IPO Deficit

There’s been a disturbingly large decline in US IPOs (initial public offerings ) since the late 1990’s. I mentioned this briefly in a post in 2011 – Surge in Regulations – including a great chart showing the time series data (reposted below).

Source: Kaufman Foundation

Here is another chart with data updated through 2011. The chart below is tech IPOs only – that’s why the figures are systematically lower than the Kauffman chart above which includes all IPOs.

IPOs by YearToday, there was more coverage of this issue in the Wall Street Journal – Restarting the U.S. Capital Machine. Written by a Democrat, no less. A fellow named Jack Markell, the Governor of Delaware. No doubt he will be ridiculed by his compatriots, but what he discussing is awfully important.

He notes several stats:

  • US IPOs have declined from 360 annually in the 1990s to 100 or less per annum now
  • Companies listed on US stock exchanges has fallen from 8,800 to under 5,000 today
  • The US share of global IPOs has dropped from 48% in the late 1990s to under 10% today

He argues, quite rightly I believe, that this has a huge deleterious effect on job creation in the US. He cites a study by Grant Thornton that estimates we’ve lost 10 million jobs as a result of the IPO decline.

That’s because a large percentage of new job creation historically comes from the kind of high growth companies that go public. He notes that something like 92% of a company’s employment growth occurs after an IPO. That means we are losing all the jobs that might otherwise have occurred had we not lost our position in the global IPO marketplace.

There is also a lost cumulative effect from this – we’re voluntarily taking ourselves out of the ‘virtuous cycle’ that leads to ever greater innovations and wealth. I’m talking about the sort of dynamic that leads to places like Silicon Valley and, to a lesser extent, Boston. Even here in the US, it is very hard to create self-propelled economic centers like this. If you think of the entire US as a country-level Silicon Valley compared to the rest of the world, but we are willfully allowing that to be eroded.

It is the type of dynamic that has helped southeast Asia become the dominant hub for global manufacturing. They have built up a formidable and interconnected web of companies that can’t be easily replicated and that delivers long-term strategic advantage to the region. This was was well described in the New York Times not long ago when they wrote about Apple’s use of Foxconn for manufacturing.

Not surprisingly, he attributes this sharp falloff to some obvious problems which he thinks need to be fixed.

  • Excessive regulation of the capital markets, particularly Sarbanes-Oxley and Dodd Frank laws
  • Unfavorable corporate tax laws compared to other countries

It also points out to me another example of where Democrats (largely) in their never ending quest to protect regular folks from the greed of corporate evil doers, often in the long run produce the opposite effect – they dampen overall growth and productivity for everyone. Another example is the inevitable increase in consumer banking fees that we’ll all be paying soon enough. I guess we are all safer and perhaps better informed for these efforts, but we are also all irreparably poorer. But apparently communal poverty is not too high a price to pay to ensure the wealthy are kept in check (and that, by the way, isn’t even really happening…).



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