The last few years have seen a considerable rise in partisanship across society. During the pandemic, this has often extended into the business world, with companies linked to governing parties awarded public contracts for things such as personal protective equipment.
Recent research from Columbia Business School suggests partisanship may also play a role in entrepreneurship. The study suggests that people tend to feel far more optimistic about the economy, and are therefore far more likely to start a business, when their party of choice is in office.
Starting up
The researchers used voter registration data from 34 US states alongside firm registration data from each state to examine how party affiliation was linked with rates of entrepreneurship across election cycles.
The analysis took place between 1997 and 2017, and showed that those who identified as Republicans were far more likely to create a business during Republican administrations, and even more likely to do so than Democrats were during Democratic administrations. Noticeable changes to entrepreneurship rates were seen after the elections of Obama and Trump in 2008 and 2016 respectively.
The data shows that after Obama’s election the partisan gap in the number of new businesses in Red versus Blue states fell by around 7.4%, whereas they rose by 10.8% after Trump’s election. Interestingly, this effect was also true across the firm quality distribution, which suggests a significant impact on the formation of high-quality, high-growth startups.
The results also reveal a gender gap in entrepreneurship according to the political identity of the entrepreneur. Across the 20 year timeframe, 10% of men started a business compared to just 5.6% of women. The gender gap was found to be around 20% smaller among Democrats, but 30% larger among Republicans.
Whereas the pandemic has shown that cronyism and links to governing parties can be a significant boon to companies, the Columbia research highlights the boost to entrepreneurship from the underlying confidence in the economy given by partisan success. As we emerge from the pandemic, it is perhaps something for policymakers to keep in mind.
