You Want Jobs? Do These Three Things

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If privately held companies, which generate the vast majority of jobs in the U.S., are doing well, then why isn’t the unemployment needle moving, and why are we stuck in a financial malaise?

Our data consistently shows that the revenues of private companies are up; their profits are up; their margins are up. In addition, GDP is growing, inflation’s under control and interest rates are as low as they can be. Yet job growth remains nil to lackluster.

What’s behind this paradox?

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Even if you assume business owners are greedy and selfish (as some in Washington seem to imply), it doesn’t make sense that they’re not hiring more workers. After all, reinvesting those growing sales and profits should pave the way for them to make even more money.

During the early part of the industrial revolution, when machines began doing the work of people, there were some who predicted that unemployment would become permanently high. They were wrong. What we have learned through history is that companies continually seek ways to make more profit and that this always requires more people. Consequently, I discount the idea that, because of an increase in the efficiency of companies, we are stuck forever at a high level of unemployment.

Given that this situation is historically unprecedented, you have to look at what external factors may be causing U.S. companies to hold off on hiring. It’s popular to blame Washington for everything, but, in this specific case, the blame may be correctly applied. If President Obama and Congress want to get job growth going, they can do three things to help, but they can’t wait until November. I’m already worried that businesses will write off hiring for the rest of the year because of the election.

First, iron out the tax picture immediately. Waiting until after November is a bad idea. The issue is not only whether to extend or not to extend some or all of the Bush-era tax cuts; it is to decide something and be definitive. Even if it’s a “bad” policy decision, something sooner rather than later is better than nothing. Business owners need to be able to plan out 12 to 24 months. They need to be able to develop forecasts so they can figure out if they’re going to hire and how many positions to add. They can’t do that if Washington keeps debating until the last minute and then makes a policy change. Just tell us what you’re going to do and then go do it.

Second, I’d ask that Washington listen to the business owners in the trenches — the job creators, the regular people who run a grocery store, a landscaping business, a light manufacturing company — and stop the anti-business rhetoric. At least in name, President Obama has launched several initiatives aimed at helping businesses, such as Startup America and his Council on Jobs and Competitiveness.

Just this past month, the White House launched a website to gather tips from businesses on burdensome regulations. That’s good. Washington needs to listen to regular business people who can recommend what the government should or shouldn’t do to foster long-term job growth. But when the President makes speeches like the one in Roanoke, Va., last month, it seems as if he is attacking business owners and looking at successful Americans and successful business owners as the problem.

The first rule of the military needs to apply — that you don't shoot at your own troops. Tone down the rhetoric and realize that many (maybe not all) business people are hardworking, have created abundance, and have done so in a fair way. Capitalism works, perhaps not perfectly, but better than any other system that has been attempted.

Giant businessman versus small businessmen
Mitchell Funk | Image Bank | Getty Images
Giant businessman versus small businessmen

Even Bill Clinton and Ronald Reagan wanted wealthy people to pay their fair share, but they said it in a way that acknowledged their value and role in job creation. Thirty-three years ago this summer, President Jimmy Carter in 1979 gave what became known as his “malaise” speech, and he was criticized for chiding Americans for their focus on self-indulgence and consumption at a time they needed encouragement.

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It may not be intentional, but President Obama seems to be putting himself in the position of adversary, chiding businesses at a time we need business owners to want to hire more people. There’s a big difference between the 27 million companies that generate most of the jobs in the U.S. and the few thousand businesses that happen to be mega-companies, yet it seems like the president is painting all businesses with a broad brush. I don't think he understands privately held companies.

Finally, for long-run economic growth, the deficit has to be attacked and across party lines. We need to view it as a cancer on our economy. When a family has a big problem, it affects everything about the family. Similarly, does it really matter how S&P rates our debt? We owe $17 trillion dollars and the problem is self evident. The debt creates underlying uncertainty and a broad-based feeling inside businesspeople that there is a lack of control. Can you really blame businesspeople for feeling anxiety when they know they operate under an umbrella with massive fault lines?

Businesspeople know that one day, interest rates will go up as a result of risk and it will mean they have increased operating costs. Businesses are acting rationally by not hiring more people to avoid long run overhead costs. I don’t think taxes are the answer right now. Washington has got to get our house in order, and it probably means cutting military spending and spending on social programs.

Everybody knows that too much spending is the big problem — so big that no one wants to face it. But the lingering effect of not doing anything is that everyone is nervous. And when consumers and businesses are skittish about spending, companies throughout the U.S. will remain too nervous to hire substantially more people.

Mary Ellen Biery, Research Specialist at Sageworks, contributed to this article.

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