What Is Business Waiting For?
By JOE NOCERA
Our current government isn’t going to create jobs, so it’s up to business to do it.
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Marie Burns
Fort Myers, Florida
There's a reason your scenario won't happen, and it has nothing to do with fear of going first. It centers on greed, but it's a little more complicated. And not surprisingly, Congressional Republicans figure into the reason business won't be "altruistic" enough to increase the American labor force.
Warren Buffett made a compelling case in yesterday's Times for raising taxes on the rich. That, of course, includes the corporate rich. He pointed out that when taxes on investments were much higher, investors still invested and corporations were big jobs producers.
So why not now? Yves Smith, writing in Salon, notes that what corporate management really wants is "a high degree of certainty in their own profits and pay. Rather than earn their returns the old fashioned way, by serving customers well, by innovating, by expanding into new markets, their 'certainty' amounts to being paid handsomely for doing things that carry no risk."
So -- in the World According to Marie -- where does corporate management get that "certainty" that profits -- and their own pay -- will increase? From Republicans in Congress. A corporation's small investment in lobbyists will yield some fabulous tax breaks. Tax cuts mean higher profits -- profits gained with very little outlay, and comparatively little risk.
Thus, not only do lower corporate taxes not create jobs, as you say, the probability of Republicans bestowing tax breaks on corporations is actually a disincentive to jobs creation. Developing, making & marketing new products is a big risk -- an unknown unknown. Lobbying Congress is a cheap corporate investment that will yield the same profits with very little effort & very little risk. Congressional Republicans are clamoring to comply.
As long as Republicans and ConservaDems rule, don't expect corporate management to put Americans to work. Congress keeps telling them there's an easier way to make a buck.
The Constant Weader at www.RealityChex.com
John Farrish
Lafayette, LA
It is to laugh. Surely you jest.
The quest for immediate gratification in the form of short term profits has been institutionalized. If some company were to announce it will be foregoing short term profits for the purpose of putting people back to work, the stock value would tank, stockholders would revolt, and company officers would wave their seven figure salaries goodbye.
Anyway, this plan wouldn't work unless a large number of businesses bought into it, because one company hiring a few hundred employees isn't going to help sell stuff to people who don't have any money. And if other people aren't hiring along with the one, there won't be anybody to purchase the excess inventory that was just created.
The mistake you're making here, Mr. Nocera, is the same one supply siders have been making for a very long time: The economy is not supply driven; it's demand driven, and until people have money to spend, not one single "job creator" is ever going to spend a penny making anything. The way to put people to work is to put them to work. Jan Schakowsky, at least, gets this.
When I was working on my bachelor's degree in business administration they taught us about stakeholders. The stakeholders in a business, we were taught, used to be the company's stockholders alone, but that was no longer the case. My professors told me we lived in a much more enlightened society in which not just stockholders, but employees, customers, and the communities in which companies were located were all seen to have a legitimate stake in a company's performance, and managers were ethically bound to serve them all.
My professors lied to me. No such sense of obligation exists, not to employees, not to customers, and not to communities. Certainly not among corporate boards sitting on record piles of cash; their only sense of responsibility is to their own bank accounts. And if what has happened over the last 30 years isn't enough to convince you, then nothing ever will.
Morton Kurzweil
Margate, Florida
Germany has a safety net if universal health care, education, and unemployment income. The investment in workers in a country that has a favorable trade balance, that doesn't use cheap foreign labor to undercut consumer income or permit cash flow to safe havens and relies on the United States to spend an unsustainable level of its budget on international defense, is a great example of where we should be economically - except that our profligacy and uncontrolled "free trade" has been the cause of worldwide recession.
We do not need a smaller government. Our problem is small minds fixated upon the myth of American Christian Dominion, a belief in the manifest destiny of America to lead the world to a new social and moral
order.
That is the Tea Party agenda, a cheap knock off of nineteenth century Western empire building,
We are confused by those who insist that corporations are people with the people who are the We in "We the People". We are confused by those who suggest that morality requires a religious basis. We are confused by those who speak of human rights as they are defined by some religious extremist group.
We need to regain our secular balance if we are to have a government responsible to all the people all of the time.
Economic theories benefit those who would control an economy. Political theories in a secular democracy should respond to the needs of all.
DonB
Reno, NV
Why should we expect business to hire people they don't need?
