Are startups the answer to inequality?

A new study finds that Texas is among the national leaders in “economic dynamism.” That’s a technical term: it means businesses starting and closing, workers changing firms or moving to new opportunities. According to the Economic Innovation Group, a think tank and advocacy group in Washington, D.C., dynamism is a more illuminating measure of economic health than typical metrics like the unemployment rate.

In EIG’s new study, the Index of State Dynamism, Texas boasts the sixth most dynamic economy in the country. Most of the nation remains stagnant. The Great Recession may have ended in 2009, but the recovery has been snail-like, and the nation has never returned to pre-recession levels of economic activity. Only a few states—including Nevada, Utah, Florida, Colorado, North Dakota, and our Texas—show some bright spots.

As a research and policy shop, EIG’s focus is not just the business economy in general, but also inequality. (They also authored the Distressed Communities Index.) True to form, their new study contains insights for addressing poverty and inequality, namely that a big part of the answer to those challenges is an economy with more dynamism.

Much of the U.S. economy consists of big, old businesses that are innovating too little, employing too few workers, paying them too little, and all in all, providing few chances for workers to find new opportunities. The most operative word in that last sentence is “old”—EIG’s report shows that “the rate of new business starts has declined dramatically,” so our nation’s overall economy depends heavily on businesses that are aging. Old businesses are not a reliable jobs crutch, says Steve Glickman, EIG’s co-founder and executive director.

“You want a young economy,” Glickman said. “Older companies tend to invest less, they tend to innovate less, they tend to pay lower wages. In a healthy economy, you want businesses to close and open. This is a sign of the competitiveness of your local economy.”

Not many areas of the country can claim a lot of new business activity, but Texas can—including San Antonio—noted Glickman.

“San Antonio is becoming a top metro for startup activity,” he said, citing recent studies by the Kaufmann Foundation that rank this city among the most entrepreneurial. Last year, over 16,000 businesses were registered in Bexar County, the highest total since 2010, according to figures provided by the county clerk.

Rich in activity, poor in equality

But the news on San Antonio is mixed. Here, we have robust business activity alongside deep inequality.

“Typically you are pretty prosperous if you have this positive economic activity,” said Glickman. “But San Antonio has this stark divide. All this economic activity that’s happening . . . is not seeping into enough of the city. San Antonio does the worst job of that than just about any other place.”

San Antonio’s challenge on this front is its historically distressed areas of town—communities that were marginalized in their original forming and that have in many ways remained underserved and under-supported, with struggling schools, distressed housing, poor health care and stagnant businesses.

But Glickman sees reasons to think San Antonio can overcome its inequality crisis.

“One of the reasons Texas performs so strong on these measures,” he said, “is that they are able to attract people who tend to be disproportionately entrepreneurial”—that is, immigrants and young people. Immigrants make up 30-50 percent of new businesses, Glickman notes, and any local economy that can attract young people and immigrants “has a lot of the tools to be successful.”

Glickman also points to the Investing in Opportunity Act, a federal bill re-introduced in February by Sens. Cory Booker (D-New Jersey) and Tim Scott (R-South Carolina) and Congressmen Pat Tiberi (R-Ohio) and Ron Kind (D-Wisconsin). The bill encourages capital investment in “opportunity zones”—low-income communities in need of homegrown job growth.

That bill—along with more familiar solutions like stronger workforce training and equal access to quality education throughout the city—may be one piece of the overall puzzle of more economic dynamism in San Antonio—not just for already-thriving communities, but for all of the city.

 

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