(gentle chiming)
- Hi everyone, my name
is Professor Jorge Guzman
and I'm here to talk
to you about the impact
of COVID-19 on U.S. entrepreneurship.
To do this, let me tell you
about a project I'm doing
with Cathy Fazio, who's
at Boston University,
and Scott Stern at MIT.
Before we get there, let me just emphasize
how important entrepreneurship
is for the United States.
There's three reasons, usually,
that I really think about
that entrepreneurship is critical,
and therefore we would worry
if COVID-19 is impacting it.
The first, entrepreneurship
is the engine of innovation
in the United States.
Second, that innovation, in
turn, drives economic growth
and shared well-being for all.
And third, it's not only
general economic growth
that it drives, but also
entrepreneurship is the centerpiece
of local neighborhood vibrancy
that connects us all socially
to the people around us and
the communities we're part of.
What we did, with my co-authors,
is we tapped into this
broader infrastructure
that we have created called the
Startup Cartography Project.
This is a project done together
with R.J. Andrews at Info We Trust,
and Yupeng Liu, who's here at Columbia,
and who was also a research
assistant in this analysis.
In the Startup Cartography Project,
our goal is to measure
entrepreneurship everywhere
and anywhere in the United States.
Find every single company that's created,
understand its quality,
understand its precise location.
And to do that, we had
this insight, I guess,
or this idea that we're gonna find
all the legal registrations of companies.
And so while companies get
started at different points,
and you know, there's
certainly founders agreements
and other things, what we thought was,
well, one easy way to
study for information
is to find the legal founding
moment of the company.
And so if you, or anybody
else, start a company,
it's not only when you choose to start it,
but often you have to go down
to the Secretary of State
and create a legal document
that is sort of a legacy or partnership.
We work with every single
Secretary of State,
all across the United
States, for 50 states,
and develop connection
to try to get the data
for all the companies
created in those locations.
Here is what we do then,
is map all the companies
and get to the quality and quantity
across time and location.
So here's our mapping, for
example, for the quality
or quantity entrepreneurship
in New York City,
in Manhattan, and what we see
is the very common pattern
that we're all used to seeing.
In Midtown, there's a lot of activity
then a lot less, sort of
in the Lower East Side,
then once you get to Downtown,
there's a lot of activity, again,
as well as across the bridge to Brooklyn,
and across the tunnel to New Jersey.
So this is the broader infrastructure.
Now what we realized was that,
we could tap into this project to try
to understand how is business formation,
how is this company registration
process changing today?
And we could work, not with
everybody, but with some states
and Secretaries of State where
we are able to see the data,
it's almost in real time, and
see if they're getting more
or less registrations and why.
Okay so let me give you the first takeaway
that we got from this analysis,
was that there's actually
been a very big drop.
There's been a massive
drop in entrepreneurship
since the COVID-19 lockdown.
We did a simple study
in New York and we found
that there's about
11,000 missing companies.
And they're more likely
to be locally oriented.
And so here's the graph that
I want you to take home.
What we have plotted here
is, in the dotted line,
we plot the number of companies registered
in 2019 by day in New York State.
In the solid line, the blue line,
we plot the number of companies
registered by day in 2020.
And we adjust for kinda, what
day of the week, et cetera.
And what you see is that, these two lines,
basically look the same before
the pandemic kinda hit us,
but that once it hits
us, and particularly,
once the school and
restaurant closure begins,
we see a massive drop
in total formation in New York State
compared to the prior year.
The drop is, you know,
at it's lowest point,
it's about a 66% difference,
about 2/3 difference
between the top and the bottom.
But it's narrowing over
time so perhaps we'll talk
about more of that towards the end.
So first takeaway though,
there's been a huge drop
in firm formation after the economic,
after the COVID-19 crisis.
This is the total number.
Now this impact has been
higher on local firms,
which are focused on
local economic activity,
such as your neighborhood
and your local kind of shops.
