{"id":1047,"date":"2021-01-14T20:54:53","date_gmt":"2021-01-14T20:54:53","guid":{"rendered":"http:\/\/chelandouglastrends.com\/newsletter\/?page_id=1047"},"modified":"2021-01-14T23:09:41","modified_gmt":"2021-01-14T23:09:41","slug":"m1q1","status":"publish","type":"page","link":"http:\/\/chelandouglastrends.com\/newsletter\/m1q1\/","title":{"rendered":"Local Entrepreneurship Appears to Have Slipped, But Appearances Can Be Deceiving"},"content":{"rendered":"
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by Dr. Patrick Jones<\/strong><\/p>

Entrepreneurship is rightly celebrated in the U.S. Every large company began as a small one. And every small company started as the\u00a0gleam in the eye of its\u00a0founder(s).\u00a0Yet, economic success can be precarious, as\u00a0the fate of companies\u00a0often changes\u00a0dramatically.\u00a0\u00a0<\/p>

Consider the Dow Jones Industrial Average (DJIA), composed of 30 of the nation\u2019s largest businesses. Out of the total in the DJIA in 1982, only four are now still part of it: 3M, IBM, Merck and Proctor & Gamble. (Two more, Dow and Honeywell, contain parts of companies in the DJIA in the early eighties.) The remainder from 1982? Largely a shadow of their former selves, such as Eastman Kodak, General Motors, Exxon. And some have disappeared completely, such as Bethlehem Steel, Sears Roebuck and Woolworth.\u00a0<\/p>

Since there are no guarantees that a company will thrive for decades, it is\u00a0critical\u00a0for a national and regional economy that\u00a0promising companies are incubating the pipeline. This is easier said than done, as anyone who has started a firm or run a start-up can\u00a0attest\u00a0to.\u00a0So\u00a0an ideal measure of the level of entrepreneurship in an economy is the number of companies formed or\u00a0\u201cbirthed\u201d\u00a0in any given year.\u00a0\u00a0<\/p>

At the local level, however, that information is hard to come by. Ideally, one would track only the entrants into the local economy. Chelan Douglas Trends offers the best approximation that data currently allow in Indicator 2.2.5<\/a> Net Firms Created. Net in this case refers to the number of firms in the two counties each month, then averaged over the entire year. As such, it captures companies that enter into as well as those that exit from the two counties over the course of a year. The numbers come from administrative records of Washington State\u2019s Employment Security Department (ESD), based on firms that have at least one employee and therefore contribute to the Washington State Unemployment Insurance Fund.\u00a0<\/p>

What does this measure of the local economy tell us?\u00a0 Essentially, that there has not been much gain in the total firm count since 2013. For four of the last six years (through 2019) the number has shrunk from the prior year. The last decent year for this measure of entrepreneurship was 2013, when 187 new companies, on balance, joined the local economy. In sum, there were 62 fewer firms, or about 1% fewer, in the two counties than there were in 2013. Over the same period, population has grown by over 7,000, as\u00a0Indicator 0.1.1<\/a>\u00a0reveals.\u00a0<\/p>

Before reaching any quick conclusion about local entrepreneurship, it helps to look at the community\u2019s neighbors.\u00a0A\u00a0glance\u00a0at the other Trends sites in Eastern Washington, accessible through the homepage of this one,\u00a0shows that the experience in Chelan and Douglas Counties hasn\u2019t been unique.\u00a0\u00a0During the same\u00a0interval, the Greater Tri Cities lost 12 firms, Walla Walla 249, Yakima 262 and\u00a0Grant 353 firms. Only Spokane County managed to show a net gain of companies, with 82.\u00a0\u00a0<\/p>

Totals\u00a0obscure\u00a0important\u00a0detail, just as averages mask distributions.\u00a0\u00a0 A\u00a0comparison of\u00a0changes of firm count by sector is\u00a0revealing\u00a0for Chelan and Douglas Counties.\u00a0Most of the 19 sectors in the two counties\u00a0actually\u00a0chalked up gains in net firms. Construction demonstrated particularly strong growth, with a net gain of 158. The hospitality sector, composed of eating and drinking establishments as well as\u00a0accommodations,\u00a0came in second, at 55.\u00a0Sectors that either rest on relatively high wages or strong multiplier effects or both, such as manufacturing and professional services, also grew modestly.\u00a0<\/p>

Agriculture and forestry\u00a0was\u00a0the one sector that experienced declining firm numbers, nearly\u00a0all in\u00a0crop production. This\u00a0outcome\u00a0likely mirrors the long-term consolidation of agricultural production\u00a0here and across the U.S.\u00a0Agriculture\u2019s experience\u00a0was\u00a0likely\u00a0repeated in all the metro areas in Eastern Washington, with the exception of Spokane which does not enjoy a large agricultural bounty.\u00a0Unless the\u00a0small producers\u00a0of today\u00a0can carve out market niches that provide for a satisfying livelihood, the sector is likely to consolidate further.\u00a0<\/p>

In addition, the\u00a0time interval of this review\u00a0experienced a change in industry classification which affected the numbers. In particular, the number \u201chousehold\u201d firms employing anyone\u00a0plummeted while the number of medical caregiving firms rose substantially. But the net effect was a loss of 250 firms.\u00a0\u00a0<\/p>

Without this adjustment, Chelan and Douglas counties would have experienced a total net growth of firms of more than 300. This finding is supported data from a new, experimental data record of firm births from Census:\u00a0Business Formation Statistics<\/a>. This dataset counted a gain of about 315 firms over the same period in the two counties. Since the number is not a net one, the total gain seems largely to buttress the findings from Indicator 2.2.5<\/a>. That is, outside of the data adjustment by\u00a0ESD\u00a0economists\u00a0and without\u00a0effect\u00a0of agricultural production, the two counties are likely to have experienced a net gain\u00a0of firms\u00a0over the 2013-2019 period.\u00a0<\/p>

Unfortunately, the Business Formation Statistics series doesn\u2019t break down the results by sector\u00a0at the county level,\u00a0so\u00a0we don\u2019t know where to locate the gains.\u00a0But it\u00a0is likely that\u00a0sectoral findings would\u00a0be similar, since the sources for both the experimental series and the one standing behind this indicator are much the same.\u00a0<\/p>

Overall then, it appears that entrepreneurship hasn\u2019t become a lost art in the two counties over the past few years, despite the look of the graph in Indicator 2.2.5<\/a>.\u00a0The local economy has\u00a0shown a steady,\u00a0albeit modest,\u00a0pulse in entrepreneurship. Behind the aggregates,\u00a0the varying sector results represent the teachings of\u00a0a well-known Austrian-American economist, Joseph Schumpeter. He viewed the continual churn of companies in an economy as a\u00a0positive,\u00a0natural force, which he labeled\u00a0\u201ccreative destruction.\u201d\u00a0In an economy as vibrant as in the U.S., we should expect both firm entrants and exits. With a growing population, Chelan and Douglas Counties should expect\u00a0firms to come and go, but\u00a0on balance, the count of\u00a0non-agricultural\u00a0businesses\u00a0should\u00a0grow over time.\u00a0<\/p><\/div><\/div><\/div><\/div><\/div> <\/div>\n <\/div>\n <\/div>\n\t\t\t\t\t\t\t\t\t <\/div>\n\n <\/div>\n <\/div>\n\t\t\t\t

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