If you live in a coastal city, flush with tech money and all its trappings—schmancy meal delivery, craft mixology bars, Uber—you may not have noticed a serious problem plaguing most of the country. In parts of the U.S less affected by the post-recession entrepreneurial boom, the growth of new business has hit a wall—and fast.
New analysis by the Economic Innovation Group—a research organization co-founded by Silicon Valley mogul Sean Parker—shows that the economic recovery of this decade has been marred by the smallest number of new businesses opening in the U.S. since at least 1980. Nearly 2 out of 3 rural counties lost businesses from 2010 to 2014. And half of the new businesses that did open are bundled into just 20 counties—in our big cities.
What factors have contributed to the dearth of new small business in less populated areas? Largely that these regions haven’t recovered from the 2008 crash in the same way that cities have: Banks are still closed, home equity as a source of capital has dried up, and skilled laborers have left in search of big-city opportunity. “The types of businesses located in rural areas are not the industries that investors want to pour their money into,” says Alice Williams, a small business specialist with Frontier Communications. “They prefer Silicon Valley–style tech start-ups with potential for huge growth.”
This perspective—that only highly educated people in big cities are able to get businesses off the ground—is being cited as a reason for Donald Trump’s rise in the country’s heartland areas. This is where he’s been able to bring together farmers with promises of deregulation and support for crop insurance. Many of these farmers aren’t happy with his stance on immigration, though, and for good reason: They rely on migrant workers, and, as the study notes, foreign-born and immigrant populations are far more likely to start new businesses than natural-born U.S. citizens. If we were to build a wall, we’d lose farm labor, as well as potential small business owners.
Business consultant and University of Iowa entrepreneurship lecturer John Paul Engel has been working to train small business owners in the state as part of the university’s John Pappajohn Entrepreneurial Center (JPEC). In Iowa, the study shows that only 12% of the state population lives in counties where business growth matched or exceeded the national rate. “In this generation, you have fewer people who are going into the trades—the plumbers, or what you think of as traditional small business. People just don’t think it’s as cool as it once was,” he says. “My program is aimed at educating and training people to try to help them be more successful as they start businesses.”
“There are a lot of small towns that are struggling because, for example, if the guy who owns the grocery store retires and his family doesn’t want to take it over, that town then doesn’t have a grocery store,” Engel says. “You’re also seeing a general population drain from rural areas. You already didn’t have a lot of people there to begin with, and now you’re seeing young people leave for better opportunities in metro areas.” To stem that tide, the JPEC is training kids in business at the K-12 level, as well as creating online groups and in-person summits for networking opportunities—which are rare in less densely populated regions.
It’s heartening to find people like Engel trying to work against the trend, especially considering the national loss of middle-wage jobs has been absolutely staggering. As the study reports, half of the recovery’s 9.1 million jobs were in low-wage sectors. “Were it not for these relatively few pockets of resiliency, the U.S. economy would have seen near-total stagnation in its business landscape,” the study notes, rather ominously.
This leaves much to be done to even the playing field for new business creation. If things continue as they are, opportunities will continue to be increasingly clustered in metro areas, with rural areas continuing their slump. “Knowledge-based economic activity” isn’t going to put food on everyone’s tables—we need grocery stores, too.
