While many will debate Apple's recent claim that its gadget ecosystem has created over 500k US jobs, its actual base (47k) is less than a tenth of General Motors at its peak in the 1970s. Although the markets are up and companies are sitting on piles of money, we have seen very little meaningful improvement in the unemployment situation. Significant employment bubbles such as finance and real estate have come and gone. Given the US's knack for marrying innovation with commerce, where should we look to find the next great employment vehicle?
It's great to see the bubble back, but it is not making a big impact on the situation. Michael Dell recently claimed that tech startups will plug the hole (ironic given its mass layoffs over the years), but it hasn't moved the needle that much. The big 4 2011 IPOs (P, LNKD, Z, GRPN) have a current combined market cap of $32B but only employ 11,000 collectively. The $100B juggernaut Facebook? Just 3,000. To add to the trend, the increased usage of crowdsourcing and contract help has created an on-demand labor pool without the steady paychecks to go with it. Simply put, tech companies do more with less.
We can't really look to the government for help. The post office is on the verge of collapse. Every agency from local counties to the Federal government can't cut fast enough to stave off budget shortfalls (political angles aside). Even if the administration's plans to build employee pools around infrastructure and energy were sound, the government is the last place to find market-based, sustainable industry growth. I don't think another interstate system will solve our woes in the long-term.
So perhaps we should follow the money trail to find an answer? Last year, VC's poured $28B into new companies. Roughly half of the investments were in software and "internet" companies which we know are employee-lite concerns. Industries such as manufacturing or retail which traditionally could employ large quantities were nowhere to be found. Some large investment areas such as energy, bio-tech and medical devices might be fruitful depending on their level of success.
What about the mass benefit of US corporations' export efforts? They are flushed with cash generated abroad as economies around the world have opened up their markets. While a boon for bottom lines, a WSJ article suggests that these companies have actually reduced their staff in the US while increasing bases overseas. Worldwide offices in Asia and South America are growing at a torrid pace. The now infamous Foxconn sweatshop employs over 1.3M and climbing. While there is no question the US has benefited the most from globalization, it doesn't seem US-based employment has seen a similar level of benefit.
There are many factors which explain unemployment figures (participation rates, skills gap between jobs and employee base,etc..), but there doesn't seem to be a simple answer for the next engine of job growth. We will definitely need small businesses to start hiring again. Hopefully, we'll see growth as emerging companies start to scale and spark new support industries. Health care, technology and energy continue to look like strong prospects for the future. Given past history, it will more than likely it will come from someplace that we are not currently contemplating.
Your last line said it best, because if you put in your efforts with focus on the result, it doesn't work. But it will just be a side-effect of something innovative, because it has to be!!
ReplyDeleteI think your analysis of the current situation is spot on. Corporations are sitting on piles of money but not hiring - not in the US at least. Within tech companies, hardware companies tend to hire far more workers abroad then in the US. Software and the rest of the service industry has indeed become adept at doing more with less. There is very little political will to invest in pure science and research that in the past has been responsible for breakthroughs such as the internet, GPS, etc.
ReplyDeleteNow, in order to grow the economy at a fast pace, the US absolutely needs to make manufacturing competitive with growing economies such as China. We are too heavily dependent on the service sector. This recent article in NYTimes was illuminating: http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?pagewanted=all
So the question then is: how does the US regain a competitive advantage over countries where labor is cheap & young, labor laws are lax, and a political system that while not democratic, is capable of swift action?
I think it involves a three-pronged strategy. First, US has to invest heavily in science and research. Since the government cannot do this anymore, why not allow corporations to invest their overseas income tax free in research initiatives with universities? Give them tax breaks if they invest in pure science since they won't do it otherwise. I am sure health care, technology, energy, and so many other sectors would benefit from this.
Next, in order to capitalize on the fruits of the advances that come out of this research, provide a lot of assistance to low income and middle class families in terms of healthcare and education subsidies to make sure we have a huge number of students graduating from our universities where the quality of the education is still far better than most of the world. Also encourage targeted immigration to fuel the growth of commerce and allow for a more flexible labor market.
Finally, to compete with other economies in the world, we need a labor force that is highly trained and flexible. Again, incentivize the private sector to invest in retraining via tax breaks and let them reap the rewards. We don't need to give up our hard earned human rights or political freedom in order to compete. Instead, we can rely on the very high level of productivity of the workers as well as technological advances that make us extremely efficient at producing.
Sorry the response is almost as long as the blog post itself :-) I just think that the hard part is to convince people that this is the right way to do it and then achieve it politically. That seems like a big hurdle in today's America.
