Calling All Entrepreneurs to Rekindle the American Dream

The American Dream is the quintessential national ethos of America. The best-known definition of the American Dream is by James Truslow Adams in his book The Epic of America:

. . . that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement. . . . It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.

As I covered in previous posts, this can mean 330 million different dreams, one for each American. The concept can be unifying and uplifting and, as Adams’s definition shows, it is not about material wealth only, which is also revealed by surveys my team and I have done on the topic.

Measuring the American Dream is complex but is mostly done through opinion surveys. In academic terms, when economists talk about the American Dream they relate it to the concept of economic, or social, mobility. Having upward economic mobility is one of the defining features of the American Dream according to economists. What does that mean in practice? It means that new generations should outearn their parents as adults. So, according to some researchers, if a son or daughter has more income than his or her parents around the same age, usually measured at 32–40 years of age, depending on the study, that person has upward economic mobility and is living their American Dream.

There is a lot of discussion and good research about the measurement of income mobility. One project is Opportunity Insights at Harvard University. Other work was done by my own organization, Archbridge Institute, under scholar Scott Winship, who is now at the American Enterprise Institute. Some of the work delves into correlations on what affects social mobility, but there is not a lot of research and consensus on what are the main barriers to social mobility. Our own institute set out to start building a consensus on what affects social mobility through our social mobility index ranking of US states on 45 indicators across four categories that affect income mobility.

One of the key structural issues that needs to be discussed—and that is often the most overlooked in academic and policy circles on economic mobility—is the importance and power of entrepreneurship to enable more economic mobility and achieving the American Dream. The mantel of upward mobility and improving living standards needs to be squarely fitted to entrepreneurs, as it was entrepreneurship and wealth creation that reduced poverty all around the world in the last few centuries.

Entrepreneurial Ecosystem

In terms of the research on upward mobility, we see that absolute economic mobility—how many children have higher incomes than their parents did at the same age—went from 90% for the 1940s generation to 50% for the generation born in the 1980s, according to the work of Opportunity Insights. Scott Winship’s research shows that the number for the ’80s generation is closer to 73%, and his subsequent research shows that the level of economic mobility in the United States has not moved much for generations born in the ’50s compared to those born in the mid to late ’70s and early ’80s. So even as Winship does not show a steep decline in mobility, there is at least stagnating levels of mobility and not much improvement across generations. As a result, there is a need to boost upward mobility to help those at the bottom of the income ladder escape (and remain out of) poverty, enabling more opportunities to achieve the American Dream.

Along with the stagnation of economic mobility, we have seen a decline in business dynamism since the 1960s and ’70s. These issues should go hand in hand as part of any bipartisan discussion to lift the barriers that stand in the way of people trying to climb the income ladder.

One undeniable fact is that entrepreneurship leads to more opportunities for economic mobility. As research points out, entrepreneurs whose businesses survive for more than five years have higher incomes than their peers who are just wage earners, but more importantly, entrepreneurship and innovation lead to job creation and a wider array of “vehicles” for people to climb the income ladder. The Economic Innovation Group (EIG) reports “new businesses are responsible for nearly all the net new jobs in the U.S. economy.” According to EIG’s research, these businesses added 2.8 million net new jobs on average every year between 1992 and 2007, but since the Great Recession, that total has fallen nearly 20 percent to about 2.3 million. Incumbent companies older than one year “actually shed more workers than they hire in most years.”

Additionally, research from the EIG clearly links the data from their Distressed Communities Index to the economic mobility data from Chetty et al. The index includes key sub variables related to entrepreneurship, such as change in business establishments and change in employment, showing a relationship between these factors.