As a businessman who is not hiring, I can only ask the above. The problem is simply lack of demand for goods and services. Period. It has been clearly documented that the American people have lost something on the order of $7.38 trillion in wealth since 2008. This is the position of the middle class, which heretofore represented 70% of the GDP:
(1) Their houses (their principal asset) are still losing value,
(2) they're not too sure they'll have the same job paying the same wages next year, and
(3) their level of debt is still very high, particularly given (1) and (2).
I think you're barking up the wrong tree. Obama needs to buckle down, do a little studying, then come back with his silver tongue, explain clearly what has befallen the middle class over the past 35 years (as Robert Reich has done) and sell infrastructure projects to kick this place into gear. If the repubs don't go along, nail them to the wall with facts, over and over and over again until the history has sunk in.
cbi
Pennsylvania
Joe - I ran a company for 25 years. We had good years and years not so good. We weathered 3 recessions and in all those years I only had to let one person go (out of a staff of 40) because of the economy or product demand. How did we survive? First, in bad years, none of us got raises. As the CEO, I had the very same benefits that my employees had. I received no special perks, got no golden parachute from our board and traveled in coach (150,000 miles per year on average). I set up a pension program for employees that they did not have to put a penny in, but they knew was in lieu of a slightly larger salary. In my 25 years only two employees left the company even though they had better offers. They liked what we did, how we did, and were committed to making it work.
We did put people first. Our employees and our customers. In good years we put the money back into the business, not into bonuses or hiring unneeded staff. We expanded as we saw opportunity and found that recessions created opportunities as our competitors fell by the wayside because of their extensive over-borrowing and greed during their good times.
Yes, we were a small business, but all the Fortune 500 companies in our region learned lessons from us. In fact, at a local meeting of business executives back in 2001, I sat next to the CEOs of three Fortune 500 companies. They were asking me how we kept profitable during those tough times. I said just look out the door. My 8 year old car was parked in a spot next to the three limos with drivers waiting to take these "titans of industry" back the three or four miles to their isolated headquarters. The looked at me with glazed eyes. They didn't get it. And most of the leaders of our biggest companies still don't get it.
Satisfied customers create more business. Respecting employees and creating a level playing field spawns creativity. And ultimately that creates jobs and growth, no matter how small or big the company.
G. Morris
NY and NJ
US corporations are still tied to the Jack Welch dictums:
Keep Full Time Employees to a absolute minimum,
Create a two-tier employee structure with management paid mostly in stock options,
Even our universities have embraced this short-sighted mandate with over 70% of college students now being taught by temps (adjuncts) and the dream of tenure thrown over-board. The average age of a tenured professor is now 55; they shoud be put on the endangered list. They only get to work if their courses are filled by cash-carrying students.
Productivity is high, wages are low and corporate profits are massive. And the income paradigm of our country looks like a template for a Banana Republic.
My children and their spouses work 80 hours a week while some of their friends are either unemployed or waiting tables. They are all well-educated, highly skilled and under utilized by a management class that is addicted to short-term movements in stock prices. Jack Welch's management philosophy only works in the short -term which is now behind us.
Jerry Kriss
Baltimore, MD
Many of the writers above have noted the fallacy in Mr. Nocera's suggestion---that U.S. businesses would voluntarily create jobs in the absence of any increased demand. It's the same fallacy promulgated by the supply-side economists. Our economy is demand driven, and employers won't hire until there is increased demand. That's why they'r sitting on hoards of cash.
In situations like this, the only entity that increase demand is the government. Increased government spending puts more money in people's pockets that they can spend, and demand goes up. How do we pay for that? Increasing taxes! If businesses won't spend the hoarded cash (much of it accumulated from the Bush tax cuts), then the government should. Increased capital gains taxes and taxes on corporate dividends will actually *increase* job creation by business. The higher tax gives them an incentive to put their money back into the business. While hiring workers immediately is not a good idea, plowing that money into refurbished equipment, new equipment, and improved facilities is an investment in the future that will pay off when demand returns. Companies avoid taxes then because that moneyt has turned into a business expense. This purchasing in upgrades also increases demand and stimulates the economy. With higher tax rates, hiring more employees actually will cost a business *less* in net income. The taxed profit has been turned into a business expense.
The evidence for all this is quite clear in the economic record. The economy always boomed when marginal tax rates and taxes on dividends and capital gains were higher, during the Eisenhower era and the Clinton presidency. We should be pushing for higher taxes in these areas now to boost the economy.
