Issue Briefs
First Comes Growth Then New Jobs
Paolo von Schirach
October 3, 2016
Every day I walk by a giant banner hanging from the U.S. Chamber of Commerce imposing building in Washington, DC., located near the White House. The banner says: “Jobs & Growth”. On the face of it, nothing wrong with this statement. Of course we all want to have more jobs and more growth. if both things happen, we shall all be better off as a nation.
Jobs and Growth
So, we all agree. Still, the way in which the proposition is phrased reveals a profound error which, I believe has been purposely introduced in this “Jobs & Growth” slogan purely for political reasons.
Let me explain. Of course we want “Jobs and Growth”. But in the real world the two elements are sequenced exactly in reverse order. First you have economic growth, and then, because of additional demand and additional capital becoming available thanks to higher growth, companies can create more jobs.
First growth and then Jobs
In the real economy, real jobs do not just happen because someone wants to. In the real economy new jobs are justified by new demand usually tied to an expanding economy, i.e.the new jobs come along because of higher growth.
But the U.S. Chamber of Commerce, (whose motto is, by the way, “The Spirit of Enterprise” and not “The Spirit of Jobs Creation”), chose to put “Jobs” first on its gigantic banner, even though this is illogical and untrue. And why did they do this? Because this is the politically correct phrasing.
In our distorted world the social benefits of higher employment –new jobs– have to come first. And so, “jobs creation” becomes a political imperative, somehow disconnected from the economic fundamentals –new growth– that should instead be at the foundation of new jobs.
Politically correct
And so the U.S. Chamber of Commerce, this bastion of free market capitalism and rugged enterprise, has now joined the herd of the politically correct who have to tell you that their primary policy goal is of course to have better social outcomes –more jobs– irrespective of the economic fundamentals.
In the USSR everybody had a job
Well, unless we all forgot, in the good old Soviet Union there was full employment. Everybody had a job. Officially in the old Workers’ Paradise there was zero unemployment. And yet, as we know all, things did not go so well under full employment socialism. And this was because most jobs were fake, unproductive jobs. Yes, you can create jobs. But, unless they are tied to real demand for more high quality products and services, they will add nothing to the economy, while salaries paid to unproductive workers will waste scarce resources.
Government jobs in Saudi Arabia
In our time, we have the example of Saudi Arabia, an oil rich country in which almost the entire population has a government job or subsidy. Most of these “workers” do practically nothing. But it is politically expedient for the Saudi government to burn cash paying salaries for fake jobs. This is viewed as a way to keep the population reasonably happy, and therefore quiet.
Governments create fake jobs
Despite the gigantic failures of all socialist systems, in western societies politicians and interest groups routinely try to get on the good side of voters by proclaiming that before anything else they are committed to better social outcomes: i.e more jobs, whatever the underlying economic fundamentals.
And, in many cases, if the private sector fails to deliver this socially desirable outcome, the government will step in, creating fake jobs that will make at least some people happy. Needless to say, unproductive jobs are a drain on society’s resources. But who cares anyway? the goal is to create more employment, making more people happy.
Much to my surprise, a quick internet search proved that this U.S. Chamber political correctness is by no means an isolated phenomenon. Variations on the “Jobs & Growth”, always with “Jobs” placed first, are common place.
Deliberate efforts to place jobs ahead of growth
Interestingly enough, a major EU Commission initiative was promoted under the banner of “Jobs, Growth and Investment“. Think of that: Jobs come first, while Investments come last. Really? Is this how things happen in the real world? However, the second line of the title reversed the sequencing to its proper order. Indeed, the second line, said “Stimulating investments for the purpose of jobs creation”. So, the first line (in big, bold letters) is the crowd pleaser: “Jobs for everybody, folks! That’s what we are going to deliver”. So jobs first then growth and then investments. The smaller print of the second line recreates the proper sequencing: first you need investments, investments lead to higher growth, and, yes, higher growth leads to more jobs. So, in the same headline two mutually exclusive propositions. This is the EU way to make everybody happy, I guess.
Interestingly enough, the World Bank convened a high level meeting to determine which comes first, jobs or growth. And I thought that the place was run by sophisticated economists. Well, in that meeting it was observed that, especially in emerging countries, quite often more growth does not create more jobs. And this is true.
Sometimes growth does not create jobs
Indeed, when I was working in Mozambique, many years ago, there was the case of a brand new large investment that led to the construction of Mozal, a state of the art aluminum smelter. For poor Mozambique this seemed a big deal. A new large smelter. Except that it created practically no new jobs for a horribly poor country with massive unemployment. Which is to say that higher growth does not necessarily lead to more jobs, especially in poorer countries.
Still, while this is true, in most cases new “real” jobs are the result of higher growth. I fail to see how it can be possible to create more sustainable jobs without new growth. Who will create these new jobs not tied to increased demand? Where will the money necessary to pay salaries come from? How would a for profit private enterprise justify paying for new jobs divorced from real demand?
Political jobs
It cannot be that hard to answer that jobs untied to objective economic circumstances are essentially political jobs. Therefore they are a gimmick. And if we want this gimmick to be the economic new policy, I cannot see how this can be a good thing.
Still, the large interest groups, including bastions of capitalism such as the US Chamber of Commerce, have to say the “right political thing”, even though it is both false and misleading. However, in so doing, they help perpetuate a state of intellectual confusion among the general public.
Give me a job, now
Of course, if you are not an economist and you are told by supposedly smart people that it is perfectly possible to have jobs first and growth later, then you will demand that politicians will make jobs happen, now. And if they don’t, they will be punished at the next election. And this is how populism undermines capitalism, the only system that –with all its shortcomings– over time can deliver both: growth and jobs.
Paolo von Schirach is President of the Global Policy Institute and an Adjunct Professor at BAU International University. A different version of this article first appeared in the Schirach Report www.schirachreport.com
The views and opinions expressed in this issue brief are those of the authors and do not necessarily reflect the official policy of GPI.