American Elephants


Is It A Company’s Responsibility to Create Jobs? by The Elephant's Child

An article in the Wall Street Journal today (subscription barrier) tackles the question : Are Companies Responsible for Creating Jobs?, and posits that question as one particularly raised by the Occupy Wall Street protests. Writer John Bussey stipulates that the agenda of the demonstrators is a fuzzy one “ranging from income inequality to poor housing to executive pay.”

 I am, thank goodness, far removed from the protests, so I know only what I have seen in photographs and videos, but the common conception of the protesters as young people and students is inaccurate as well. Lots of old-line communists, middle-aged sixties leftovers, socialist literature and Ché tee shirts, but they may not be camping out. Pavement is hard on old bones.

There is an enormous amount of confusion about creating jobs. President Obama clearly believes in government as a job creator. Others complain about American businesses sitting on mounds of cash, yet not observing their social responsibility to create jobs. Mr Bussey’s article is quite fair and states what the polls show as well as Milton Friedman’s take on the question:

Milton Friedman, the Nobel laureate economist, blasted the very idea of corporate social responsibility four decades ago, calling it a “fundamentally subversive doctrine.” Speaking for many capitalists then and now, he said, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”

Companies shouldn’t spend profits on unrelated job creation or social causes, he said. That money should go to shareholders—the owners of the companies. Pronouncements about corporate social responsibility, he added, are the indulgence of “pontificating executives” who are “incredibly shortsighted and muddle-headed in matters that are outside their businesses.” And that indulgence can lead to inefficient markets.

If a job is created, who pays the bills?  Each job comes with a salary or pay scale, and most add the cost of assorted benefits and taxes. When a new government job is created, it does indeed put food on the table of the new worker, but that salary, those benefits and the food on the table are paid for with taxpayer dollars — not ‘government money’ for in America there is no such thing as government money — for it all comes from taxpayers, and is a drain on the economy.

Who pays for jobs in the private economy? The job is a cost to a business. It is paid out of the profit. Profit is not a bad word, it is the only reason for a business to exist. If a business does not make a profit, someone still has to pay for the costs. That is the reason behind layoffs and the reason behind bankruptcy. Companies create jobs when they expect growth in the economy that will pay for the ongoing cost of the job, and when there is a real need for someone to do the work that the job entails.

Obama’s failed American Jobs Bill proposed to deliver a $4,000 tax credit, one time, for businesses that created a job for someone who had been unemployed.  Even if the job paid only around $25,000 a year, the employer is on the hook for benefits, FICA, unemployment insurance, as well as all the office space, equipment and amenities that the job requires. Why would Obama believe that a one-time $4,000 tax credit would be an incentive for a cost that continues for years?

Jobs are created by a growing economy, not the other way around.

So the question is not how do you create jobs— the question is how do you create a growing economy? You don’t do it with infrastructure banks, nor with government jobs programs, nor by turning government into a venture capitalist to support fledgling businesses that real venture capitalists find too risky.  Creating jobs does not lead to growth and prosperity.  Growth and prosperity create jobs. A growing company has more work than its employees can complete. A growing company needs more hands, more experience and more ideas.

According to the White House Office of Management and Budget (OMB) Americans spent 8.8 billion hours filling out government forms in fiscal year 2010. Those hours are sucked out of the productive economy — whoever filled them out was paid for their time. A new regulation for grocery store food labels to indicate which foods are healthy foods would entail endless hours complying with the regulation and endless dollars in expense for producing new lables.When you have government offices full of people who have never worked in a business, they do not understand the costs their ideas involve. At $20 an hour, those 8.8 billion hours wasted on compliance activity would come to $176 billion, which is way more than the cost of stimulus jr. that Obama is trying to flog through Congress.

We have a president and an administration that want to create jobs for the unemployed; they just don’t get how it is done, and they have a mindset that refuses to accept the ways to create a growing economy. They despise corporations, think they have too much power, and cannot conceive reducing the corporate income tax (the world’s highest), reducing regulation (corporations are evil and must be controlled), cannot conceive of a corporation that would not pollute unless forced (by wise regulations) to save the planet.

Conservatives keep explaining how growth is created, and liberals keep turning it down. Go figure.


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