The pandemic and related government lockdowns have caused widespread economic and social disruption over the past several months. There is much to despair about, as tens of thousands of small businesses have permanently closed and rates of depression and suicide rise. Yet, there are signs of hope. Uncertainty and fear might stop many of us from taking risks or thinking imaginatively during this tumultuous time, but recent data show that entrepreneurship is surging during the pandemic. Seizing new opportunities and spotting unfulfilled needs, entrepreneurs may help to lift our economy from its sickly slump.

According to a Wall Street Journal analysis this week, “Americans are starting new businesses at the fastest rate in more than a decade.” These startups don’t outpace the number of companies closing this year due to the pandemic, but they do suggest that entrepreneurial individuals are launching new enterprises to satisfy changing demands. According to government data, there have been 3.2 million applications for employer identification numbers (EIN) this year. Required to start a US company, EIN applications reached only 2.7 million at this same time last year. The Journal cites additional data to confirm an increase in entrepreneurship, beginning in June, as some individuals turned layoffs or reduced work hours into opportunities to build a business. While startups are always precarious and many small businesses fail, these new ventures can be catalysts for sustained economic growth. According to the Journal: “Even though new businesses inevitably start small, they are a critical engine of job creation. Startups have historically accounted for around one-fifth of job creation…”

The pandemic offers a moment ripe for “creative destruction,” the term used by economist Joseph Schumpeter in his 1942 book, Capitalism, Socialism, and Democracy, to describe the dynamic process of new business models and enterprises replacing legacy organizations and industries. He explained that capitalism is “the perennial gale of creative destruction,” fueled by entrepreneurship and innovation. Schumpeter writes: “The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

Source Credit: FEE (Foundation for Economic Education)