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The Economic Future Just Happened

According to this study, challenging economic times can serve as the rebirth of entrepreneurial capitalism, leading to the creation of much-needed new jobs.

The study found that more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies. The report also suggests a broader economic trend, with job creation from startup companies proving to be less volatile and sensitive to downturns when compared to the overall economy.

From the study’s introduction:

Amid the worst economic contraction since 1981-82, and possibly the Great Depression, attention has naturally turned toward the silver lining we might be able to find around the gloom. Some have turned toward historical work on the Great Depression, noting the bright spots that existed; others have examined the relationship, if any, between recessions and entrepreneurial activity. By peering into the economic past, we hope to somehow circumvent our very limited prognosticative abilities and answer the question, “What effect do recessions have on new firm formation?”

This research study, analyzing data from the U.S. Census, the Fortune 500, and the Inc. list of America’s fastest-growing companies, presents three main findings:

  1. Recessions and bear markets, while they bring pain and often lead to short-term declines in business formation, do not appear to have a significantly negative impact on the formation and survival of new businesses.
  2. Well over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market. We also find that the general pattern of founding years and decades can help tell a story about larger economic trends.
  3. Job creation from startups is much less volatile and sensitive to downturns than job creation in the entire economy.

While these data are far from conclusive and can only hint at broader trends, they do illustrate a more fundamental economic reality: each year, new firms steadily recreate the economy, generating jobs and innovations. These companies may be invisible, or they may one day grow into household names. But they constantly come into being as individuals bring forth their economic futures.