There’s a sustained boom in small business creation in America. We look into what types of new businesses are booming and why this kind of trend has meant economic growth in the past.
AILSA CHANG, HOST:
There is a boom of new businesses in America. It traces back to the summer of 2020, during the pandemic, during lockdowns and pandemic aid flowing freely. For a bit, it seemed like that would be a short-lived blip, but it is still going on. And here to talk more about it is Greg Rosalsky from NPR’s Planet Money. Hi, Greg.
GREG ROSALSKY, BYLINE: Hey, Ailsa.
CHANG: OK, so why is this startup boom this persistent? Like, what’s driving this?
ROSALSKY: Originally, these businesses started for a bunch of, like, pandemic-related reasons. We saw big booms in online retail and, like, warehousing and trucking. Also, like, some unemployed people maybe turned to entrepreneurship by, like, necessity or, you know, used pandemic aid to try to manifest that, like, long-held business dream they always had. But now four years later, it’s become a more broad-based boom in new businesses.
And we crunched some numbers here at Planet Money comparing the three years before the onset of the pandemic to the three years after. The data suggests there are now on average almost 60% more new businesses being created each year.
CHANG: That’s so interesting. And, of course, this matters to other people because startups are a source of job creation and innovation, right? So what sort of businesses are we seeing getting created?
ROSALSKY: There are two big buckets. And I talked to this guy, John Haltiwanger. He’s one of the top experts on new business creation in the United States. And he says, the first big bucket are businesses that are capitalizing on a huge post-pandemic population shift. Many office workers are no longer spending five days a week at the office in downtown areas. They’re remote or hybrid.
JOHN HALTIWANGER: And we know that that’s hurt downtown areas. And so one of the things we know now is a – in major city after major city, there’s a doughnut effect in terms of the surge in new businesses.
CHANG: A doughnut effect? What does that mean?
ROSALSKY: A doughnut effect – it’s like this hole lacking new business creation in downtown areas and then, like, a delicious fried dough of business opportunities in the suburbs.
CHANG: (Laughter).
ROSALSKY: Yeah, it kind of makes sense, right? Like, people need their coffee, their sandwiches, like, their gyms closer to their office, which is now more often at home.
CHANG: Right. OK, so lots of new businesses in the outskirts of cities – but I imagine that there were also a lot of businesses that closed in the center of cities, right? So taking that into account, how much of a boom overall is this really?
ROSALSKY: You know, I think you’re right to question that because if the startup boom were, you know, just limited to, like, a reshuffling of economic activity to new places, the upside for the economy would be kind of, like, limited. Like, you know, more coffee shops in New Jersey and Brooklyn, if you were in Manhattan – which is why Haltiwanger is much more excited about the other big bucket of new businesses, tech startups.
CHANG: Wait, so are you saying, like, this is more than the usual hype about tech startups?
ROSALSKY: Yeah. Actually, what’s interesting is there was a bit of time where it seemed like maybe venture capital was drying up after, you know, the Fed started raising interest rates. That’s hurt some startups in Silicon Valley. But there’s now this rebound and a surge of startups working in the area of artificial intelligence.
And here’s where new businesses play kind of, like, a special kind of role in boosting the economy. They’re smaller and scrappier, and they tend to be the ones that test out new technologies. They experiment, they force competitors to adapt and innovate and get more efficient.
And this is something that can make the economy more productive overall. That can make, you know, products and services more abundant and cheaper. It’s like fairy dust being sprinkled on the economy, lifting, you know, people’s standard of living. The last time we saw a significant increase in productivity growth was, like, all the way back in the 1990s, during the dot-com boom.
CHANG: Wow.
ROSALSKY: So maybe good news for America.
CHANG: Let’s hope it is good news. Thank you so much, Greg.
ROSALSKY: Thank you.
CHANG: That was Greg Rosalsky, who writes the Planet Money Newsletter. That’s where this story originally ran. Sign up for Planet Money’s Newsletter at npr.org/planetmoneynewsletter.
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