Entrepreneurship Roughly Constant Over Time

Businessweek reports that an annual study by the Kauffman Foundation has come the same conclusion that it has for the last 11 years - an average of .29% of the adult US population starts a new business each month. While this means that 465,000 new businesses are started every month, the relative constancy of new business formation is unexpected.

Most people would intuitively believe that more new businesses would be formed during periods of either rapid growth or recession (due to reduced opportunity costs associated with starting a new business). Yet the data suggests that the rate of business formation is largely unaffected by macroeconomic events.

Of course, considering that most new businesses are in the construction and service industries, it isn't hard to rationalize that these areas of the economy have been less affected by volatility than the rest of the economy. Although the housing boom crashed rather spectacularly right after the last data were collected. Next year's survey will help to clear up the effect of sectoral influence on entrepreneurship.

Nonetheless, the most attention-grabbing part of the survey was the racial breakdown. Asian entrepreneurship grew faster than average from a higher basis than average, non-Latino whites were average, and African Americans actually fell from a significantly lower basis than average.

The real kicker of course is that immigrants of all racial groups clearly outdistanced even the most entrepreneurial racial group.

The geographic distribution of entrepreneurship was also interesting. Chicago (.18%) and Detroit (.13%) were both well below the rate for African Americans. The Midwest has been economically lagging, so it looks like the effect of slower growth on encouraging new business formation either doesn't exist at all, or is counter to its intuitive direction.

Entrepreneurship is critical to the future of the economy because owning your own business is one of the best ways to build wealth. Most "wage slaves" never build enough capital to get ahead because it takes dedication to save money that comes in the form of a paycheck. Business owners on the other hand, build equity in their business and have something significant to sell on retirement.

Ford in Free-Fall

Reuters reports that Ford's April sales numbers fell 13 percent from a year ago. This might be easily dismissed as just the next chapter in the ongoing saga of Ford's difficulties, but the breakdown of the results yields some surprising results.

Ford's Expedition, a monster SUV, saw its sales rise 27%. And the Navigator, another leviathan, had sales that rose 13%. In contrast, the F-series pickup was down 12% and car sales were down over 23%. Clearly, Ford's car sales were hurt by the end of fleet sales to car rental companies that Ford decided weren't generating any profits.

Now, SUVs saw tremendous declines the last time gas prices went way up, and oil is heading back up again. But this time buyers aren't buying gas guzzlers without realizing the possibility of a tank of gas costing $100 is quite high. Rather, these affluent buyers don't seem to care. Given the social force of the global warming driven "carbon footprint" movement, it is all the more remarkable that consumers would choose to buy SUVs.

Detroit automakers in general are facing the music these days as Toyota has finally climbed past GM to become the world's number one automaker. But Ford seems to be suffering disproportionately. Chrysler's sales actually rose in April, albeit an anemic 2%.

Ford's saving grace up until now has been the strength of its F-series pickup. These trucks have been the best selling trucks in America for decades and their loyal buyers are among those most suspicious of foreign competition. But with sales on its flagship product falling 13%, the writing is now on the wall.

Something major needs to happen at Ford for a turnaround to work. Ford's management is hardly unaware of the problem. Ironically, Bill Ford was one of the early American proponents of environmentalism and his signature achievement was building one of the most environmentally conscious auto plants in the world. It's going to take more than incremental improvements in salesmanship and design to fix things.

Ford needs to completely re-brand itself around an innovative new design. Ford has admittedly been trying this for a while now, but the new designs really haven't caught on. Ford needs a sea change in leadership at the very top of the company to finally put all of its top talent on the products of the future. Ford finds itself in the awkward position of being a horse company competing against early auto companies. For a significant period, Ford is going to need to sell both horses and cars, but the company would be penny wise and pound foolish if it put any of its top people on its horse operations. Ford needs to put its top talent on the wave of the future, because if it doesn't the company may get put out to pasture.

Detroit Collapsing - Sign of Broader Troubles or an Isolated Problem?

The IHT reports that Detroit is in serious economic trouble. The article starts with an anecdotal account of a man who can't sell his home that creates the false impression of a connection with the subprime mortgage debacle. Subprime mortgage woes are in the news, but this sort of shoddy journalism creates hysteria where it isn't warranted by the facts.

As the article goes on to note, Detroit led the nation in foreclosures last year because the auto industry put more than 350,000 people out of work in the state with the highest unemployment rate in the nation.

Things look bad in Michigan right now. Home prices have fallen more than 5 percent in the last three years, while the rest of the nation's real estate has been on a tear. And it's not just the little guy who is suffering. Ford is axing 30% of its executives as it struggles to compete with Toyota.

But it would be wrong to interpret things as too terrible. The reporter filing her assignment from Detroit plays up the risk of default by even prime mortgages. The facts don't really back her up. The percentage of prime loans overdue by 3 or more months is a tiny 0.67%.

It must be terribly difficult for an entire region of the country to go through such a gut-wrenching decline, but Detroit is managing about as well as could possibly be expected. If 350,000 people lost their jobs in almost any other industry, the impact would be much worse. The very same unions that the Big Three automakers blame for strangling their profit margins are ensuring that most workers are getting extremely generous buyouts. It's not even that uncommon for middle-aged autoworkers with few transferable skills to receive six-figure checks to compensate them for their lost jobs.

The situation in Detroit is tragic, but a system that is allowing frugal blue-collar workers to essentially retire in their early 50s is hardly sticking it to the working man. It must be hard to have to completely start over at such a late stage in life, but at least they aren't being tossed out in the street empty handed.