Job creation requires risk-taking - Economics

USA Today (Society for the Advancement of Education), March, 2003 by John A. Challenger

Business-starters can take advantage of the fact that a growing number of small and medium-sized companies are outsourcing more functions unrelated to their core business operations, such as payroll or marketing. This increases opportunities for entrepreneurs who can provide essential services for smaller firms, which cannot afford to spend the time or money establishing their own departments to handle these tasks.

Even with favorable conditions, starting a business is a major risk. According to the Small Business Administration, only about 40% of new businesses with employees last at least six years. An SBA survey of small businesses filing for bankruptcy found that the second-most-common reason for bankruptcy--behind outside factors such as competition, rent increases, and insurance costs--was financing problems, cited by 28% of respondents. For many, though, the financial risk of starting a business may be less menacing than reentering the job market, where fewer employment opportunities and more competition have resulted in job-search times expanding to nearly four months.

Additionally, employers can no longer offer the type of stability that made them more appealing than entrepreneurship. With the record pace of job-cutting that has claimed more than 2,500,000 jobs in just 16 months, no position can be considered secure. Moreover, as health care costs rise, a growing number of employers are asking workers to pay a greater share of their insurance. A survey by Credit Suisse First Boston found more than 40% of companies with self-funded health plans cutting benefits in 2002.

In this atmosphere, the risk of starting a business almost seems no more menacing than going to work for a traditional employer. Furthermore, the risk of starting a business may pay long-term dividends for individuals as well as the overall economy.

Nevertheless, it appears that risk-taking is heading in the opposite direction. The most-disastrous consequence from less risk-taking is that, as a nation, we are greatly diminishing our competitive edge in the global economy. We have a vested interest in maintaining our position as the global leader in innovation. Without risk-taking, we would not have attained that position, and without risk-taking, we will not be able to maintain it.

John A. Challenger, chief executive officer of Challenger, Gray & Christmas, Inc., a Chicago, Ill.-based international outplacement firm, was a member of the labor and human resource committee of the Federal Reserve Bank of Chicago from 1999 to 2002.