Statement of the Hon. Nydia Velazquez on Entrepreneurship in the New Economy

Summary

Statement by the Hon. Nydia Velazquez dated November 3, 2021 on entrepreneurship in the new economy. She says new business formation has slumped since the 1980s: new businesses were 12 percent of employers in 1980 and 8 percent by 2018, and 38 percent of all businesses were new firms in 1982 against 29 percent in 2018. She says entrepreneurship flourished during the pandemic, with Americans filing paperwork for 4.3 million new businesses in 2020, a 24 percent increase from 2019, many in non-store online retail. She cites layoffs, favorable credit markets and federal stimulus as contributing factors and looks forward to hearing from witnesses.

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Statement of the Hon. Nydia Velazquez on Entrepreneurship in the New Economy

November 3, 2021

Since the 1980s, America has largely been mired in a slump when it comes to new business formation. This fact rarely generates headlines or garners attention in the media, but its implications are severe.

New businesses make up the foundation of our economy. The entrepreneurs that launch enterprises and products are the catalysts for American innovation. The statistics paint a startling picture of the state of our country’s entrepreneurial environment over the past four decades.

In 1980, 12 percent of employers were new businesses. By 2018, this figure had dropped to 8 percent. In 1982, 38 percent of all businesses were new firms, compared to just 29 percent in 2018. In 2018, the peak of the longest economic expansion in U.S. history, businesses were exiting the market at a higher rate than they were being started.

This was the state of American startups in March of 2020 when the pandemic began to intensify. As COVID spread and businesses closed, our country was staring down an unprecedented economic crisis. Using the Great Recession and its aftermath as a guide, experts predicted that the pandemic would continue to drop the rate of business startups to new lows. But despite the dire forecasts, American entrepreneurship didn’t crater during the pandemic; it flourished.

In 2020, Americans filed paperwork to start 4.3 million new businesses. This figure represents a 24 percent increase from 2019 and by far the highest number over the past 15 years. Many of these businesses didn’t look like traditional small firms. As the pandemic drove commerce online, these new enterprises were primarily concentrated in the non-store, online retail sector.

The entrepreneurs starting these businesses also reflected the diversity of the American population in the 21st century. Black and Hispanic communities lead the way in launching new companies. Young entrepreneurs dealt with a tough job market by pivoting towards entrepreneurship to develop businesses and products to serve their communities.

No one factor fully accounts for this entrepreneurship boom. Layoffs, favorable credit markets, and federal stimulus efforts all helped lay the groundwork for this record rise in new businesses. So today, I hope that this hearing allows us to better understand this entrepreneurial revival and apply those lessons moving forward.

The pandemic disrupted many areas of American life, not least of which being the nature of work. The challenges facing this new generation of entrepreneurs aren’t identical to the problems of the pre-pandemic economy. We must work to understand these new challenges and find ways Congress can better support them in the post-pandemic world.

It’s also vital that we grasp why entrepreneurship flourished during COVID and what we can do to sustain that increase in the future. COVID closed countless small businesses and left many others on the brink of disaster. Yet, at the same time, it’s possible the pandemic set in motion a revitalization of American entrepreneurship.

Today, I look forward to hearing from our witnesses about the journey that led them to start a business and how this committee can support them and others like them in the future.

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