country."

Still, the research shows that the U.S. economy had seen a steady decline in business start-ups even before the recession began, which may indicate deeper structural problems, said Ken Mayland of ClearView Economics in suburban Cleveland.

"The slowing trend of start-ups is just one symptom of some deeper economic malady," Mayland said, noting that core economic growth stalled in the first quarter this year. "There's something going wrong. The question is why."

When it comes to new business formation, Mayland attributes much of the slowdown to onerous taxes and business regulations, such as the Sarbanes-Oxley corporate-governance reforms and Affordable Care Act health insurance requirements.

"The proliferation of all these regulations has made it more costly and more burdensome for people to start a business," he said, citing comments from Home Depot co-founder Bernie Marcus, who recently said he would not be able to start a company like Home Depot in today's regulatory environment.

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