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The U.S. Economy Is Bouncing Back, but Entrepreneurship Isn’t

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In the U.S., unemployment rates are below 6 percent, and GDP rose 2.2 percent in the last quarter of 2014, prompting politicians and pundits to tout the rebound of the American economy. However, one crucial economic element hasn’t bounced back. Entrepreneurship has sharply declined since the economic downturn.doomsday

According to Census Bureau data, Americans started 27 percent fewer businesses in 2011 than they did in 2005. It’s not just a consequence of the economic downturn; as a share of all businesses, startups have been declining in America for the past 30 years. Even in the high-tech sector, which creates more startups than any other sector, the declines, as a percentage, have been equally steep. For the first time since the late 1970s, the number of business failures outnumbers new businesses created, which is bad news for America’s economic future.

New small businesses employ just 2 percent of American workers, but they’re responsible for 15 percent of new jobs created. They’re also responsible for increasing innovation and productivity throughout the American economy. Some researchers blame the concentration of business within large corporations, which makes it tough for new businesses to gain market share. For instance, Walmart controls 50 percent of most groceries and general merchandise sales, making it hard to for family-owned businesses to compete.

bankruptOther researchers blame the aging of the population, saying that people are most likely to start businesses when they’re young. According to Inc. Magazine, that supposition is wrong. The average entrepreneur starts at age 40, and people between the ages of 55 and 64 have the highest rates of entrepreneurship in America. Still, economists are right when they say millennials have a great opportunity to revitalize small business growth. Unfortunately, millennials are interested in self-employment, but many aren’t interested in true entrepreneurship.

Dealing With Limited Capital

Shows like “Shark Tank” create the perception that venture capitalists everywhere want to invest in new businesses. In reality, very few entrepreneurs have access to venture capital. Most rely on family, friends, and savings for startup funds.

When small business owners make rookie mistakes, or when they need capital for expansion, they often have difficulty recovering from setbacks and funding the growth of their companies.

Banks have consolidated since the 1980s, leaving fewer small banks with knowledge of the local business climate. Loan decisions are made by algorithm, not by local lenders who know the community.

Bank consolidation also means that when a big bank fails, many entrepreneurs are left without options. If Citigroup hadn’t narrowly escaped failure in 2009, over 1 million small business owners would have lost some kind of day-to-day financing.

In the past, small business owners could put up their homes as collateral for bank loans. Their homes became surety for startup funds or credit lines for lean times. As a result of the economic downturn, in addition to the burden of student loans, fewer millennials own homes. Those who do own homes face plummeting property values and underwater mortgages.

Mistaking the Sharing Economy for Entrepreneurship

The U.S. Economy Is Bouncing Back, but Entrepreneurship Isn’tCompanies like Uber, Airbnb, and Lyft are creating what experts call the “sharing economy.” People can share their resources, such as their cars or their homes, as a way of making money. Lyft, for example, lets people who need rides request a car in the Lyft app.  Lyft drivers respond, picking up passengers in their own cars, and keeping the fee minus Lyft’s commission.

Lyft drivers make no set hourly commitments, and they aren’t required to work set schedules. Lyft calls its employees entrepreneurs, but in reality, it’s more of tenuous labor model. People who rent out homes or rooms on Airbnb are more like landlords than hourly workers, so they’re not expecting employment protections. Lyft and Uber drivers, who are more like hourly employees, aren’t guaranteed minimum wage, overtime benefits, paid time off, or health insurance.

The people who start companies like Lyft are entrepreneurs, but the people who drive for Lyft aren’t. They’re self-employed workers setting their own hours and determining their own work volume, they aren’t launching proprietorships, partnership, or corporations of their own. They don’t invent new technologies that create opportunities for new inventions and new businesses. Also, they don’t create jobs for workers in their communities or become sponsors of important community activities.

Student Debt and Unemployment Fears

Millennials, currently ages 20 to 34, are the most educated generation in America. By 2020, they will represent the largest segment of the U.S. population. They’re also starting fewer small businesses than any generation before them. In 1977, Americans started 35 employer businesses per 10,000 people. By 2009, the percentage of small businesses per 10,000 people had dropped by half.

Researchers from the Kauffman Foundation think that the economic downturn played a significant role. The millennials got a great education, but their education came with a steep price tag. Between 2004 and 2012, the average real per borrower student debt increased from $24,000 to $30,000. An increasing number of students are also defaulting on student loans. Millennials who graduate with crippling amounts of student debt can’t afford to fund small businesses, and if they default on loans, the devastating effect on their credit rating makes it tough to borrow money.

