If Entrepreneurs Come, They Will Build It
The disparities in economic opportunity across the U.S. are the widest recorded and approaching a national crisis. In response, 1776 and the Economic Innovation Group (EIG) are working together to better understand the uneven economic recovery and how entrepreneurship can be a driving force in the solution.
EIG’s recently released Distressed Communities Index (DCI) measures economic conditions in over 25,000 zip codes to determine economic well-being based on seven factors. The results provide the most detailed look to date at how local economies have fared since the Great Recession.
The DCI found that while the U.S. economy may be working for more people than it’s failing, it is leaving large proportions of the country behind as over 50 million Americans are living in distressed communities. In the most distressed 10 percent of zip codes, communities lost 13 percent of jobs and saw more than one in 10 businesses close.
Contrary to what the tech boom and media hype suggest, the U.S. is actually experiencing unprecedented declines in entrepreneurship and business creation.
In the late 1970s, startups accounted for 16.5 percent of all companies and employed 6 percent of the workforce. Despite the economy having nearly doubled by 2013, startups shrank to just 8 percent of all companies and employed only 2 percent of the workforce. That’s a 50 percent decrease.
The DCI report outlines one of the defining economic issues of our time, but the good news is that we can learn a lot from that data to incentivize entrepreneurs and reverse the debilitating trends in distressed communities.
What’s Plaguing Distressed Communities?
Consider the decline in entrepreneurship through the lens of access to capital. Finding funding in many areas has been challenging — particularly in cities hit especially hard by the recession. In fact, 78 percent of venture capital is concentrated in only three states: California, Massachusetts, and New York.
Nowhere is the lack of access to capital more prevalent than in the distressed communities struggling to transition from industrial centers to knowledge economies. The most distressed areas in the DCI are the aging Rust Belt cities, where local economies have been slower to adapt to deindustrialization, continue to rely on outdated worker skill sets, and subsequently suffer eroding tax bases. Failure to adapt to the digital revolution has led to chronic underinvestment in workforce training and inadequate education systems.
Furthermore, assumptions that the economy won’t change have made entrepreneurship less appealing, accentuated by greater difficulty in getting loans and attracting private investment. The result is an entire generation that is less connected to entrepreneurship and without the necessary support from ecosystems and networks, and existing entrepreneurs flock to cities better equipped to help startups succeed.
Distressed communities are falling victim to this vicious cycle.
However, if local governments can recognize the cycle, they can create the right incentives for entrepreneurship to break it.
Revitalizing Distressed Communities
First, local leaders should identify entrepreneurs in their cities — every city has them. A single person or project can catalyze revitalization and motivate others to participate.
Second, city governments should invest in revamping education systems to adapt to the realities of the digital economy and teach and reward the skills that lead to innovation and business creation.
The desire to do good motivates many entrepreneurs, but several pragmatic considerations should enable them to help as well. Just as Dan Gilbert has done in Detroit and others elsewhere, early movers can take advantage of the prime, central locations in urban centers, where overhead costs less, and foster developing ecosystems.
Cities and private investors may also jointly invest in subsidized office spaces or accelerators for young firms to create support networks, build hubs to showcase entrepreneurial activity, and open “front doors” for mentors, customers, and investors to engage.
Finally, local governments need to help facilitate access to capital. In communities where large networks of wealthy investors and traditional sources of financing are sparse, new and novel capital sources, such as crowdfunding, offer solid alternatives.
Let Entrepreneurs Lead the Way
Together, entrepreneurs, governments, and investors can create jobs to improve distressed communities. New investment will start to rebuild the tax base, which will ultimately break the cycle that holds entrepreneurs and distressed communities back.
Critical for generating revenue, providing employment opportunities, and investing in the fabric of cities, entrepreneurs must lead the way. The key to revitalization is showing people the power they have to drive change. Working in coordination with government and investors, entrepreneurs can revive urban markets block by block.