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      Paula KleinCreated by Paula Klein on Aug 29, 2012 in Featured Content

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      Andrew McAfee, co-director of the MIT Initiative on the Digital Economy (IDE), participated in several prestigious events this month where he had to opportunity to speak about the economics of digitization.

       

      On Jan. 23, McAfee, moderated a panel discussion on the topic of employment and wages at the World Economic Forum, in Davos, Switzerland. The distinguished panel of experts included: Stefan Löfven, Prime Minister of Sweden; Bernadette Ségol, General Secretary, European Trade Union Confederation (ETUC), in Belgium, and Guy Ryder, Director-General, International Labour Organization (ILO), in Geneva along with global academic and business leaders.

      You can watch the session here.

       

      McAfee also met with the Huffington Post at Davos to discuss The Second Machine Age –the book he and MIT IDE co-director Erik Brynjoffson wrote last year – as well as other global business/technology trends. Watch the video of that interview here.

       

      Additionally, McAfee was a featured speaker at the DLD15 conference in Munich, Germany, and he was interviewed, along with James Manyika of McKinsey, about digitization and disruptive innovation.

       

      For further information on our programs, visit our IDE homepage.

      "Entrepreneurship has never been easier, but entrepreneurship is on the decline."  I first heard this surprising paradox a few months ago in a talk by MITs’s Andy McAfee.  Digital technologies are inexpensive and ubiquitous, startups have access to all kind of cloud-based business services, and customers can now be easily reached and supported over mobile devices.  It should be easier than ever - as books and articles keep reminding us - to become an entrepreneur and start your own company.  But in fact, entrepreneurship has been in decline for years.

       

      Most everyone I’ve mentioned this paradox to - business colleagues, investors, journalists - doesn’t quite believe it.  But that’s what the data shows. In a recent paper, University of Maryland economist John Haltiwanger and collaborators used business data from the US Census Bureau to calculate the annual startup rates over the past several decades - i.e. the number of new firms in each year divided by the total number of firms.  The startup rate was 12% in the late 1980s, went down to 10.6% just before the 2007 Great Recession, and then fell sharply below 8%.  Such sharp declines add up over time.  In the late 1980s, 47% of all firms were 5 years or younger.

      The percentage of young firms declined to 39% in the mid 2000s, and has since continued its downward trend.

      In another recent paper, economists Ian Hathaway and Robert Litan analyzed the same Census Bureau Data and showed that in addition to the continuing decline of new firm formations, failure rates have steadily increased for all companies under 16 years old, and they’ve been particularly high for early-stage firms.

       

      Further evidence of this entrepreneurship decline is found in Where the Jobs Are: Entrepreneurship and the Soul of the American Economy, published in September of 2013 by John Dearie and Courtney Geduldig.  Their book is primarilyfocused on the close link between entrepreneurship and job creation.  It cites a 2009 study that shows that between 1980 and 2005, all net new job creation in the US came from young businesses less than 5 years old.  They conclude that as a result of the decline in entrepreneurship, “the nation’s job creation engine - new business formation - has been breaking down in recent years.”

       

      What’s going on?  Why this perplexing paradox that many have so much trouble accepting because it runs counter to the stories of successful billion-dollar ventures we read so much about in the news?  Last month I read an article in Newsweek by technology author and columnist Kevin Maney, Tech Bubble? No, It's a Startup Wealth Gap, that sheds considerable light on these questions.

       

      It turns out that startups have their own version of the wealth gap between the rich and superrich - the 1% and .1% - and everyone else.  The rising US wealth and income inequalities - brought to light this past year by Thomas Piketty’s surprising best seller, Capital in the Twenty-First Century - is being repeated in the start-up world.

       

      “Everything goes to the top 1 percent,” writes Maney. “[B]elow the top tier you’ll find a whole lot of striving and desperation - a burbling stew of stagnant companies, founder angst and money-losing investments… Losers get scraps. Tech is definitely red-hot, if you look only at the winners.”

       

      Continue reading the full blog post, which appeared January 6, here.

      More

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      Erik Brynjolfsson, co-author of the book The Second Machine Age, discussed with I-CIO the profound impact of automation on every industry and how CXOs must play a key role--now.


      Andrew McAfee on Technology and the American Workforce

      On the PBS NewsHour last April, Andy McAfee spoke about how increased use of technology does play a role in the current disappointing job growth statistics.




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