Businesses Do Not Create Jobs: 1

One popular CONservative meme is-

Businesses create jobs.

While this meme might appear rational, in reality, it is not. Let me explain why-

Businesses exist to satisfy needs, demands and a public appetite for its products or services. Businesses employ people to do work for them.

But who does most of the demand for any business come from? From its employees or from non-employees? How do it customers pay for its products or services?

The simplistic answer to that question is people employed by other business, government etc or those who have their own business. However this simplistic answer hides a far larger issue, namely- how many private business are feasible or conceivable without government aid, assistance or preferential treatment?

Would the modern electronic, computer and telecom industries have been possible without government investment during the cold war? Would most antibiotics have been discovered without government-funded programs in the 1940-50s? Would the US have universal electrification, good roads, proper sewage treatment, clean drinking water and all the other stuff we take for granted without very significant governmental spending, aid or preferential treatment?

Businesses do not want to pay employees more, yet they themselves cannot exist without demand from consumers (who are magically well paid). So how does an entity that tries to cut cost, lay people off and rob itself survive-let alone grow? Because, if all employers did that there would be no commerce or even civil society.

Isn’t the answer obvious? It is the society that a businesses exists in that subsidizes its existence, growth, infrastructure and innovation. Therefore, it the society which a businesses exists in that creates the demand.

So who creates jobs? Get it?

Comments?

  1. Chris
    October 20, 2010 at 11:17 pm

    Great post ,you’re one of the few people who get it.Everyone else in the blogosphere thinks that the evil goverment is ‘taking’ their money and wasting it and that private enterprise is the solution to all problems.

  2. Nestorius
    October 21, 2010 at 5:00 am

    Throughout history, it was governments who were mostly behind creations and innovations. Surely independent thinkers and inventors existed but they were and are still a tiny few (1 in a million).

    All inventions and creations in sciences and arts were mainly fostered by government spendings.

    The government takes the money from the people, then spends it on itself and on those who need it. If the government is not short-sighted, then it will spend the money properly and foster innovation.

    Take the following example from history. Why are the ancient books of Greek sciences found in Arabic manuscripts? Because these Greek books were translated into Arabic by order and spending of the caliphs al-Mansur, Harun al-Rashid, al-Ma’mun and others. However, later caliphs preferred to spend the money on buying slaves and on the pursuit of pleasures, hence stagnation came. If those rulers did not spend this money, then Muslims would have stayed ignorant of Greek sciences until the 19th cnetury.

  3. the dude
    October 21, 2010 at 1:44 pm

    that is really simplistic, most innovations come from small to medium sized companies, government probably was involved in promoting them, speeding up the process for its own means (warfare) bu against a cost (taxation). You have to imagine what would have been otherwise.
    —-

    What use is an innovation that cannot be promoted and used to to its full ability?

  4. the dude
    October 22, 2010 at 6:13 am

    did people need the government to use the wheel?
    —-

    Using the wheel without maintaining usable, cost-effective and safe roads?

    • the dude
      October 22, 2010 at 11:52 pm

      you are just seeing the current world, you don’t know what would have been otherwise is my point. people are smart enough to organise themselves.

      • October 26, 2010 at 12:55 pm

        “People are smart enough to organize themselves” Why yes, yes they are… and when a large enough number of them organize a large enough amount, they tend to naturally form legislatures, courts, agencies, executive bodies, united nations, internal revenue services…

  5. the dude
    October 22, 2010 at 6:14 am

    in Nestorius’ example, one caliph promotes innovation, the other doesn’t. what’s the net effect?

    • Nestorius
      October 22, 2010 at 4:10 pm

      Stagnation.

      • the dude
        October 22, 2010 at 11:51 pm

        both are government, enough examples where strong govt chokes any innovation

  6. Rebel with a clue
    October 22, 2010 at 10:46 pm

    “Businesses create jobs.”

    It comes down to this. Businesses make a judgement as to whether they will need the extra labor from hiring an extra person. Hiring someone when the demand didn’t materialize will be wasteful. Not hiring someone (or hiring late) will lead to customers going elsewhere.

    The business is taking the risk, and the business reaps the reward or loss as applicable. Increase taxes, and you make it harder to hire people. Increase regulation, and you make it harder for small businesses to survive.

  7. Ray Manta
    April 2, 2011 at 7:29 am

    I think governments and private enterprise can cooperate in innovation by the offering of prizes for new inventions/discoveries. Governments by themselves tend to be too inefficient, while private businesses by themselves are too conservative. Most of the time private enterprises would rather use something already proven to work rather than go through the risk and hassle of creating something new.

  8. Ray Manta
    April 2, 2011 at 7:49 am

    I’ll qualify my statement by saying that software startups may be a partial exception to the rule about businesses being too conservative. This is probably due to the low cost of failure and the lack of need for a ‘real world’ presence with physical inventory. Let’s face it, it’s a lot less capital-intensive to spend money on a few computers and rent some server space than set up a fast food restaurant. But even there, they might benefit from the right kind of government intervention.
    —-

    The real issue is that most businesses are run for screwing others out of the maximum amount of money for the minimum amount of product/services. Only real external pressure can stop or moderate this rent-seeking trend.

  9. Ray Manta
    April 2, 2011 at 1:34 pm

    A.D. wrote :
    The real issue is that most businesses are run for screwing others out of the maximum amount of money for the minimum amount of product/services.

    Competition is what’s supposed to keep them honest since a customer can in principle buy goods and services from competitors. Sometimes it works, sometimes
    it doesn’t. Despite the US free market ethos, parasites such as gatekeeper-types of associations are all too common. And the free market doesn’t seem to address the treatment of employees by businesses very well. A business that’s decided that the most “efficient” solution is to use foreign labor on a 70-hour a week schedule in sweatshop conditions isn’t my idea of a free market hero. You run into a tragedy of the commons scenario in which even libertarians may admit their belief system may not address.

    I like your idea of giving everyone (employed or not) a basic monthly income to live on. Both businesses and individuals would benefit because the business would be able to hire and fire more easily (no need to pay unemployment, etc) and individuals would simply be free to quit rather than put up with an abusive working environment.

    Only real external pressure can stop or moderate this rent-seeking trend.

    Agreed.

  10. June 1, 2011 at 9:55 pm

    you sound like George Lakeof

  1. October 26, 2010 at 11:23 am
  2. April 1, 2011 at 9:46 am
  3. June 1, 2011 at 3:03 pm

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