John F. McBride
Seattle, WA
Growing up through the Korean War and Cold War years, then Vietnam, I assumed the truth of the constant assertion of living in America: that America is superior and because it is superior everyone wants to live here.
But the decades have gone by and I was disillusioned with time. America has some superior qualities, but isn't carte blanche superior. There are other methods in the world that work as well, and in many cases that work better.
Germany's societal understanding about jobs and employment is one. The much lower cost of health care in other nations and yet equal and even superior care is another.
A truth about America is that we in some large minority, even at times a majority, prefer belief, believing what America is, to the truth.
Sadly our Republican Party in general, and the Tea Party specifically, our extreme right conservatism, refuses to accept that it can learn from others and to insist that even if an idea has been tried time and again, during the Reagan, Bush I, and Bush II years, and failed, it will work. It has to work.
Maybe you're right Mr. Nocera, and corporations will voluntarily take on solving our employment problem. But I don't believe it. That's not happened in this nation before because our business model prefers strict capitalism and I know it. I'd have be as insane, in trusting after all this time that corporations can be trusted this first time to take this one as Republicans are in asserting that this time supply side and cutting spending in a severe contraction will work even though it never has before in the history of economics.
I'm not that crazy. Once burned, in my case, twice shy.
dickginnold
San Cristobal de las Casas, Chiapas, Mexico
Great article, Joe. I trained as an economist in the l950s when 'enlightened self interest' was the key word and stocks traded in the 5/10 PE range. Corporate CEOs didn't get rich. There might have been a few $1 to 2M CEOS, but most made a couple hundred thousand. To get through school for a couple years I piled pigs and poured metal for Kaiser Aluminum. I could earn $7,000 with overtime. Henry Kaiser, the CEO got about $200K, 30 times my wage. Our union was respected. Now US CEOs make 10s of millions, maybe up to 100M,, or 100s of times worker salaries,while their corporations are breaking unions, cutting benefits, laying off people, paying off Congressional represenatives and frequently losing money.
In 2008 I visited my relatives in Germany and travelled the country from Berlin to Hamburg. Amazing. Corporate boards have union reps and there is a social compact to share sacrifice, the origin of the hours reduction policy to reduce unemployment.
The country and its flourishing economy puts us to shame, full of windpower and several kinds of fast, modern transit, in its infrastructure, in the mixture of nationalities, social benefits and dignity of workers. I saw huge numbers of export containers in Hamburg, which exports 10M containers a year, mostly filled with industrial goods. During my visit, a Berlin paper had a spread on the top CEO salaries in Germany, major companies like Lufthansa, BMW. I don't believe there was a one above 1 to 3 M Euros,around 40 times the worker earnings, like we had it 60 years ago. They learned democratic capitalism, while the US was taken over by Wall Street and corporate rapists.
Jumper
South Carolina
Twenty-five years ago a young associate professor of business I knew relentlessly repeated to everyone who'd listen a key difference between Japanese managers and U.S. managers. Japanese managers could recite their market share but seldom knew their return on investment (ROI.) U.S. managers could recite their ROI but seldom knew their market share.
This same associate professor condemned the U.S. quarterly-report fixation. It was one of many indicators but it led U.S. investors to want every quarter to be better than the last. Simple algebra with exponents shows that folly.
Today, that former associate professor is Chair of the Department with no shortage of students.
An important question will be how the companies will judge the success of their efforts. Are they willing to be patient? Are workers willing to start at a lower salary? Are corporations willing to raise the pay as profits increase? Some may bring up unions. Only 6.9% of the U.S. private sector workforce is in unions.
You mention the Germans, but the Japanese also have a practice of setting aside money to keep workers on the job. The work may involve a lot of equipment and building maintenance but they are kept employed.
What's also going on in Japan and Germany is that fear is minimized in the workplace. When workplace fear is minimized, productivity increases. People pay attention to productivity and creativity rather than worrying about how to word their resume, or worrying about what they need to ask HR. They discuss coordinating efficiency or product improvement rather than discussing the latest company rumors.
In early 1914, at the height of a two year recession, Henry Ford doubled the daily wage to $5.00. He also cut the work day to eight hours. He was able to keep workers on the job and he was able to run three shifts. Car prices dropped.
Those were benefits to his corporation but those changes also had positive impact on American prosperity and standard of living in general.
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