Land of the Freaked-Out
Yesterday, the Wall Street Journal brought us the troubling news that “Risk-Averse Culture Infects U.S. Workers, Entrepreneurs.” I got as far as the second paragraph before sensing that something was amiss:
“Three long-running trends suggest the U.S. economy has turned soft on risk: Companies add jobs more slowly, even in good times. Investors put less money into new ventures. And, more broadly, Americans start fewer businesses and are less inclined to change jobs or move for new opportunities.”
Wait a sec, I thought. How does the fact that companies are adding jobs more slowly indicate an aversion to risk? Might not it be explained by, say, the streamlining of information systems and resulting automation of the workplace that began with the Y2K scare? Or government policies that discourage hiring through higher taxation or increased regulation? Or expansion opportunities in other countries and the various incentives for companies to invest abroad?
I read on.
The third paragraph cited “an aging population and the new dominance of large corporations in many industries. They also may help explain the increasingly sluggish economic recoveries after the past three recessions, experts said.” Okay, as a Baby Boomer born in 1946, I know first-hand about an aging population. But since when did the dominance of large corporations discourage risk-taking? Maybe the experts weren’t around in the 1970s, when big companies dominated everything--and the entrepreneurial era was born. And did I miss something about the recoveries from the 1990 and 2001 recessions? There was clearly no decline in risk-taking during the dot-com bubble or the housing bubble that came after them. We would have been spared a lot of grief if there had been. It’s just the latest recovery that has sucked, and there are a whole lot of possible explanations.
And the article goes on like that.
We read that investors are losing enthusiasm for startups. The proof? Total venture capital invested fell by nearly 10 percent last year. No mention of the $350 billion in dry powder sitting in private equity funds. Somebody is investing in risk funds. Might there be other reasons for the decline in invested venture capital--such as the VC sector's lousy returns?
And it continues with one inconclusive fact after another, all straining to add up to proof of a newly risk-averse culture, but never quite making it. Instead, we get the supposed consensus of “a broad cross section of U.S. economists, from a range of academic disciplines and political persuasions.” They have various charts and graphs indicating a decline in job mobility, an increase in cash on company balance sheets, a drop in seed money from venture capital firms, fewer new jobs being created, and so forth and so on--each a development that could have multiple explanations, most of them far more plausible than growing aversion to risk.
Part of the problem here is the notion that the level of U.S. entrepreneurship reflects, first and foremost, the willingness of Americans to take risks. You’d think that people start companies because they enjoy risk-taking. In fact, most successful entrepreneurs try to minimize the risks they face. What turns them on is opportunity--to be independent, to make money, to change the world, to create something new and exciting, to fulfill a dream, whatever. So has there been a decline in opportunity? Maybe that’s the question we should be asking.
Don’t get me wrong. We obviously have a job generation problem, reflecting the decline, over the past 10 years, in the percentage of companies that are growing rapidly. These are the real job creators, as we have said before on Inc.com. The question is, why has there been that decline? I suppose a widespread desire for security and an aversion to risk could play a role, in theory, but it’s not at all clear why we'd see such a growing aversion to risk right now. There’s nothing in this article that convincingly demonstrates that we are.