An extra 1m or so firms have sprung to life across the OECD group of mostly rich countries since the first lockdowns. However, not everywhere is booming
. New businesses try out fresh ideas and ways of doing things, while drawing capital and people away from firms that are stuck in their ways. Many economists draw links between the low rate of entrepreneurship after the financial crisis of 2007-09 and the weak productivity growth of the 2010s. In addition, a recovery with lots of startups tends to create more jobs, since young firms typically seek to expand and thus hire new staff.
Three explanations for the startup boom stand out. The first relates to family finances. From about 2017 onwards labour markets in the rich world noticeably strengthened, putting money in workers’ pockets. With a financial cushion in place, people may have felt comfortable trying something new—which might explain why business creation picked up shortly before the pandemic.
The second factor relates to economic reallocation. The pandemic has prompted profound changes in consumption habits, meaning that demand has shifted across both geographies and industries. City centres are less busy than suburbs, while industries favoured by social distancing—online retail, for instance—remain more popular than activities that require in-person attendance. Entrepreneurs are responding.
The third explanation is hard to measure, but could have the longest-lasting effects. The pandemic, by reminding people that life is short, may have encouraged them to take more risks. It would not be the first time. In America from 1918, after the first world war had ended and the Spanish flu epidemic had faded, an even bigger startup boom began, as more people plucked up the courage to set out alone.
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