In the contentious atmosphere surrounding Labor Day 2011, it has become abundantly clear that politicians at all levels have almost no concept of how to create jobs. Democrats keep thinking stimulus with government funds, while the Republicans push tax and spending cuts.
Neither has worked very well since the economic collapse of 2008-2009 that was engendered by an unaccountable Wall Street and aided and abetted by our political leaders. They got us into the economic mess we are enduring – one in six Americans unemployed or under-employed – and they don’t show much savvy about getting us out of it.
The August job numbers that showed zero growth in the country were discouraging to say the least. The private sector created only 17,000 new jobs, while the public sector dropped that many.
Take Wisconsin. It was running at 1.3% job growth in 2011 through July, not enough to meet the 2.2% level necessary to hit Gov. Walker’s target of 250,000 new jobs during his term ending in 2014. August numbers for the state are due out in two weeks.
Wisconsin’s numbers have been better than most of its Midwestern neighbors.
Metro Milwaukee, hit hard in the Great Recession, is snapping back better than most metro areas. Its job base grew 2.3% through July.
Walker’s job creation agenda took a back seat to necessary budget balancing and to his push-back on public unions, the principal allies of opposition Democrats. The fall session of the legislature will address his faltering job strategy.
Putting the clueless political cant about job creation at national, state and local levels aside, there are some pragmatic, hard-won understandings about job creation that need to form the foundation for public and business policy:
- Economic development should be almost entirely job creation. If it isn’t about job creation, it isn’t meaningful economic development.
- All job creation comes from business creation, more particularly from young companies. That includes gazelles, the high growth ventures that become market-leading companies, and the smaller firms that make up the supply chains and the support system, like retailing.
- Large corporations reduce jobs on a net basis. But the health and well being of the large corporations at the top of the supply chains is critical. Wealth creation comes from the exporters. They and the gazelles that bring innovation to the world drive the economy. Jobs get created underneath them. To make that point, what happens in Hartford, Wisconsin if its three big employers, Broan Nutone, QuadGraphics and Signicast (all started here) disappear? Almost every other business in the community suffers greatly.
- Private sector jobs are the ones that count, because they generate the taxes that pay for the public jobs. It takes the taxes from nine private sector employees to pay for one state employee. The on-going reductions in public jobs are a direct result of not enough job creation in the private sector.
- Ergo, stimulus spending to create public sector jobs is a stopgap measure only.
- Much economic development spending has been misdirected. Real estate subsidies fail because buildings require only a few jobs once construction is done. Cross-border recruiting subsidies are a zero sum game, resulting in little overall job growth. Workforce training is secondary, creating blind alleys if the jobs aren’t there.
- Expensive academic R&D, where Wisconsin and the Midwest shine, is an under-performing asset when technology is not transferred from the lab to the commercial world. Winning grants is not the end game. Innovation that creates new products, new companies and jobs is the metric that counts.
- Young companies are starved for capital. Many potential gazelles need equity capital infusions, and small firms down the supply chain, where most job growth occurs, need debt capital. Community banks, hobbled by micro-regulation, are not lending enough to many small firms that want to create jobs.
Where does that all leave policy makers? The best answer is to stimulate an entrepreneurial ecosystem. We live in an innovation economy; Americans are good at innovation; and many have the individual drive and ingenuity necessary to start a company.
To generate business creation, and thereby job creation, the fall sessions of the legislature need to address these elements:
- Create a fund of funds of $200 million or more to match the investments by early stage funds across all regions of the state. More venture capital will generate more gazelles. It’s a numbers game.
- Encourage the creation the entrepreneur support systems in all regions of the state. The regional economic development organizations are the right place for that to occur. Shift gears from recruiting to startups.
- Develop a network of revolving loan funds at the county level for lending to small companies. Some such funds exist, but are under-funded. Most are tapped out.
- Insist that university R&D results in business and job creation, not just more grants, patents and licenses. Hold university leaders accountable for that output.
- Encourage foreign entrepreneurs, startup investors and technologists to come to America to fulfill their dreams. Give them green cards.
- Make heroes of entrepreneurs and make it advantageous for them to reinvest when they cash out. Our economy will thrive or suffer by how we treat our new ventures and our small business people.
In short, instead of random, politically motivated subsidies, make investments into startup companies. Subsidies, a direct cost to the taxpayer, are often misdirected and generally have little impact on the job base of the nation.
In contrast, investments, either debt or equity — assuming they are professionally managed — have a good chance of being paid back, meaning business and job creation at no cost to the taxpayer.