The U.S. economy's undisputed hero in the 1980s has been that footloose, creative pathfinder the entrepreneur. At a time when corporate America often seemed incapable of daring innovation, the likes of Apple Computer's Steve Jobs and Microsoft's Bill Gates forged breakthroughs in semiconductors, software and personal computers. Even in lower-tech fields, such risk takers as Domino's Pizza Founder Tom Monaghan demonstrated an impressive ability to create new products and services that no dominant corporation could match. "This has been a great age to be living in if you're an entrepreneur," exclaims Alfred Rappaport, a Northwestern University business professor who started his own consulting group in Chicago.
But many scholars and business leaders, from the Bay Area to Boston, are beginning to voice concern about what Harvard Economist Robert Reich has dubbed "chronic entrepreneurialism." These contrarians contend that America's obsession with start-up companies is undermining U.S. competitive strength. They blame the proliferation of small companies for an alarming loss of U.S. market share in strategic high-tech businesses, ranging from semiconductors to fiber optics. The constant sprouting of new ventures, they explain, may be weakening the U.S. industrial structure by splintering American manufacturing power into too many small pieces.
At the same time, as Trade Expert Clyde Prestowitz argues in his recent book Trading Places, the flight of budding entrepreneurs from large heavily capitalized corporations is wounding the very U.S. companies that are most capable of competing with the sprawling industrial giants of Japan. Even some leading entrepreneurs, mostly those whose brainchildren are now billion-dollar companies, say the start-up craze has gone too far. Gordon Moore, chairman and co-founder of Intel, the chipmaker based in Santa Clara, Calif. (1987 revenues: $1.9 billion), says "vulture capitalists" have lured away some of his best technicians with offers of seed money to start their own firms.
The entrepreneurs know that if they succeed they can reap far greater financial rewards than can the most generously salaried worker. An estimated 2 million U.S. men and women are millionaires, and nearly 90% of them earned their fortune by starting their own firm. The small-business boom shows no signs of slowing. Even last October's stock-market crash discouraged start-ups only briefly. Jane Morris, editor of the Venture Capital Journal, reckons that venture funding for new enterprises this year may surpass last year's record of $3.9 billion.
To proponents of the entrepreneurial boom, the complaints are sour grapes and nonsense. They point to the starring role that small firms have played in recent U.S. economic growth. Since 1980, as the biggest U.S. industrial corporations have restructured, cutting their payrolls by some 3.1 million workers, small companies have created more than 17 million new jobs. The Reagan Administration estimates that firms with fewer than 500 employees accounted for 63.5% of all new employment between 1980 and 1986. Small firms have also contributed to the resurgence of U.S. manufacturing exports. In a study of more than 400 small high-tech concerns, the Bank of Boston reported in August that most such companies began to export their products almost as soon as they started operations.