Job Creation and Entrepreneurship

The debt ceiling crisis was further evidence of the highly polarized state of US politics.  But, even as our federal government borders on the dysfunctional, one of the few areas where most everyone agrees, - politicians and citizens alike, - is that addressing our prolonged rate of high unemployment must be one of the nation’s highest priorities. 

An August 5 NY Times article reported the results of a recently concluded poll and observed:

“The debate over raising the debt ceiling, which brought the nation to the brink of default, has sent disapproval of Congress to its highest level on record [82%] and left most Americans [62%] saying that creating jobs should now take priority over cutting spending, according to the latest New York Times/CBS News Poll.”

Economists generally agree that our persistent high unemployment rate, - the longest such period since the Great Depression, - is primarily caused by a fundamental reshaping of the economy.  The US economy is undergoing structural changes driven to a large extent, by advances in information technologies, which have led to a resurgence in US labor productivity as well as to an increasingly integrated global economy.

Companies are able to do their present work with fewer people, as a result of advances in IT-based productivity.  Moreover, many of these companies are truly global, doing business all over the world.  They are cutting jobs in the US and other countries where demand is weak, while adding jobs in the booming emerging markets.  Furthermore, they are optimizing their supply chains and shifting work around the world to cut costs.  This is a what you would expect the private sector to do given our current global market environment.

Most people will also agree that a long period of slow growth and high unemployment will have dire consequences on the very fabric of US society.  In “How a New Jobless Era will Transform America” published in March of 2010 in The Atlantic, Don Peck writes:

“The Great Recession may be over, but this era of high joblessness is probably just beginning.  Before it ends, it will likely change the life course and character of a generation of young adults.  It will leave an indelible imprint on many blue-collar men.  It could cripple marriage as an institution in many communities.  It may already be plunging many inner cities into a despair not seen for decades.  Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.”

I have seen first hand the pain and frustration caused by prolonged unemployment through my involvement with JumpStart NYC at SUNY’s Levin Institute.  The JumpStart program aims to help city residents who have lost their job in Wall Street and other industries explore new career opportunities in small, entrepreneurial firms in the New York area.  Many of the participants in the program have been out of work for over a year.

What can be done to foster job creation?  Unfortunately, it is easier to describe what will likely not work than what will.

Companies will continue to pursue business opportunities in fast growing economies around the world, and stay flat or reduce jobs in the US given our slow growth prospects.  The public sector is under huge pressures to significantly increase productivity and reduce costs by embracing many of the technologies and organizational practices that have been successfully applied in the private sector over the past twenty years.  Government programs to bring the US infrastructure up to 21st century standards could put significant numbers of people to work in the near term, while we wait for the longer-cycle structural changes to play out.  However, these programs would raise the government debt and are thus unlikely to be approved in our current political climate.

How about the dramatic scientific and technological advances that we see all around us, including information-based intelligence, smart cities solutions, nanotechnologies, bioinformatics and new clean energy initiatives.  Could they lead over time to a golden age of innovation and all kinds of jobs in new industries that we can barely begin to anticipate today?  This has been the case with previous technology-based revolutions over the past two hundred years.  The same forces that caused the job losses and overall creative destruction ultimately led to a period of creative construction including new industries and many new jobs.

I am optimistic that, in the long run, this will once more be the case.  However, none of us knows how long it will take for the economy to turn around.  We may well be not just in the midst of a digital technology-based revolution, but perhaps we are undergoing a historical transition from the industrial economy we have been in since the second half of the 18th century to a new kind of information society and knowledge-based economy.  If so, we are truly in unchartered territory. 

I don’t have much faith in top-down solutions, given that both large companies and government are in the midst of their own restructuring.  In the end, perhaps we have to look to bottoms-up solution to help start new businesses and put people to work, that is, entrepreneurship.  And that might be the best ray of hope for new job creation, as a number of technology and market forces are coming together and propelling us toward an increasingly entrepreneurial society.

Over the past few decades, we have seen the rise of high-tech innovation hubs, most prominently in Silicon Valley and the Boston-Cambridge area.  Such high-tech hubs are closely related to the great engineering universities in their midst - Stanford and MIT respectively, - the many VC firms that have sprung up to fund and nurture promising startups, and the entrepreneurial culture that these two regions and the few others like them around the world have worked long and hard to establish.

