Research Explores The Effects Of Trade And Economic Disruption
STEVE INSKEEP, HOST:
Here's one measure of a changing economy which may help explain why people feel so insecure, even as the economy grows. It turns out that over the past few decades, the odds of any given business failing have increased. NPR social science correspondent Shankar Vedantam is here to talk about this.
SHANKAR VEDANTAM, BYLINE: Hi, Steve.
INSKEEP: What's happening?
VEDANTAM: Well, I looked at some new research out of the Tuck School of Business at Dartmouth. Vijay Govindarajan and Anup Srivastava analyzed the business life cycles of nearly 30,000 publicly traded firms.
INSKEEP: Life cycles - birth, growth, death, the whole deal.
VEDANTAM: Exactly. Now this was between 1960 and 2009, and now they find something really interesting. Before 1970, the chances that a new firm will survive for five years was 92 percent. By the 1980s, the odds of five-year survival have dropped to 70 percent. By the 2000s, it's 63 percent. So even as innovation is producing wonderful things for consumers - you know, mobile phones instead of pay phones, email instead of snail mail, taxis at the press of a button - what you also see is that companies now have much higher odds of dying and dying suddenly.
INSKEEP: I guess we should be clear. Small businesses actually go out of business at a very high rate. We're talking here about publicly traded companies, reasonably large companies. And I think you might be hinting at a reason why this would be. There's been so much technological change. We're in a time of convulsion.
VEDANTAM: We are. And in many ways, you know, the idea that failure might actually be a good thing has become a mantra at many companies, the idea that you try things quickly and you fail, and then when you learn from your failure and you innovate. One of the central ideas of being an entrepreneur now is that you don't fear failure as much as your parents might have done 40 years ago.
INSKEEP: Well, that sounds great. But what does it mean for the people who work for those companies?
VEDANTAM: Well, there's the rub, Steve. So if you're working at one of these companies and it turns into one of these unicorns that's suddenly worth a billion dollars, great for you. But if you're one of these companies that suddenly goes under, you know, not so great for you.
Now, I think this is especially true for people with certain levels of education. There are many people working in the economy now who are on LinkedIn. And even as they are working at job A, they're already thinking ahead to what job B might be.
But there's also lots of people who've done the kinds of work their parents have done. You know, that's the work that they've been born into. That's the work they've been raised in doing. That job disappears - much harder for those people now to pivot to job B.
INSKEEP: And the reality is the company just may not be there in a few years.
INSKEEP: Shankar, thanks very much.
VEDANTAM: Thanks, Steve.
INSKEEP: That's NPR's Shankar Vedantam whose podcast is still in business. It's called Hidden Brain.
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