Ever since the collapse of the housing market, the American economy has been struggling to recover from the depths of a deep recession. Even though the recession officially ended in 2009, the economy has failed to produce robust job growth for the 13 million unemployed workers in the United States.
Indeed, the unemployment rate still remains stubbornly high at 8.6 percent, a number that is actually artificially low due to the extensive underemployment of skilled workers and the numerous unemployed individuals who have dropped out of the labor force completely.
Meanwhile, corporate profits have rebounded nicely over the past year. In the third quarter, the total net income of the companies in the Standard & Poor’s 500 index increased by nearly 18 percent. In total, corporate America is now holding more than $2 trillion in cash on its balance sheets, the largest reserve held by companies in half a century.
However, these large companies are reluctant to use that cash for new jobs and investment given the considerable uncertainty that exists in the current economy. Between the sovereign debt crisis in Europe and low GDP growth in America, companies have decided to sit on their cash and do nothing with it.
In this environment, relying on large, traditional businesses to bring the United States strong economic growth is a risky proposition on account of their risk-averse behavior. Instead, America will need to turn to young, innovative startups to lead the country into its next era of economic prosperity.
One of the few areas of strong growth in American business over the past three years has been in Silicon Valley, a hub of technological innovation and development. In a time where the manufacturing industry has been damaged considerably by foreign competition, the United States still has a distinct advantage in advanced computer and internet technologies.
The amazing thing is that many of these leading companies have only existed for a few years, having been founded by bright college kids with a distinct vision for the future of the internet. For instance, the internet search giant Google, which employs more than 20,000 workers, was only founded in 1998 by two Stanford graduate students, Sergey Brin and Larry Page.
In addition, one could consider the phenomenal growth of Facebook, a company founded by Mark Zuckerberg in his dorm room in Harvard, which is now a company rumored to be valued at nearly $100 billion and will be going public sometime in 2012.
Indeed, internet companies have been one of the few areas of growth in the IPO market in recent times. Companies like LinkedIn, NetFlix, Salesforce.com and FusionIO have already gone public, while others such as Zynga have held out. These companies are looking to raise large amount of cash to expand their businesses, not batten down the hatches.
For instance, many internet companies like Google and Facebook have been investing billions of dollars in data centers around the United States, particularly in rural areas that have been particularly hard-hit by the weak economy. Google has employed this strategy since 2006 when it built its first data center in The Dalles, Oregon, a town devastated by the loss of old, declining industries.
For decades, the United States has proudly worn a badge of courage and innovation, but a dying economy has slowed down and eliminated new jobs. Do you think a refocus of tech startups and businesses can save this struggling nation?
Author:
Jessica Silva is an avid skier, minimalist traveler and one of the marketing brains behind the world’s first iphone wallet case.
