Venture Capitalist Warns Of Job Creation Myths
LYNN NEARY, Host:
The Occupy Wall Street protesters may not have a crystal-clear goal, but the businesses they oppose do - they want to turn a profit. And that, says Bill Frezza, is why the idea that creating jobs will lead to growth and prosperity is a fallacy that's at the heart of our unemployment problems.
BILL FREZZA: Well, it puts the cart before the horse. It's actually the other way around. Growth causes employment; employment doesn't cause growth. And the best way to think about that is, if you took every political statement that had the words jobs creation, and you substituted the words expense creation, and you said you're going to go out to businesses and want them to enhance their expense creation, how do you think they would react?
NEARY: Frezza is a venture capitalist and a fellow at the Competitive Enterprise Institute, which advocates for limited government and free markets. Writing for the blog RealClearMarkets, Frezza said people may not like to hear it, but when it comes to making money, jobs are what he calls a necessary evil.
FREZZA: Nobody wakes up in the morning and says, I wanted to increase my payroll because I think it's good for the American economy. People run businesses because they want to satisfy their customers, they want to grow, and they want to make money. Jobs are an input. Rent is an input. The raw materials are an input. Those are all the things that you put into your products and services, and your goal is to have the highest quality at the lowest cost.
Your goal is not to increase one segment of your cost because somebody tells you it aligns with social policy. So - and even though we're in the business of creating new companies, as a venture capitalist, you know, the first question we ask in every board meeting is, what's your head count? And we watch it like a hawk because head count is an expense that will eat you alive if the business isn't large enough to support it.
NEARY: So does that mean that businesses should not be called job creators, as they're being called?
FREZZA: Well, I think businesses can be called job creators as a consequence. They shouldn't be called job creators as a goal. That, again, gets the whole policy backwards.
NEARY: So what responsibility does business have in getting the economy on track so people can find work?
FREZZA: Well, businesses have the responsibility to build the best product at the best price for their customers. That's what businesses are in business for. They do not own a responsibility to put people to work. For example, if you were to make that the major goal, you would outlaw word processors or bring back the typing pool. I remember typing pools with hundreds of people in them. They were mostly women back then, but that created a lot of jobs.
So there are a lot of ways to create jobs if that's your goal. And if you follow any of those approaches, you will do more to hurt the economy than you will do to help it.
NEARY: All right, so we have two political parties using this whole idea of job creation in two very different ways. We have the Republicans talking about don't hurt the businesses; don't hurt the job creators. Is that also a fallacy?
FREZZA: Well, notice the grammar. They're worried about job creators. They're not worried about job creation. Let's think about job creators. What are those people's lives like right now? Well, they're all making more than $250,000 a year, whether they're running a small business or they're an executive in a company, and they've been declared public enemy number one.
They've been told their taxes have to go up. They're the one that bear the brunt of the regulatory compliance costs. So they've been whipping boy, now, for a couple years - lumped in, by the way, with the hedge fund moguls and the criminals on Wall Street. All have been put in one, big pie and told that they're the problem. Why would those people run out and try to risk their businesses by hiring more?
NEARY: You really think of business owners as whipping boys, and even those who are making big profits, as whipping boys?
FREZZA: Yeah, I would absolutely say that the businessmen in the culture today have become whipping boys. We've seen this before. It happened during the Great Depression, and we had the same result last time.
NEARY: Well, let me ask you this, because in his speech promoting his job plan, President Obama said 14 months is too long to wait to help people get off of unemployment, to create more jobs. But in your piece, you say it's not too long for business to hunker down and hope for change. I mean, is that really what business should be doing right now, just waiting?
FREZZA: That's exactly what they're doing, and that's what they're going to continue to do until they see what happens in the next election.
NEARY: But is that good for the country? Is that good for business, even?
FREZZA: You know, each business is run for the benefit of its owners, its shareholders, its customers and its employees. It's not run for the benefit of the country. That's not why people run businesses.
NEARY: Bill Frezza is a fellow at the Competitive Enterprise Institute. Thanks for joining us, Bill.
FREZZA: Thanks for having me.
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