At least some of the questions, though, may be answered more quickly -- and less expensively -- by a group of social scientists who are already mining a big, computer-readable, and largely untapped source of data about new businesses, compiled on a state level and completely independent of Dun & Bradstreet. Among this group is the University of Michigan's John E. Jackson.
Jackson, a political economist, had been doing research at Harvard during the early '70s, when the Massachusetts economy was still smarting from the southward migration of textile and other old-line manufacturers. "When I moved to Michigan in 1980, I heard the same story," he remembers, "only you had to substitute Japan for the Carolinas and automobiles for textiles. But now people were saying, why couldn't we be more like Massachusetts?"
With good reason. Between 1978 and 1982, Michigan lost close to 400,000 manufacturing jobs, more than half of them in the automobile industry alone. At the depth of the 1982 recession, unemployment hit an incredible 17%. "Residents were bombarded almost daily with stories of firms and people leaving Michigan for the Sun Belt," Jackson says. Asked to serve on an economic-development task force organized by Democratic governor James Blanchard, however, he realized how little was really known about the Michigan economy. That was when he began looking into the state's unemployment-insurance data.
ES-202 files, as state unemployment records are known, record every company operating in a state from the moment it establishes a payroll. They're updated quarterly, with new employment figures for every company. And they record company failures the moment a business stops incurring tax liability. A few states don't allow outsiders access to the files, while in others the files aren't easily accessible. Michigan offered no such obstacles -- and the data, it turned out, were of high quality. "Not only are the data more timely than Dun & Bradstreet's," Jackson explains, "but Michigan is particularly good at flagging predecessor and successor companies [when a company is restructured or changes ownership]. D&B doesn't do that so well."
Uncertain as to what he would find, Jackson got tapes beginning in 1978 and ending, for the first phase of his research, in 1984. Running them through his computer, he found that the press had missed fully half the story.
Yes, the automobile industry was shrinking. Even during the post-1982 recovery it never came close to replacing the number of workers laid off in the recession. And yes, many other industries -- steel, machine tools -- had plenty of dying or declining companies. But side by side with this decaying economy was what amounted to another economy being born. New and growing companies were generating jobs by the tens of thousands. In manufacturing alone, nearly as many companies were created as went out of business. Of the manufacturers that had survived over the six-year period, more than half increased their employment, and the average increase was nearly 50%.
To Jackson, it was an astonishing picture. Everyone knew that Massachusetts had plenty of young, growing companies -- but the Bay State was world famous as a hotbed of high technology. This was Michigan, a state that had always depended on durable-goods manufacturing and that was regularly berated for having one of the worst business climates in the nation. Moreover, though some of the new jobs were in predictable sectors such as computer services, many were in the same industries that seemed to be in decline.
In machine tools, for instance, Michigan began and ended the six-year period with roughly 1,850 companies. Behind that picture of stability, however, was a business maelstrom. Some 660 companies shrank. More than 400 went out of business entirely. But as many companies were born as died, and more than 700 of the existing companies expanded. Machine tools were not what Jackson or anyone else would call a sunrise industry, but it was, he found, a fertile ground for entrepreneurship and growth.
At the state level -- the only level, for the moment, where ES-202 data are useful -- such findings echo loudly. "Jackson's study helped convince us to keep supporting manufacturing," says Mark Haas, chief economist with Michigan's Department of Commerce. "We also learned to look not just at industries but at individual companies. Some businesses will be growing even in industries that are shrinking, and state economic-development policy has to take this into account."
What unemployment files or D&B listings provide are raw data, much like that in a census. The data tell the researcher how many businesses are starting up, what industries they're in, where employment growth is taking place. Surveys such as Reynolds's add information about the entrepreneurs and how they're building their companies. But such information isn't easy to evaluate. It raises as many questions as it answers. Would any state in any period show lots of new companies starting up? Do newer, smaller businesses have any advantage that older, larger ones lack? Historically, big companies in many industries have simply muscled out small ones. If that is changing, there must be reasons. The reasons, in turn, should shed light on how durable the current entrepreneurial trend is.
For better or worse, it's likely to be economists who answer such questions. They're the ones who are supposed to have both an overview of the economy and the theories to explain why it works the way it does. In the past, however, economics would have had surprisingly little to contribute. Most economists have been content to study inputs, such as employment trends and capital flows, and outputs, such as production figures and trade patterns, without examining the organizations that turn one into the other.
It may be no accident that Reynolds, Jackson, and nearly everyone else counting new businesses are not traditional economists. (In fact, David Birch was trained as a physicist.) When real economists study individual companies or industries, acknowledges Zoltan J. Acs with a smile, "they concern themselves almost entirely with the large companies."
