Thursday, May 25, 2006

An Entrepreneurial Backwater

On Tuesday, the Ewing Marion Kauffman Foundation issued its 2005 Kauffman Index of Entrepreneurial Activity. Part of the report ranks entrepreneurship levels by state. Unfortunately, Pennsylvania has the fifth lowest rate of entrepreneurship of any state in the nation. The only places that are lower are Delaware, West Virginia, Alabama, and Kentucky.

The report also ranks entrepreneurship rates among the fifteen largest metropolitan regions. The Pittsburgh Region is not included in that list, but Philadelphia is, and Philadelphia ranks next-to-last, ahead of only Detroit. Interestingly, Boston and Seattle rank only slightly higher than Philadelphia. The most entrepreneurial of the large regions are Atlanta, Houston, and San Francisco.

It's important to note that the Kauffman Index doesn't measure existing entrepreneurs, but new entrepreneurs. It measures entrepreneurship in terms of the proportion of people who started a new business that they own and in which they work as their main job. So it's logical to expect that states and regions with higher rates of population growth and in-migration will have higher rates of new entrepreneurship, simply because there are new people to create new businesses. It's not clear whether that is enough to explain the fact that the highest ranking states and regions create new businesses at 2-3 times the rate of the lowest ranking states and regions. The Kauffman Index also reports that immigrants had a 25% higher rate of new business formation than native-born Americans.

Although the Pittsburgh Region is not ranked in this particular index, it has been included in other studies of entrepreneurship, and unfortunately, it has ranked at or near the bottom among most regions in the country. Part of this is likely because the low rate of immigration to the Pittsburgh Region, and the continued net out-migration of population, means that there are fewer new people to become new entrepreneurs. Part of it is also likely due to the fact that the continued overall population loss in the region means that there is no growth in customers for businesses serving the local population. But part of it is also likely due to the lack of an entrepreneurial culture in the region.

If the Pittsburgh Region is going to turn its tremendous base of intellectual capital into companies and jobs, it needs more entrepreneurs and it needs to support them.


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