Downturn, start up
-The effects of recessions on entrepreneurs and managers run deep
THE list of famous companies founded during economic downturns is long and varied. It includes General Motors, AT&T, Disney and MTV, all founded during recessions. A 2009 study found that over half of Fortune 500 companies got their start during a downturn or a bear market. A recession, it seems, may not be an entirely bad time to start a company. Indeed, busts (and booms) cast a longer shadow on the business landscape than is commonly realised, because they influence both the rate of business formation and how existing firms are run.
Some argue that recessions speed up the process of productive economic churn—what Joseph Schumpeter called creative destruction. The destruction part is easy to see: downturns kill businesses, leaving boarded-up windows on the high street as their gravestones. But recessions may also spur the creation of new businesses.
When people suddenly have less money to spend, clever entrepreneurs may see an opportunity to set up businesses that give them what they want more cheaply or efficiently. Downturns may also swell the ranks of potential firm creators, because many who might otherwise have sought a stable salary will reinvent themselves as entrepreneurs. A recent study by Robert Fairlie of the University of California, Santa Cruz found that the proportion of Americans who start a new business each month is on average about half as high again in metropolitan areas where unemployment is in double digits as in those where it is under 2%.
A recession is a difficult time to start a company, of course. Credit is scarce. Would-be entrepreneurs are further handicapped by falling asset prices, since they might want to use their homes as collateral for a start-up loan. Whether downturns on balance help or hurt entrepreneurs depends therefore on the relative strength of these opposing sets of forces.
Mr Fairlie finds evidence that the spur to enterprise during the most recent recession in America from a drying-up of other employment opportunities outweighed the drag on business formation from a collapsing housing market. That said, a shrinking economy also makes it hard for young firms to take root and grow. A study commissioned by the Kaufmann Foundation, an organisation devoted to entrepreneurs, suggests that young companies, typically responsible for the bulk of US job creation, added only 2.3m jobs in 2009, down from about 3m a year earlier.
Tough times do not suddenly prompt everyone to start a business. The vast majority of people who reach working age during a downturn still look for a job. But research also suggests that recessions have lasting effects on how executives manage businesses. John Graham of Duke University and Krishnamoorthy Narasimhan of PIMCO, a bond manager, have found that chief executives who lived through the Depression tended to run companies with lower debt levels (leverage then went up when these Depression-era bosses retired). In a new study, Antoinette Schoar and Luo Zuo of the Massachusetts Institute of Technology show that companies run many years later by people who cut their teeth during bleak times, when money was tight and customers harder to find, are systematically different from those run by managers whose formative experiences date back to expansionary times, when credit and optimism were in ample supply.
艰难的日子并非突然促使每个人去创业。在衰退时期，绝大多数处于工作年龄的人仍然会去寻找工作。但是有研究表明，衰退对管理层管理企业的方式有着持续的影响。杜克大学的约翰葛拉汉和太平洋投资管理公司（PIMCO）的债券经理Krishnamoorthy Narasimhan发现萧条期间的首席执行官倾向于以更低的债务水平运营公司（在大萧条时代的老板退休以后，公司的财务杠杆将会上升）。在一项新研究中，麻省理工学院（MIT）的安托瓦内特肖尔和佐罗（ Luo Zuo）发现，那些曾在黑暗时期（银根紧缩，客户难寻）创业的企业家管理多年的公司，与仅经历扩张时期（信贷充足，且对未来持乐观态度）的企业家的公司有系统性的差别。
By carefully dissecting the careers of over 5,700 bosses of companies that have been on the S&P 1500 list, Ms Schoar and Mr Zuo found that those who began their management careers during a bust were substantially more risk-averse, took on less debt and generally were more conservative managers than the rest of the sample, even many decades later. That will strike critics of the over-leveraged company as thoroughly good news, but it is hard to say whether this effect is entirely benign.
Bosses whose careers began in a recession also tend to be so concerned about cost-effectiveness that the companies they go on to run spend less on research and development. They may thus be too conservative: firms with bosses whose professional baptism came in a weak economy have lower returns on assets than those run by other managers.
Why should this be? One plausible explanation is that recessions affect the way people take decisions. Management styles are surely in part the result of the kinds of problems a person has had to grapple with. Even a risk-lover may end up taking more conservative financial decisions in a weak economy. If these decisions serve him well in lean times, then he may conclude that fiscal prudence is a stance worth sticking with in years of plenty.
Downturns also funnel people into different jobs from those they might otherwise have entered. A 2008 study by Paul Oyer of Stanford University found that Stanford MBAs disproportionately shunned Wall Street during a bear market. This may seem unsurprising—who wants a job in finance when the market is tanking? But there are reasons to believe that these choices make a difference well into the future. Those who begin their careers in a bust are less footloose than their boom-time equivalents. Ms Schoar and Mr Zuo find that the average recession-scarred chief executive is more likely to have risen through the ranks of a firm than the norm, and is less likely to have switched employers or jumped from one industry to another.
The pool of candidates for top jobs in a particular industry reflects the choices that people make early on in their working lives. Yet these choices are the result not only of managers’ preferences and abilities, as you might expect, but also of the economic circumstances that prevailed at the time they began working. Whether they were set up during a boom or a bust, today’s firms are deeply affected by the economic fluctuations of the past.