Dynamics is a term used in Physics. It studies the motion and equilibrium of physical bodies under the active influence of one or more outside forces. Increasingly, you will find economists placing an increasing value on the dynamics they see in the equilibrium – or lack thereof – between business creation and business destruction. And, this concern drives their interest in business dynamics.
Economic Growth Lies in the Equilibrium
According to Understanding is characterized by dynamic interactions between businesses and households.”
You see, in an ideal world, businesses will open, and others will close. Workers will move from one job to another and from one company to another. Business internet service will improve productivity for growing businesses. Companies will merge or divest themselves. And, the social and economic needs of employers and employees will evolve. The vortex at which all this occurs is what we label business dynamism.
Some Research Says . . .
Some research says the dynamic is slowing down. In terms of physics, if either side of the equilibrium is out of whack, the whole system will suffer. If, for example, new businesses are not entering the economy at a fortuitous pace, the economy will hurt across the world. The Brookings Institute reports, and in all but a handful of the more than 360 U.S. metropolitan areas during the last three decades.”
In the National Review, James Pethokouikis endorses this research when he says that entrepreneurs create disruptive innovation when they create new ideas, products, services, and jobs. They then force competition on established enterprise. But, he theorizes that, in this economic climate, the established businesses are only stepping up to the competition with efficiency innovation that cuts employees.
Other Research Shows . . .
These gloomy numbers date before 2010, and most of the research referenced does not remember that there was a severe recession during much of the time studied. More recent numbers count a 60+% increase in entrepreneurial activity. It also ignores the fact that business dynamism is a metaphor, a descriptive way of describing an economic moment.
Research is Only Descriptive
All metaphors are limited, and this one overlooks the resilience of the private sector economy and ways in which globalism affects the dynamic. So, the focus might be better spent on the barriers to entrepreneurial interest and success. Which are:
- rising cost of health care
- uncertain economic and regulatory policies
- energy costs
- tax codes
Such forces affect the equilibrium of business dynamics, but they also represent forces the entrepreneur has little direct influence over. In the face of this, “Sectors that typically have been less than welcoming to entrepreneurship, such as finance and health, are experiencing strong levels of startup activity. [The top sectors] were IT Services, Business Products and Services, Advertising and Marketing, Health, Software, Financial Services, and Manufacturing” (Kaufman Foundation 2014).
Increased entry under reformed immigration policies would provide a bigger population, an expanded workforce, more widely distributed wages, and a sector of new risk takers. New business creation finds incentives in out-of-the-box thinking. Otherwise it recycles the old with new talent. There are ideas that could tap into ecological and energy conservation, global education, technologies serving the underserved.
Governments are positioned to diversify funding and financing and to monitor investment by financial institutions and venture capital in minority owned or serving businesses. Tech incubation is spawning new starts rapidly, but the free-market economy drives them to early resolution that often closes their doors when capitalization could encourage development and continuity.
Small Businesses Feel Big Problems
Entrepreneurs are often hampered by poor planning, inadequate funding, and unstable or inadequate technological support. Their first stage success depends on quality, proactive, B2B support and services in advice, financing, and business communications. Well launched, they can grow past the four-to-six year high risk period the research claims.