Some great suggestions here. You hear anecdotially that mfg is on its way back, but the numbers dont show it in a big way. Agree we have to find a way to marry productivity with our skilled labor pool at cost effective market rates.
DeleteOur competitive advantage has always been our universities/research, so it absolutely makes sense to invest in it to keep it. Historically, that's where the breakthroughs have been.
The corp research tax break idea is innovative (solves 2 issues with repatriation, right?), but I'm not sure how much those generally create the right incentives. Finding the next Google should be good enough, but the universities should be ahead enough to springboard meaningful ideas.
In the end, a well thought out strategy like yours will probably get crushed by the political machine which has no incentive to look at long-term job growth. I think its feasible, we just need to get the politicians out and pragmatic folks in.
Historically, a lot of the breakthroughs have come from investment in science, space, and defense from the government. While corporations are not likely to invest at the scale of the government and will have different expectations in terms of commercializing the research, the fact remains that there is a lot of money sitting in the coffers of corporate America. Policy makers need to do everything possible to create incentives for businesses to pick up the slack created by government's dire financials.
DeleteI completely agree that is next to impossible to achieve politically in today's America. However, just across the pond, Britain's prime minister Gordon Brown has set out to do something quite similar. Ideally, this would be perceived as sound policy making for both conservatives and liberals but unfortunately, both Washington and the rest of the country has become very polarized.
Very true. Getting corporations to step into the shoes of the government will require some sort of incentive structure though I don't know how it will change the nature of the science and research (different end games). But at this stage I don't think we have a choice given national debt. It will take some kind of long term carrot like the patent system for them to committ to large amounts of cash.
DeleteOne quick comment about manufacturing coming back to the US. There is certainly some reality to Justin's comment below. A lot of the jobs lost over the past decades are not coming back to the US. However, over the long term, it should be possible to emulate Germany's example where manufacturing still remains a big part of the economy.
DeleteThe important thing about globalization is that if two people are in different geographic locations are doing the exact same job at vastly different labor costs, chances are that the job will migrate to the lower cost location. So in order to create manufacturing jobs in the US, they need to be different, more skilled, and more specialized than what is being done elsewhere. This is the reason why manufacturing cannot be looked at in isolation. Unless the US invests in science and research in a big way, there is not enough innovation to create new technologies and new jobs that go with it. The entrepreneurial mindset and infrastructure in the US should help immensely in commercializing new technology and research. However, we are also going to need massive retraining programs to make sure US workers can be retrained to work in the new businesses and technologies that get created as a result of investment in science and technology. Again, this should involve the private sector in a big way rather than relying on the government. There is an interesting paper here about how German workers receive training compared to the US. www.sts.uzh.ch/static/research/publications/pdf/young.pdf
The German example is very interesting. It seems vocational programs and apprenticeships are fairly significant in Germany whereas the are virtually invisible in the US. I agree we need to retrain and reinvest in the employee pool, but how do we know which areas to do so? The global market is changing so quickly that we may miss the right boat even as we get the retraining programs started ?
DeleteGreat article.
ReplyDeleteOne industry that could take-off in the U.S in the short term is the oil industry. As the U.S has exported more oil vs imported in the past year in decades, this could be the next beginning given the world's hunger for oil. One example is the North Dakota oil fields where there is not enough capacity to drill and refine the oil.
Long term wise, the other industry that can take off in the U.S is potentially the healthcare industry. For 2012, 66 million Americans from the Baby Boomer Generation will be elegible for retirement according to a recent Kiplinger article. Healthcare industry will be impacted in the long term to meet the needs & demand for the first group of senior citizens of the Baby Boomer generation.
Good areas/points. The US is resource-rich, so converting exports to internal consumption should provide help. Oil, natural gas, wind, etc...
DeleteOn health care, there will definitely be a lift by the Boomers. The one question I have is that the system is so inefficient right now and there are so many pockets being lined, i wonder if rationalization and technology will decrease the net benefit.
Great article Raki.
ReplyDeleteHaving lived in Asia for the past couple of years has led me to believe that efficient manufacturing (including high tech manufacturing) and friendly gov't policies in this part of the world have made returning manufacturing jobs to the US "mission impossible".
The only way it can happen is if a string of natural disasters all happen at around the same time - earthquake in japan, tsunami in taiwan, flooding in thailand, etc. Unthinkable from a humanitarian perspective, i think it's the only way, other than a major war, that manufacturing and with it significant job growth can return to the US.
Interesting perspective. You have probably seen the dramatic shift over the past few years. As long as the playing rules are the same, and markets are open, the jobs will follow the demand. It's certainly not a lock that Asia will keep the same market share in the long-run...
ReplyDelete