Because millennials came of age during the economic downturn, they also fear a soft labor market. In 2010, the unemployment rate for workers ages 18 to 34 peaked at 13 percent. As a result, millennials feel less confident that they’ll find work if they start a new company and fail. The risk of defaulting on student debt, plus the risk of unemployment, makes them skittish about taking a risk.

Why America Needs Entrepreneurs

Entrepreneurship is about more than the feeling of being your own master. It’s about creating innovative products, helping other businesses realize their goals, and driving job and community growth. Without revitalizing small businesses and entrepreneurship, America won’t sustain its current economic gains.

Millennials, more than previous generations, say that work should foster creativity and community connections. Nothing says creativity, innovation, and investment in community like starting a small business.

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Exclusive: China’s Huawei, reeling from U.S. sanctions, plans foray into EVs – sources

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Exclusive: China's Huawei, reeling from U.S. sanctions, plans foray into EVs - sources 1

By Julie Zhu and Yilei Sun

HONG KONG/BEIJING (Reuters) – China’s Huawei plans to make electric vehicles under its own brand and could launch some models this year, four sources said, as the world’s largest telecommunications equipment maker, battered by U.S. sanctions, explores a strategic shift.

Huawei Technologies Co Ltd is in talks with state-owned Changan Automobile and other automakers to use their car plants to make its electric vehicles (EVs), according to two of the people familiar with the matter.

Huawei is also in discussions with Beijing-backed BAIC Group’s BluePark New Energy Technology to manufacture its EVs, said one of the two and a separate person with direct knowledge of the matter.

The plan heralds a potentially major shift in direction for Huawei after nearly two-years of U.S. sanctions that have cut its access to key supply chains, forcing it to sell a part of its smartphone business to keep the brand alive.

Huawei was placed on a trade blacklist by the Trump administration over national security concerns. Many industry executives see little chance that blocks on the sale of billions of dollars of U.S. technology and chips to the Chinese company, which has denied wrongdoing, will be reversed by his successor.

A Huawei spokesman denied the company plans to design EVs or produce Huawei branded vehicles.

“Huawei is not a car manufacturer. However through ICT (information and communications technology), we aim to be a digital car-oriented and new-added components provider, enabling car OEMs (original equipment manufacturers) to build better vehicles.”

Huawei has started internally designing the EVs and approaching suppliers at home, with the aim of officially launching the project as early as this year, three of the sources said.

Richard Yu, head of Huawei’s consumer business group who led the company to become one of the world’s largest smartphone makers, will shift his focus to EVs, said one source. The EVs will target a mass-market segment, another source said.

All the sources declined to be named as the discussions are private.

Chongqing-based Changan, which is making cars with Ford Motor Co, declined to comment. BAIC BluePark did not respond to repeated requests for comment.

Shares of Changan’s main listed company Chongqing Changan Automobile rose 8% after Reuters reported the discussions. BluePark’s shares jumped by their maximum 10% daily limit.

GROWING EV MARKET

Chinese technology firms have been stepping up their focus on EVs in the world’s biggest market for such vehicles, as Beijing heavily promotes greener vehicles as a means of reducing chronic air pollution.

Sales of new energy vehicles (NEVs), including pure battery electric vehicles as well as plug-in hybrid and hydrogen fuel cell vehicles, are expected to make up 20% of China’s overall annual auto sales by 2025.

Industry forecasts put China’s NEV sales at 1.8 million units this year, up from about 1.3 million in 2020.

Huawei’s ambitious plans to make its own cars will see it join a raft of Asian tech companies that have made similar announcements in recent months, including Baidu Inc and Foxconn.

“The novel and complicated U.S. restrictions on semiconductors to Huawei have slowly been strangling the company,” said Dan Wang, a technology analyst with research firm Gavekal Dragonomics.

“So it makes sense that the company is pivoting to less chip-intensive industries in order to maintain operations.”

In the United States, Amazon.com Inc and Alphabet Inc are also developing auto-related technology or investing in smart-car startups.

Huawei has been developing a swathe of technologies for EVs for years including in-car software systems, sensors for automobiles and 5G communications hardware.

The company has also formed partnerships with automakers such as Daimler AG, General Motors Co and SAIC Motor to jointly develop smart auto technologies.

It has accelerated hiring of engineers for auto-related technologies since 2018.

Huawei was awarded at least four patents related to EVs this week, including methods for charging between electric vehicles and for checking battery health, according to official Chinese patent records.

Huawei’s push into the EV market is currently separate from a joint smart vehicle company it co-founded along with Changan and EV battery maker CATL in November, two of the sources said.

