Entrepreneurship in a Declining Economy

by Eric Stokan 14. September 2009 09:01

Experts assert that one of the positive effects of an economic downturn is the entrepreneurial spirit that is fostered.  The New York Times on August 25, 2009 ran an article describing how these “…accidental entrepreneurs, unintended entrepreneurs, or forced entrepreneurs” have been moved to go into business for themselves.  In fact, the article cites Shawn Achor who suggests that our creativity surges as we try to adapt to adversarial situations. If this is the case, Detroit should be in a constant state of creativity.  We do, however, know that many municipalities and organizations have implemented programs that try to facilitate this entrepreneurial spirit.  

The Center for Urban Studies has been reviewing one of these programs (Business incubators) extensively.  It is interesting that business incubators date back to 1959 and were first introduced as a response to a loss of a major manufacturing plant in Batvia, NY (Allen and Bazan, 1990). With over 100 articles reviewed on this topic by the Center for Urban Studies economic development unit, we know that business incubators often reduce the incidence of business failure and can lead to economic growth within a municipality.  For this reason, CNN Money recently featured individuals in Detroit who would like to start their own business and how they are being helped by the business incubator Tech Town.  While this strategy will certainly not replace all of the jobs that have been shed in the past several years, it does provide a step in the right direction.  One advantage of fostering new businesses is that they tend to have higher multiplier effects, on average. This means that new businesses generally support more new jobs within the region, in comparison to more established firms.  The higher multiplier derived is due to the fact that new firms are local in nature and tend to purchase locally (from the locality that the particular firm resides) at a higher rate than national firms, who tend to have national suppliers (see report released by Civic Economics).

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About the Authors

We are the Center for Urban Studies Economic Development Unit.  We have several authors who contribute directly and indirectly to this blog.

Lyke Thompson, Ph.D.

Director of the Center for Urban Studies and Professor in Wayne State University's Political Science Department, has specialized his research on the urban political and economic environment.  A primary focus has been centered on municipal economic development, urban policy, and the determinants of economic growth.

Eric Stokan, MA.

Research assistant at the Center for Urban Studies Economic Development Unit.  Mr. Stokan serves as the lead researcher of the Unit, analyzing economic data using various statistical techniques.  Mr. Stokan is interested in questions concerning municipal economic growth and industry mix as well as determinants of local economic incentive adoption.

Mary Hennessey

Research technician at the Center for Urban Studies Economic Development Unit.  Ms. Hennessey researches the effectiveness of local economic development incentives.  Specifically, she has conducted a thorough investigation of brownfields and is currently working on public transit.