There has been a steep decline in the rates of business dynamism in the United States according to research by John Haltiwanger of the University of Maryland and Ufuk Akcigit from the University of Chicago. Business dynamism is the process by which firms continually enter and exit the market as they expand and contract, and jobs are created and destroyed. The EIG also reports on this trend, with the rate of new business formation or firm entry plummeting by half since the late 1970s, while the rate of business closings or firm exits has remained practically unchanged on average. The Kauffman Foundation confirms this fact as startup density—the number of startup firms per 1,000 firm population—has declined from 165 startups in 1977 to 85 in 2016. Ian Hathaway and Robert E. Litan have also clearly shown this trend in a paper for the Brookings Institution. As they rightly assert: “Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.”

Is the ecosystem for entrepreneurship in the United States more burdensome for startups and business in general than it was in the past? The decline in dynamism and issues like occupational licensing, in which one in five occupations requires a license compared to one in twenty back in the 1950s, might suggest so.

On the international front, the data also supports the case for better ecosystems for entrepreneurs that enable more economic mobility. An overlooked fact is that countries that have less inequality and more economic mobility also have excellent ecosystems for entrepreneurship. According to research on economic mobility by academics such as Miles Corak and Markus Jantti, Denmark, Finland, Norway, and Sweden have some of the lowest inequality and highest economic mobility levels in the world. Contrary to the clichéd accounts of high-income tax rates and generous welfare systems, it can be said that these countries thrive because of their entrepreneurial ecosystems. They all excel in international indices such as the former Doing Business Index, the Global Competitiveness Index, and the Global Innovation Index. It’s also no surprise that these four Scandinavian countries have better institutions and less corruption as evidenced by their top four ranking in the Rule of Law Index. All of these factors reinforce and strengthen the ecosystem for entrepreneurship.

More research is certainly needed, but a sound ecosystem for entrepreneurship, the decline of business dynamism, and economic mobility are clearly connected. In order to rekindle the American Dream of upward mobility, we need to recognize that an ecosystem for entrepreneurship matters. And it matters most for people at the bottom of the income ladder.

A Culture of Entrepreneurship

A second, less-widely held perspective is the important role of a culture of entrepreneurship. Economic historians like Deirdre McCloskey and Joel Mokyr have done extensive research into the role of culture, rhetoric, and institutions in economic development. Their research contends that what preceded the great Industrial Revolution and gave way to our modern economy were institutional and cultural changes that affected how we viewed entrepreneurship, innovation, and value creation. Entrepreneurship, trade, and the commercial society have been around for thousands of years across the globe. The essence of what changed is our perception on how noble, virtuous, or dignified we thought it was to engage in those vocations. Essentially, it was a rhetorical and cultural change about how we appreciate the role of entrepreneurship in society that brought about the Industrial Revolution.

There is a need for people, and mostly entrepreneurs themselves, to recognize the impact that their work has on society as a whole and, most importantly, the poor. I believe we are currently stuck in a mindset of expecting entrepreneurs to virtue signal their support for various causes, including income inequality. It seems like the richer component of James Truslow Adams’ definition of the American Dream, has become frowned upon. You can see this in conversations when speakers demand entrepreneurs do more for society by paying their “fair share,” providing higher wages, or offering paid leave benefits. This undervalues their already immense contributions to society, as well as leads to ignoring the effect of how doing “more for society” could impact the success of their ventures by creating further barriers to entrepreneurship. A message to entrepreneurs: being proud of your value creation and fueling an appreciation for entrepreneurship would do more to help the poor than anything else.

And in that sense, we need to develop a culture that celebrates achievement and aspiration of entrepreneurs—which in many cases is not the prevailing societal narrative when being successful is not celebrated as it should be. A culture that values human agency and overcoming obstacles, regardless of where one starts, is at the center of the American Dream and at the center of entrepreneurial pursuits. In that sense, entrepreneurs can inspire and show the way for others to pursue their own dreams, even if it’s not related to opening a business. It’s a hero’s journey mindset that inspires people to pursue their dreams and entrepreneurs to pursue their meaning in life and provide a product or a service that they think consumers are demanding or would appreciate.