High-tech innovation hubs are very difficult to scale and replicate across the country, so they are of limited help in addressing the country’s overall unemployment problem.  Moreover, they have primarily led to the kind of high skill jobs where opportunities have continued to expand, and where the earnings of the highly educated workers needed to fill such jobs have risen steadily over the past thirty years.

As a number of studies have shown, such as The Polarization of Job Opportunities in the US Labor Market by MIT economist David Autor, it is mostly mid skill, mid wage jobs which have been declining over the past 10-20 years, and whose wages have risen significantly slower than both high skill and low skills jobs.  Mid skill white-collar and blue-collar workers have disproportionately born the brunt of the forces of technology and globalization, as many of their jobs have been automated or moved to lower-wage regions around the world.

To apply entrepreneurial thinking to this large mid skill job segment, - that is, mid skill compared to high tech jobs, - we have to go back to the original definitions of what it means to be an entrepreneur, prior to its high-tech connotations of the past few decades.  Wikipedia defines entrepreneur as “. . . a person who has possession of a new enterprise, venture or idea and is accountable for the inherent risks and the outcome.”  Entrepreneurs are thus “highly creative individuals who imagine new solutions by generating opportunities for profit or reward, . . .” and are then “. . . willing to launch a new venture or enterprise and accept full responsibility for the outcome.”  Advanced technologies are nowhere mentioned in the definition.  It is all about innovation and a willingness to take risks. 

There is little question that the vast majority of jobs in our new global economy will be more entrepreneurial in nature, involving groups of individuals and small businesses.  We need to help people whose lost jobs in large companies and government are not coming back to explore such entrepreneurial opportunities.  

Those willing to accept the inherent risks are likely to find an environment full of opportunities.  Digital technologies are giving these new waves of entrepreneurs access to technologies, skills, administrative capabilities, and global reach that were previously only available to larger companies.  The challenge will be in figuring out how to leverage these relatively inexpensive technologies to create all kinds of innovative business opportunities, some aimed at offering products and services to consumerss, and others aimed at working with large companies and other institutions.

In many ways, this expanded view of entrepreneurship is reminiscent of the immigrant culture that has continued to attract people to the US in search of prosperity through talent and hard work.  A great deal of this prosperity has been achieved by starting many kinds of businesses, some of which later grew into large, global enterprises.

I fully realize how difficult such a cultural transition will be for many.  Government, as well as established companies must help in any way they can.  We need to seriously address the many impediments to starting new businesses, including the large numbers of government regulations that get in the way, the high costs of health care insurance and access to capital.  We need to look at these and other issues not from the point of view of ideology and politics, but by trying to do what is right to help people get back to work.

I honestly don't know if an entrepreneurial approach to job creation will work, but in reality, I can't envision a better solution.  The alternative might well be a long, painful period of high unemployment.  We must at least do everything in our power to help people help themselves out of this predicament.

Comments

[Steve Withers]

No mention of the long term effects of declining oil production and higher energy pricing or of climate change and the consequences of that.

We face a lower-energy future and the problems this will pose for a population that keeps growing as our ability to service its needs is running into a nexus of constraints for which there is no obvious solution.

"A culture of entrepreneurship" is like a magical incantation....and fails to deal with the population pressure, peak oil or climate change. They aren't even acknowledged.

Here's what happened:

1. High-paying jobs in the West became low-paying jobs in Asia.
2. Consumers on stagnant or falling incomes have less to spend and pay less tax.
3. Creating an unsustainable debt mountain at every level - from families to countries - temporarily masked the effects of "creative destruction".
4. The only way to fill the growing revenue gap was closed off as governments moved to cut taxes on people who still had high earnings.

So we have a recession that will become a depression...and it won't end.

It won't matter what culture you have....9 billion people can't survive in a post-oil world, never mind prosper.

Reading this article was like a blast from the neo-liberal past.

It's over.

[Keith Curtis]

Our economy is slow because the government has its boot on the throat of it.

The problem with America is the high cost of energy, healthcare, education, regulation, litigation, and taxation. All decrease the rate of progress and push jobs offshore. All of these problems can be fixed, but it is the US Congress who must fix it.