Entrepreneurship levels fall in 2012 thanks to improving economy; Midwest lagging nation in new-business creation

Stateline Midwest ~ May 2013

At the same time that the nation’s unemployment rate was falling in 2012, entrepreneurial activity was slowing. According to the Kauffman Foundation’s annual Index of Entrepreneurial Activity, an average of 300 per 100,000 Americans started a business in 2012, down from 320 in 2011. This translates into approximately 514,000 new business establishments created each month in 2012, compared to about 543,000 in 2011.
Dane Stangler, Kauffman’s director of research, says the decline in business creation, which is now only slightly higher than before the recession, is not unexpected.
“While a stronger economy is good for business growth, it also means the unemployed find jobs instead of starting firms,” he says.
Business creation hit record highs when the labor market was at its weakest during the recession, he adds, and 2012’s rates mark a return to more-normal levels. The report’s geographic analysis shows that business creation rates were highest in the West and the South and lowest in the Northeast and Midwest.
The top-performing Midwestern state was North Dakota, which ranked 13th in the index. With the recent boom resulting from economic activity in the oil fields in its western portion, the state added 370 entrepreneurs per month for every 100,000 adults.
While experts generally say a stronger economy dampens entrepreneurial activity, the demand for businesses to support the new activity in North Dakota’s oil and gas industry has driven business creation in that state. This is especially true in the areas of construction and services — the two major industries with the highest rate of entrepreneurial activity in 2012, according to the report.
The remaining Midwestern states dominated the bottom half of the rankings (see table), with Ohio, Michigan, Wisconsin, Nebraska and Minnesota placing in the bottom five slots.
This relatively low level of activity in the Midwest is consistent with other indices ranking states on measures of entrepreneurship. The region’s struggles in these areas are well-documented, especially regarding innovation and the growth of high-tech sectors.
Amid the struggles, Midwestern policymakers have been passing new measures to support business development and entrepreneurial activity.
For example, Nebraska lawmakers approved a bill (LB 628) this year to expand the state’s Small Business Innovation Act pilot program to a greater number of Nebraska businesses and to extend the sunset date to Dec. 31, 2014. The program offers funding to help create small high-tech businesses in the state and assist with the commercialization of new products.
Wisconsin lawmakers have also made entrepreneurs and small-business development a central focus of the state’s economic development efforts. These efforts included a package of bills in late 2011 that made small-business loans available to a greater number of recipients.
More recently, Gov. Scott Walker has proposed initiatives to help seed startups and support more entrepreneurial activity in the state. The proposals include $25 million for venture capital investment and $6 million for entrepreneurs to obtain support services and early-stage financing.
In a separate effort, a group of Wisconsin lawmakers has announced a plan (AB 181) to create a fund that would invest state dollars, with a 2-to-1 match from private sources, in venture capital funds targeting investment in the agriculture, information technology, engineering, advanced- manufacturing and medical devices fields.