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Churn, Baby, Churn. Declining Dynamism In Larger Economy

Posted On: 7/18/2014

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TAGS: bulk vending, coin machine, coin-op machine, coin-op industry, vending machine, bulk vendor, coin-op business, small business, vending, vending operating, Vending Times editorial, Hank Schlesinger, Brookings Institute, Declining Business Dynamism in the United States: A Look at States and Metros, U.S. economic decline

A recent study published by the Brookings Institution has set off a shock wave among business pundits. Declining Business Dynamism in the United States: A Look at States and Metros proposed that America just might be losing its entrepreneurial edge. Authors Hathaway and Robert E. Litan posit that the creation and failure rate of businesses -- called "churning" -- is on a sustained decline. Data appear to back up the claims. For more than 30 years, the number of businesses less than a year old has been falling.

"Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued," Hathaway and Litan wrote. "This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech."

The authors have not only tracked the creation of new businesses, but also the failure of older, more mature organizations. In the world of economics this is called "creative destruction." The term, first used by the mid-20th century economist Joseph Schumpeter, is seen as an essential element of both innovation and economic growth.

The authors point out that their paper doesn't predict a complete or even partial collapse of American business. Some businesses are doing very well. Older and larger businesses seem to be doing well indeed. And, as some of the commentators have asked, does it really matter to the economy if the corner coffee shop is owned and operated by Joe Smith or a large conglomerate? All said, the net number of jobs created by Mr. Smith or the coffee multinational will likely be the same.

Of course, the reason the study resonated so loudly is that it cuts to the heart of many Americans' self image. We tend to view ourselves as risk-takers and entrepreneurs. We don't like failure, but tend not to fear it. What the report suggests is that we are becoming increasingly risk averse and wary about the future. Fewer people are striking out on their own to make their fortunes in a trend that dates back at least three decades.

Implied in the study is that Americans are growing less optimistic about the future. And optimism, as much as seed money, is what fuels new business ventures. If nothing else, entrepreneurs are optimists. The report's data seem to say that there is a long-term and systemic decline in confidence.

For bulk vendors, the study's implications must seem particularly galling or highly dubious. With its low-cost requirements for entering the field and highly scalable nature, bulk vending is the very definition of an entrepreneurial venture. Hard work and drive are more often than not the hallmarks of success in the field. Over the past 30 years, the industry has seen some of its iconic names -- operators and suppliers -- exit the industry. Even the most scrupulous of economists would be hard pressed to say that bulk vending doesn't "churn."

On the other hand, this can be viewed as good news. It does show that bulk vending is somehow managing to maintain its traditional dynamism. Now, if only other business segments would learn some lessons from the humble purveyors of gumballs.