The Power of Entrepreneurship to Rekindle the American Dream

However, economic concepts such as income mobility are always incomplete and, in many cases, too academic to explain such a holistic and complex ethos that is the American Dream. Stepping aside from academic definitions, we can discuss how different people define the American Dream in terms of opportunity, freedom of choice on how to live, and having a good family life, which I addressed in this older post. But as it relates to entrepreneurship, there are many similarities to the American Dream as they are both represented by the hero’s journey, by striving to have a vision for one’s life, or one’s business, and pursuing it as much as possible.

Meaning and purpose are at the cornerstone of the American Dream. And they are at the cornerstone of entrepreneurship as well. Research has shown that if someone feels that their life has more meaning, they are more likely to become an entrepreneur. There is a negative and zero-sum narrative that entrepreneurs are policy failures because they are too wealthy. But many entrepreneurs find their meaning in life through entrepreneurship and don’t start a business because they want to become wealthy. Many entrepreneurs want to address a need in society, invent a product that they or others would use, or provide a service to help others. Becoming wealthy ends up as a byproduct of their interests and goals to have meaning in their life’s journey, even though profit is the lifeblood of a successful business.

As highlighted in a previous op-ed, there are many stories about successful entrepreneurs in pursuit of what could be their own American Dreams. For example, Jeff Bezos started Amazon because he saw an opportunity through the internet revolution to empower customers, enhance their customer experience, and offer greater customer service.

Gary Hoover, president of the American Business History Center, recently told me about the drive and purpose of entrepreneurs:

Whole Foods founder John Mackey in his twenties came to the conclusion that people did not eat the right things, causing them to have worse, shorter, less healthy, and less happy lives. He and his colleagues built a company worth $13 billion on that thought and their drive.

Herb Kelleher thought the longstanding carriers like American Airlines and Braniff Airways were inefficient and charged too much. So he built Southwest Airlines, always reminding his associates/employees that without Southwest’s lower fares, thousands of people would miss a wedding, a funeral, or a graduation.

A guy nicknamed Kinko founded a chain of copy shops that became worth over a billion dollars. While some saw the work as menial, he saw it as a high calling. Without Kinko’s, people would not get the word out about the ice cream social or be reunited with their lost dogs. He continuously emphasized the purpose of the enterprise as he traveled their many locations.

Successful entrepreneurs enable many others to pursue their own American Dreams. This is 1) because they provide employment opportunities through their businesses, which enable people to earn an income, which enables them to pursue their own human flourishing and American Dreams, and 2) because their employees can provide better opportunities for their own families and enable their children to pursue their own dreams. As another example mentioned in my op-ed: “Hamdi Ulukaya, the founder of Chobani, ignited a Greek yogurt revolution in the United States when he started the company. He came to the United States with very few resources and spoke very little English. He overcame those barriers and became a billionaire who is currently employing more than 2,000 people, many of whom are refugees escaping brutal regimes abroad.”

Entrepreneurship is certainly a virtuous circle when it comes to supporting the American Dream.

In his book Burn the Business Plan the “evangelist of entrepreneurship” Carl Schramm depicts many stories of founders and entrepreneurs who, while working in other companies, found the knowledge and training to pursue their own dreams, venture out on their own, and establish successful companies themselves. The research shows that entrepreneurs mostly start their businesses after about fifteen years of experience in an established firm, usually starting a business in the same industry.

There are so many examples of how entrepreneurship enables more people to live out their own American Dreams and enable others to do the same. So please let me know your own perspective as I will certainly be writing more essays on this topic. I’d love to include many entrepreneurial American Dreams in future articles.

Most importantly, ensuring that everyone has a fair shot at the American Dream should be the key policy priority. If we really want to help the poor and less advantaged in our society, we need to continue fostering and boosting the culture of entrepreneurship that underpins the history of our country and the American Dream. That culture will flourish when entrepreneurs recognize and take pride in their contributions to society and convey their stories and barriers on their road to success. There are no shortcuts, just hard work and grit within an ecosystem of entrepreneurship that empowers people to thrive, overcome barriers, and achieve their own versions of the American Dream while enabling others to do the same.