(Reporting by Julie Zhu in Hong Kong and Yilei Sun in Beijing; additional reporting by David Kirton in Shenzhen; Editing by Sumeet Chatterjee and Richard Pullin)

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Facebook switches news back on in Australia, signs content deals

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Facebook switches news back on in Australia, signs content deals 2

By Renju Jose and Jonathan Barrett

SYDNEY (Reuters) – Facebook Inc ended a one-week blackout of Australian news on its popular social media site on Friday and announced preliminary commercial agreements with three small local publishers.

The moves reflected easing tensions between the U.S. company and the Australian government, a day after the country’s parliament passed a law forcing it and Alphabet Inc’s Google to pay local media companies for using content on their platforms.

The new law makes Australia the first nation where a government arbitrator can set the price Facebook and Google pay domestic media to show their content if private negotiations fail. Canada and other countries have shown interest in replicating Australia’s reforms.

“Global tech giants, they are changing the world but we can’t let them run the world,” Australian Prime Minister Scott Morrison said on Friday, adding that Big Tech must be accountable to sovereign governments.

Facebook, whose 8-day ban on Australian media captured global attention, said it had signed partnership agreements with Schwartz Media, Solstice Media and Private Media. The trio own a mix of publications, including weekly newspapers, online magazines and specialist periodicals.

Facebook did not disclose the financial details of the agreements, which will become effective within 60 days if a full deal is signed.

“These agreements will bring a new slate of premium journalism, including some previously paywalled content, to Facebook,” the social media company said in a statement.

The non-binding agreements allay some fears that small Australian publishers would be left out of revenue-sharing deals with Facebook and Google.

“It’s never been more important than it is now to have a plurality of voices in the Australian press,” said Schwartz Media Chief Executive Rebecca Costello.

Facebook on Tuesday struck a similar agreement with Seven West Media, which owns a free-to-air television network and the main metropolitian newspaper in the city of Perth.

The Australian Broadcasting Corp has said it was also in talks with Facebook.

Google Australia managing director Mel Silva said in a statement published on Friday the company had found a “constructive path to support journalism”.

She thanked Australian users of the search engine for “bearing with us while we’ve sent you messages about this issue”.

Facebook and Google threatened for months to pull core services from Australia if the media laws, which some industry players claim are more about propping up ailing local media, took effect.

While Google struck deals with several publishers including News Corp as the legislation made its way through parliament, Facebook took the more drastic step of blocking all news content in Australia.

That stance led to amendments to the laws, including giving the government the power to exempt Facebook or Google from mandatory arbitration, and Facebook on Friday began restoring the Australian news sites.

(Reporting by Renju Jose and Jonathan Barrett; Editing by Richard Pullin and Jane Wardell)

 

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China’s factory activity growth likely moderated during February holiday lull – Reuters poll

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China's factory activity growth likely moderated during February holiday lull - Reuters poll 3

BEIJING (Reuters) – China’s factory activity likely grew at a slightly slower rate in February as factories closed for the Lunar New Year holiday, a Reuters poll showed, although growth is expected to remain firm, buoyed by an early resumption of production.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to dip marginally to 51.1 in February from 51.3 in January, according to the median forecast of 20 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

Chinese factories typically scale back operations or close for lengthy periods around the Lunar New Year holiday, which fell in the middle of February this year.

However, the resurgence of COVID-19 cases in the winter had prompted local governments and companies to dissuade workers from travelling back to their hometowns, giving a boost to the earlier-than-usual resumption of production at many factories, analysts say.

“Although government COVID-19 prevention measures may constrain some manufacturing activities in the near-term, the fact that a majority of migrant workers stayed in their workplace cities for the holiday should facilitate an earlier resumption of business activity following the holiday this year,” said analysts at Nomura in a note to client on Thursday.

Wang Zhishen, a migrant worker from Gansu, told Reuters that his factory, a manufacturer of logistics boxes in the manufacturing hub of Dongguan, only closed for three days during the holiday, thanks to overwhelming businesses. Lured by the 1,500-yuan cash subsidy his factory offered, he chose to work through the holiday.

The Chinese economy has largely shaken off the gloom from the COVID-19 health crisis, with consumers opening up their wallets after months of hesitation. Growth is now set to rebound sharply this quarter, also helped by the low base effect of a year ago.

The country has successfully curbed the domestic transmission of the COVID-19 virus in northern China, with the national health authority reporting zero new local cases for the 11th straight day. Cities that were on lockdown have since vowed to push for a work resumption at full speed.

The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Sunday.

The private Caixin manufacturing PMI will be published on Monday. Analysts expect the headline reading will dip slightly to 51.4 from 51.5 in January.

(Reporting by Stella Qiu and Ryan Woo; Editing by Sam Holmes)

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