Funding

Why America is Struggling in the Modern World

TL;DR: America is not equipped to keep up with the modern world. The path to solving this challenge is by enabling a healthy, diverse, and fair economy. These are some realistic ways to make it happen.

After a year of unprecedented challenges, and with a nation of citizens still facing unparalleled division, it’s clear that America is not equipped to keep up with the modern world.

The problems — and methods for solving them — are endless, but it’s fair to say that economic opportunity is likely the strongest single driver of prosperity. If one thing plays a role in every aspect of a society, it is peoples’ access to a healthy, diverse, and fair economy.

Unfortunately, America’s economy is stagnating, and has been for some time. While the stock market hits record highs, new company formation across the country has fallen to a 40-year low. We hear of hundred billion dollar valuations in tech, while small business declines in all fifty states.

This is especially alarming when you understand that new businesses are largely responsible for economic growth, and account for almost all new job creation. This decline has caused our economy to stagnate, unable to break 3% year-over-year growth since 2005, compared to 3.5% annual growth from 1947 to 2000. That difference may not seem like a lot, but due to the size of the American economy, it’s a slowdown that cost us $2.4 trillion in 2019 alone.

Not only is growth stagnating, it’s also diverging. What’s left of new business creation is increasingly concentrated in a few major metropolitan hubs. According to Economic Innovation Group’s report, Dynamism in Retreat, “From 2010 to 2014, five metro areas — New York, Miami, Los Angeles, Houston, and Dallas — produced as big of an increase in businesses as the rest of the nation combined.”

Studies also show that more than 9 million jobs and $300 billion in net collective income is lost due to discriminatory financing practices. Less than 2% of venture capital went to women in 2019, and less than 1% goes to any underrepresented ethnic group, despite the fact that ethnic and gender diverse teams outperform their homogenous counterparts. This perpetuates wealth and wage gaps that, if remedied, could add over $1 trillion to our economy, and increase our GDP 5–7% within ten years.

We’ve created an era of incumbency with increased concentration, reduced competition, and more and more of our nation’s wealth locked up in corporate profits. This is why 56% of Americans have less than $5,000 in savings, while Apple has $193 billion in cash.

Improvements are possible if we take the right actions, but we must act quickly. 36% of millennials — now the largest segment of America’s adult population — approve of communism. Capitalism alone is not the answer, nor is centralized government. The answer is a society that can continuously adapt to the rapid changes of modern times.

We need to focus on the entrepreneurial — and therefore economic — health of the entire nation. We need policy that empowers entrepreneurs to take chances, access to capital for more people earlier in life, restrictions on lobbying, tax code that balances human work and capital, and acceptance of entrepreneurship as a fundamental career path. These changes will fuel a more inclusive form of capitalism to ensure that future leaps in innovation will benefit everyone.

We also need modern infrastructure and actionable data that lives between the public and private sectors, to improve capital efficiency and increase the speed of government business. These tools should enable transparency and equity in public spending, and support critical public sector investment in innovation.

Fortunately, bi-partisan caucuses on entrepreneurship were recently established in both the House and the Senate, an excellent first step. At OpenGrants, we’re working on equitable access to funding and data-driven funding distribution mechanisms. Together, we can restore the American economy to global dominance, reduce divisiveness by equalizing economic opportunity, and re-establish the effectiveness of democracy and capitalism by creating policies and tools that allow for constant adaptation.

All of this is possible, and now is the time to make it happen.

Special thanks to Bill Mitchel, Mariah Lichtenstern, Gary A. Bolles, and the Center for American Entrepreneurship for their support and work in this area.