Start it up: How the Illinois economy could really flourish
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Chicago Tribune
You may have heard that Illinois is among the top 10 states nationally in business startups for 2021, with nearly 200,000 businesses formed last year. That’s up from 170,400 in 2020. And 2020 was also a very good year.
Gov. J.B. Pritzker took credit for this positive development, declaring the state to be “back, and open for business” and touting some of his pet economic projects.
The governor’s triumphant recent statement, which claimed Illinois was sixth in the nation when it came to the number of 2021 startups, omitted any reference to the flip side of business startups: business failures. Unfortunately, a lot of Illinois businesses went bust in the pandemic years of 2020 and 2021, though we don’t have a figure comparable to the U.S. Census count of “business applications” that Pritzker equated with startups (which is only a rough approximation, at that).
The governor also overlooked how severe layoffs early in the pandemic drove some of the suddenly unemployed to launch their own ventures out of desperation, and how the anemic growth of the labor force continues to put a drag on business creation nationwide.
And did he mention that business startups appear to be slowing, so that 2022 is likely to be below the 2021 peak? Or that business failures probably will run high in 2022, partly because new ventures often fail in their first year or two?
Of course, he didn’t. He’s seeking reelection, after all.
Here’s the truth about business formation in Illinois and across the country: A high rate of startups really is very good news, all spin aside, but it’s not the whole story.
On the plus side, the recovery from the short, sharp recession of 2020 has followed a much better trajectory than the slow-motion comeback from the Great Recession of 2007-09. The absence of startups was one of the most disappointing features of that difficult period more than a decade ago. The economy stayed under a cloud that choked off the usual green shoots for years.
Today is much greener, in no small part because economic growth has been stronger, and a ton of investor money is chasing new ventures. What’s more, technological advances have made it less risky and potentially more lucrative for budding entrepreneurs to take the plunge, and for current business owners to expand and diversify.
Got an idea for a new app? A cryptocurrency? Dog-walking software?
Bring it on — conditions are ripe for tech startups. Big players like Amazon and Google are practically giving away valuable business services, social-media platforms make it easier to reach customers and Americans overall are increasingly more computer savvy.
Quite a few digital entrepreneurs these days are self-funding, launching new ventures without much more than hard work and loose change. That “bootstrap” approach spells opportunity for those who don’t have the backing required to start a biotech or medical-device company, for instance, which typically take years to clear regulatory hurdles before making a first sale.
Beyond tech, the pandemic left gaping holes that entrepreneurs are starting to fill. In the hard-hit food service and hospitality industry, new entrants are emerging and survivors who embraced online sales and other creative side hustles during COVID-19 have lived to fight another day.
A surge in startups demonstrates the American genius for business renewal, and the benefit of keeping our economy flexible. When Americans quit their jobs, as they did wholesale in the recent “Great Resignation,” they had the option of becoming their own bosses, and they didn’t need to live in Silicon Valley to pull it off.
Of course, Chicago or any other city would love to be like Silicon Valley. For all the wonders of digital technology and the supposed ability to work from anywhere, the local business environment still matters. And while Illinois is indeed among the fastest-growing states for new-business applications, it could be doing a lot better.
One obvious indicator is unemployment, which as of December was running at 3.9% nationwide but 5.3% in Illinois. The higher figure reflects a relative lack of economic opportunity that can prompt productive people to pack up and move to another state.
Illinois also is weighed down by the red tape and high taxes that go along with its excessive number of costly and duplicative local governments. And while Pritzker, who has a helpful background in new business incubation, deserves great credit for chipping away at the state’s fiscal mess, Illinois’ ongoing public pension crisis continues to discourage job creation and long-term investment. Much more needs to be done.
The state has a lot going for it, especially a dynamic, diverse and well-educated workforce supportive of entrepreneurship. If Illinois would make the business environment friendlier to those willing to invest and reduce the costs imposed by government, who knows how many startups would take root here and flourish.
