One of the sources of uncertainty about the global economy is the unsettled debate among leaders in Western Europe’s Eurozone about the use of monetary policy to solve economic problems. That debate rages in the United States despite rarely seeming to be framed in those terms.
The downturn in 2008 was led by a liquidity crisis, a shortage of cash, that resulted from mythical wealth and cash from over-valued real estate. The real estate bubble resembled a grand Ponzi scheme without a Madoff-like figurehead to blame. The feared second dip is not a result of a crisis of liquidity but of confidence and uncertainty. Bruder (2011), writing about Egypt following their Arab Spring episode, observed that investors do not and will not pour capital into economic environments when the direction of the country is uncertain. In that regard, the current climate in the United States is similar to that of Egypt.
Hough (2011) observed that publicly-traded U.S. companies, excluding financial companies, currently hold 12% of reported assets in cash, the highest reported level since 1954. Business executives are unwilling to release the estimated $1.2-2 trillion in cash on their balance sheets (Foroohar, 2011), and unknown amounts hidden offshore and elsewhere, until people in positions of leadership lead and re-establish certainty and a sense of confidence about fiscal policy, tax policy, spending policy, the deficit and whether to continue deficit-driven budgets, and what to do about companies and countries allegedly to big to fail. Compounding the uncertainty are conflicts and political turmoil seemingly around the globe and the limited recognition that the issue of debt extends beyond nations to states, businesses, and individuals.
Since the current economic downturn began, roughly coinciding with the announced collapse of Lehman Brothers, pundits and politicians have spoken frequently of the need for job creation as an essential component of economic recovery. Creating work and creating jobs seem to be two different, even if related, objectives and outcomes.
Creation of work implies a shorter horizon than creation of a job. I create work when I identify one or more related or unrelated tasks for which compensation is appropriate for one or more individuals. Somehow a job implies longevity, if not comparative permanence, to the work. The tasks may be the same, but the duration differs.
If I want to put people to work, I simply need to identify the tasks, the skill set, the appropriate compensation, and the funding source. If I want to put people to work, the only missing components are the identification of an available labor source and the hiring of a sufficient number of individuals from the identified labor pool.
If I want to create jobs, I have a different challenge. For decades, employers have used automation and process improvement to reduce the labor content of their products and services. Some employers in some cases concluded that outsourcing or off-shoring certain jobs or functions had financial advantages that could yield financial advantages in the short or long term. In the interest of improved profitability or price competitiveness, employers made direct and indirect processes leaner with respect to labor and other resources.
In the January 25, 2010 issue of Time, Nina Easton questioned the advisability extending jobless benefits indefinitely. Ms. Easton suggested that allowing eligibility for periods approaching two years may extend unemployment while providing a modest cushion to the unemployed who would prefer to be working. Ms. Easton’s article raises in my mind the question of the extent to which jobless benefits and job creation and economic stimulus are, and should be, synchronized.
Why is nothing said about creating sustainable jobs in sustainable new ventures that have two special objectives in addition to those you would find in most business enterprises: meeting an acknowledged need in the community and providing long-term employment to the chronically unemployed and under-employed?
The official jobs created data at Recovery.gov is categorized as recipient reported or agency reported. Recipient reported data is categorized as contracts, grants, and loans. Agency reported data is reported by ten individual departments: CNCS, DHS, DOC, DOD, DOE, DOI, DOJ, DOL, DOS, and DOT. As of 12/31/09, the federal government’s various recovery programs reported 20,368 contracts, 203,010 grants, and 986 loans.
Of the 20,368 contracts, 9,225 contracts provided no indication of jobs created and 1,437 (12.9% of the 11,143 and 7.1% of the total) that did provide job creation figures indicated fewer than 0.5 jobs created as a result of the contract. The 20,368 contracts totaled $25,081,315,704 in federal government funding to create 33,941.1 jobs for an average of $ 738,965.91 per job. The 5,310 contracts reporting 0.5 jobs created or more totaled $15,501,184,696.22 in funding and 33,684.4 jobs created for an average of $460,188.83/job while the 1,437 contracts reporting less than the equivalent of one-half of a job created received $855,094,999.83 in funding and created 256.7 jobs for an average of $3,330,976.59/job.
After 25 years of speaking with companies about the work associated with positions and about improving the productivity and other metrics associated with those positions, I continue to be intrigued by the on-going conversation about the number of “jobs created or saved” by various economic stimulus initiatives in the United States. I continue to hold the position that people in Washington DC either have no idea what they mean by the phrase “jobs created or saved” or they mean something entirely different than most people I talk to in the private sector.
A job is the work somebody does to earn money. On the surface getting people jobs appears to be a good thing. Get people to work. Get them paid for doing work. Get the money into the economy to pay for other goods and services. In the short run, creating work for people to get paid for doing may be necessary and appropriate. Longer term, however, job creation may not be sufficient.
One challenge with job, or work, creation by the federal government is that the sustainability of the work may rely on the continuation of funding by the federal government unless the work created has its basis in the underlying economy. Ideally, for a federal government job creation program to be sustainable and, in the long run, a good thing, the created jobs should fill sustained needs within the respective communities. Jobs associated with a stimulus-funded construction project may be a good thing short term, especially for the individuals hired by the firm, but when the project is complete what work fills the new void for those individuals?
Leaders worldwide somehow recognized the presence of an economic crisis in September 2008. The crisis was at least in part precipitated by poor leadership. Disagreement seems pervasive about the source and the specific indications of poor leadership. Some blame greed while others suggest the housing bubble and mortgage credit woes have their root in the easing of credit in the late 1990s to enable home purchasing by people previously not qualified as homebuyers. Some in the U.S. propose expanding government spending while others express concern about growing federal budget deficits.
Agreement seems rather widespread that job creation is crucial to recovery from a global economic downturn. The focus of the U.S. media is, perhaps understandably, economic recovery and job creation in the U.S. From the perspective as a business consultant for 25 years, mentoring startups and improving productivity in established companies, very few elected representatives in Washington, DC and in state capitals, or in the media for that matter, seem to have much of an understanding of job creation. The White House’s official tally of “jobs created or saved” treats monthly payroll numbers as if one person working for one month is the equivalent of a job created. Whether this is just an example of clerical errors in tabulation or indicative and symptomatic of widespread miscalculation, the integrity and credibility of reports of jobs created or saved is no better than doubtful.