And it's been less targeted
at growth-oriented firms,
so one thing you can think of is,
is it registered locally, or
is it registered in Delaware
but just doing business
locally, and we see a difference
of about twice as much in the
local ones versus Delaware.
We see this drop in every
borough, for example,
in New York City, we did this
in Manhattan, this is Brooklyn
and I could show you a
lot of other locations
and you'd see the same pattern.
We also see it in other
places besides New York.
Here's Washington State,
we see a huge drop
as well as a narrowing of the gap,
yet still there's a
substantial difference.
When we look at other data
outside business registration,
we actually see the same thing
as well, and so for example,
John Haltiwanger has done
some analysis with census data
and EIN filings in order
to see a drop of up to 40%
in the total number of firms created.
Even in other countries,
so this is some analysis from Denmark,
we continue to see this
emerging gap in entrepreneurship
based on the COVID-19 pandemic.
So that's the first takeaway
that I really want you to think about.
There's been a huge drop in
entrepreneurship since COVID-19,
particularly in the timing
since the lockdowns,
though obviously, the
cause is the pandemic,
and the lockdowns are just
the consequence of that,
there about, you know, when
we look at how big is the gap
and we add it up from New York,
it's about 11,000 new
companies that are missing,
they're more likely to
be locally oriented.
The second thing I'd like you to know,
is to get some perspective
on how bad this is
compared to other crises
that you might remember,
such as 9/11, the financial
crisis, or Hurricane Katrina.
Here's the 9/11 effect
and you're gonna see,
right, so what you see is a small drop
and actually it comes back
to trend very quickly.
So the drop is much less,
it's about 20% here,
it comes back to trend much quicker.
Here's the Great Recession,
again you do see a drop,
but the drop is much smaller.
So what we see sort of, in
New York State for example,
these crises compared to these other two
that were very consequential
for New York, as well,
seems just a lot bigger in its
impact on entrepreneurship.
Now I'll even show you a
different natural disaster,
and this is Hurricane Katrina.
And state registrations
in Louisiana, again,
we see a huge drop in total registrations
around the timing of the
hurricane, but actually,
afterwards, it comes back on trend,
and so it seems like the
effect we're documenting here
seems a lot bigger than
these three other crises
that we would think are
kinda pretty consequential
for the United States
over the last 20 years.
Here's where you can see
all of them together,
and just to put it in perspective,
and you really see this difference
in this white graph between
the blue and dotted line,
just being much bigger
than the other three.
Now the third thing I want
you to think about though,
so that's the first two takeaways,
the third one is really about
this narrowing of the gap.
And here we're a little
bit more optimistic.
Maybe you've been thinking
about that all along.
You've been thinking,
yes, the gap was huge immediately
after the crisis and lockdown
and really the whole country stopped,
but it seems to be narrowing now, right?
It seems to be narrowing here in New York,
and I showed you Washington,
it was narrowing there as well.
And you'd be right,
there's actually some
cause for optimism here.
Here's Virginia, where we see a gap,
but we actually see it
completely narrowed by now.
Here it's Kentucky where we
sort of see the same pattern,
a huge gap at the moment of the crisis
but then a lot of narrowing afterwards.
And here's Missouri,
again the same pattern.
And so there seems to be an improvement.
I hope this signals recovery.
We usually like entrepreneurship
as a very positive signal
because entrepreneurs,
when you're choosing to start a company,
they're fundamentally
thinking about the future.
And because they're
thinking about the future
and they're choosing to start a company,
focused on those future opportunities,
we hope that that signals
some underground intention,
some underground intention and optimism
on the possibilities of future communities
across the United States.
And so that's all I wanted to tell you.
Here's our contact.
I hope that brought some perspective
on the impact of COVID-19
on U.S. entrepreneurship
and in turn, on the U.S. economy.
Thank you so much and
please reach out to me.
I hope to hear from you soon.
