And what will the '90s bring? Well, state and local officials will probably still like to cultivate entrepreneurship -- provided it doesn't get in the way of more pressing concerns. Tax breaks? Forget 'em; there are budgets to balance, and business taxes in many parts of the country are going up, not down. Cutting back on regulations? Not in this environmentally conscious era; even in Washington, D.C., the pendulum of regulation is swinging back. Voters in bellwether regions like California may even have had their fill of growth for a while. A recent Forbes article told of companies that were moving away rather than putting up with the Golden State's high costs and "bewildering array of environmental regulations." Those who stay may not be much happier. Faced with draconian new air-quality regulations, for example, printing companies in the Los Angeles area are installing hugely expensive emission-control equipment -- and they aren't allowed to buy new presses unless they can buy the requisite "air credits," which may or may not be available. The rules "have stopped the growth of the printing industry in southern California," says Neill Taylor, president of Overland Printers Inc.
Make no mistake: we don't favor dirty air, and we don't object to high taxes if they're matched by equally high levels of public services. But every now and then voters and policymakers seem bent on socking business with as many obstacles as they can. That's not a climate conducive to growth.
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Entrepreneurial businesses adapt quickly. Astute company builders probably could find ways around the demographic squeeze and learn to live with (or move away from) the not-so-pro-business attitudes cropping up around the country. Then they could grow their companies anyway -- were it not for thesis number three. According to this proposition, the marketplace in the '90s won't be so conducive to growth, either.
Consider first the macroeconomic picture. Right now we're on the verge of a serious slowdown or maybe already into one. That by itself isn't the end of the world; we were in the same state of affairs in 1980. But at least two factors darken the current prognosis.
One is the size of the federal deficit. Historically, Washington has gotten us out of downturns through massive deficit spending. Indeed, many economists argue that Reagan's debt-financed military buildup during the '80s contributed mightily to the decade's economic boom. But with the current deficit estimated at $250 billion, no politician in his or her right mind will be proposing big new spending programs.
The other is the shakiness of the banking system. What made the Great Depression as bad as it was, most economists believe, was the collapse of so many banks and the resulting shrinkage of the money supply. Today, according to theory, individual banks may fail -- but the government insures depositors, so only the investors lose money. Note that we said, "theory." In late 1990 the Federal Deposit Insurance Corp. had about 44¢ for every $100 in insured deposits, as compared with the $1.25 per $100 thought by economists to be the minimum safe level. Last December three experts told a congressional subcommittee that the FDIC even then was technically insolvent.
Such pronouncements can send a shiver down any optimist's spine. For entrepreneurs -- optimists though they may be -- uncertainty over our financial future has a distinct and unfortunate consequence: it dries up money. Healthy growth companies have already seen themselves turned away by newly cautious bankers. "When things go wrong with banks and the financial markets," one banker told our colleague Bruce G. Posner, "one of the ironies is that good borrowers are punished." Equity capital, too, may be drying up. According to figures compiled by Venture Economics, in Needham, Mass., new capital committed to venture firms fell from a high of nearly $5 billion in 1987 to just over $2 billion in 1989. Granted, the vast majority of growing companies never come within shouting distance of an organized venture capital fund. Even so, the availability of venture money is a good barometer of the ease with which young companies can raise funds. "The market is cutting back capital flow to entrepreneurs," says Alex Sheshunoff, a banking consultant.
The microeconomic picture -- the view from an individual company's front door, so to speak -- should look equally discouraging to the growth-minded company builder. A lot has happened to the business landscape during the past 10 years, after all, and fewer and fewer markets offer the kind of niches in which a new company can take root and blossom.
Back in 1980 U.S. business was coming out of its most tumultuous decade in recent memory. Hard hit by the energy crises, buffeted by inflation, outflanked by the Japanese, and befuddled by new technologies, large corporations were in no mood to expand. Instead they retrenched, thereby opening up huge opportunities for growing companies. Apple came into existence because Hewlett-Packard turned away young Jobs and Wozniak -- and because Xerox hadn't figured out how to capitalize on the pathbreaking microcomputer research done by its own Palo Alto Research Center. To take an example that's more modest but more typical, a young Akron machine shop called S.C. Manufacturing Inc. grew and prospered throughout the '80s, largely because the city's ailing giants were shutting down their own machining facilities and sending more parts out for fabrication. It was a scenario repeated in a hundred different industries.
