Tuesday, September 6, 2011

The Real Jobs Solution


Van Jones--the former White House aide who was such a communist he was pushing major private investment in corporate American to build manufacturing in inner cities to get cheap labor...wait...did Glenn Beck have it wrong? 

Van's not a communist, but he's a great speaker. I was his warm-up act back in 2006 at a conference for nonprofits, and he was talking about how to lead by pointing to a vision instead of the problem, and said "Martin Luther King did not say, he did not say, I have a complaint!" And he smile and chuckled "He did not say that." 

I have a dream,  indeed.

The crowd loved it, and so did I, and I've used it so often ever since he might want to ask for royalties. 

So last week I talked about the real jobs problem. And I got into the functional reality that our government serves the uber rich very well, and as Citibank said in 2005, this is by design: we're a plutocracy. 

This post isn't about that. This is about why businesses hire, and how to spark that. 

There are two compelling reasons to hire:
  1. in response to demand (more business than you can handle)
  2. to invest ahead of demand as a way of creating more business than you can handle
Most of those Obama's business advisors have never started and grown a business. They are corporate and finance guys, not founders, not starters, not survivors. 

They're clueless when it comes to sparking job growth in the most critical place for hiring: small business. 

I think Obama's going to blow the jobs opportunity. 

A tax credit does not help a small business hire someone. It literally pisses the business owner off because each of us wants to do something, but a tax credit is absolutely no incentive. Why? 

Because there's little or nothing to apply it against. Profits for small business are pretty low these days. Let's say I'm about to show a $50,000 profit, and it's all tax exempt. 

I'm not hiring anyone. 

It goes into cash reserve, and I hope to live through another year. 

You know what drives hiring? Having more business than you can handle and steady growth for the foreseeable future. If you've ever had to lay someone off, you know how painful it is personally, and how you want to avoid that pain in the future.

So you don't hire on the basis of a tax credit. And even as business picks up, you simply push your existing team harder and give bonuses, or hire contractors on a temp basis. 

Alternatively, I can create at least 50 long-term jobs if I get the proper investment (about $3 million), which I'm working on right now. I won't hire all of them right away; the first year would be somewhere around 10-15, second year about 25, and by the end of three years we'd be in the range of 50. 

The investment is the launching pad. The sustained business comes from hard work applied to innovation, creating value where none existed before. 

If I'm an existing business, to hire more people I either need 
  • more business than I can handle with the current team, or 
  • investment in a new initiative that leverages our existing business.
Notice I didn't mention "tax credit" once in there. Taxes aren't the issue. Investment or new revenue is the issue. 

So the US needs to create incentives for investors and customers who have cash reserves to 1) invest in new job-creating visions and 2) to create demand for small business goods and services. The question about the latter is this: can the companies with larger cash reserves justify expenditures? 

Well, let's see, who has cash reserves? How do we turn those cash reserves into either purchase orders or investments? What pain do they have that we can ease through an incentive in exchange for issuing purchase orders or investments?

Finally, the US has dropped the ball on trade. We're getting our clocks cleaned in manufacturing because of illegal trade practices by our "trading partners". Turns out some of these countries aren't democracies, and the US crassly ignores that in the name of corporate profits, which, it turns out, corporations aren't using to hire people back here in the US. The "free trade" fallacy didn't work.  

That's got to stop. Level the playing field. Call it a democracy tax. 25% on goods from countries that don't meet the democracy bar (we'd have to apply it to ourselves, in some cases, sadly). That will be enough to shift production back to the US. 

China has successfully targeted our major manufacturing for years. It wasn't that our manufacturers weren't competitive, it's that the game moved offshore using underhanded tactics like deep subsidies for commodity business. How does China beat York Barbell? Well, it sells the end product for the cost of the materials. 

It's cheating, and it needs to stop. If China were a company, it would be looking at a few thousand antitrust suits--one per industry it's killing off over here. 

As it is, we've had no integrity around trade for years.

Back on track: how do we create enough demand for the goods and services our small businesses offer?

1) create enough incentive to unleash abundant cash reserves
2) create enough incentive for and remove obstacles to investment (credit lines, equity, etc)
3) level the playing field when it comes to trade. 

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