by Douglas Schoen Info
Douglas Schoen is a political strategist and author of the upcoming book Mad as Hell: How the Tea Party Movement is Fundamentally Remaking Our Two-Party System to be published by Harper, an imprint of HarperCollins on September 14. Schoen has worked on numerous campaigns, including those of Bill Clinton, Hillary Clinton, Michael Bloomberg, Evan Bayh, Tony Blair, and Ed Koch.
When the president tapped GE's Jeffrey Immelt as jobs czar, he again showed a flawed bias for big companies over start-ups. Doug Schoen shows where the jobs are—and how to encourage them.
President Obama's appointment Friday of General Electric CEO Jeffrey Immelt to head his new Council on Jobs and Competitiveness signals that he understands his re-election hinges on one issue: jobs and the economy. But just as importantly, it indicates a misplaced belief of where those jobs will come from.
In tapping Immelt as his "chief outside economic advisor," according to the New York Times, with a focus on reducing regulation and red tape, Obama seems poised to focus on competitiveness and economic growth in his big State of the Union speech tomorrow. With unemployment still well above 9 percent, that's a wise decision. According to a recent AP-GfK poll, 75 percent of American's rated the economy as "poor", in keeping with other surveys, and more than half disapproved of the president's performance on this issue.
Given this economic reality and political perception, however, Immelt, strikingly, is the wrong man for the job. Yes, GE is arguably America's greatest company, an industrial giant whose aegis runs from technology to aviation to finance, and whose stock has been on a roll, near a 52-week high thanks to profits that surged 51 percent from a year ago.
But how did Immelt and his team accomplish that? By large measure, jobs— specifically, eliminating them in this country. Since 2001, GE has shed at least 25,000 jobs domestically— and created an equal number or more overseas— while shuttering 29 plants in the U.S. over the last couple of years. It's also worth noting that GE's financial arm received a multi-billion-dollar liquidity injection from the Federal Reserve during the 2008 financial meltdown.
My point isn't necessarily to single out Immelt. His actions are actually quite typical of corporate America right now, which is experiencing record profits as a result of cost (i.e. job) slashing. The larger problem could be see through President Obama's recent olive branches to big-company CEOs and at last week's state dinner for Chinese President Hu Jintao, attended Wall Street heavyweights like Lloyd Blankfein of Goldman Sachs and Jamie Dimon of JP Morgan Chase—this White House clearly views a path to job creation and a stronger recovery through large companies.
Research, however, demonstrates that a big business focus is misguided—during downturns, it's start-ups, five years or younger, that generate the bulk of new jobs. Yet Democrats, and to be fair, Republicans, both speak in general terms about job creation without the bold policy actions that would encourage entrepreneurship to get the economy moving again.
Indeed, the Republicans reaction to Immelt's appointment was both unconstructive and intemperate. Rather than argue for his own jobs plan, Senate Majority Leader Mitch McConnell, simply bashed Obama for the deficit and health care reform.
Jeffrey Immelt and President Obama. Credit: Charles Dharapak / AP Photo
How refreshing it would have been if Obama, or McConnell, instead cited Schramm's Law, a thesis developed by Kauffman Foundation President Carl Schramm that holds that "the single most important contributor to a nation's economic growth is the number of startups that grow to a billion dollars in revenue within 20 years." Specifically, Schramm says we need about 100 new, billion-dollar companies per year to establish an average growth rate of 3.3% or better—America's historic average growth rate.
Kauffman research shows that new firms—not necessarily small firms—have been responsible for almost all new job creation since 1980; young start-ups such as Microsoft, Genentech and CNN, now cornerstones of our society, were founded during recessions or bear markets. In virtually every recession, it is the entrepreneurs that play the most important role in job creation—they pursue new business ideas, undertake risk, invest their own capital, and create new firms. Yet there is no strategy from either side of the aisle that details how to encourage such entrepreneurship, despite a proven toolbox.
So how can we foment start-ups? The most important policy solution would be providing incentives to entrepreneurs and small businesses, either via tax credits (such as encouraging high net worth individuals to invest in start-ups) or tax reductions (eliminating taxes on entrepreneurs during their first six months or a year, or a payroll tax holiday for new businesses). In lockstep, the government could foster new companies by removing red tape and overly burdensome regulation, and easing patent rules that crowd out potential entrepreneurs and innovators. At a minimum, a one-stop website could explains how to start a business in every state, providing entrepreneurs with all necessary paperwork and all relevant information on taxes, regulatory and business license issues.
The government can also target its spending muscle more precisely, through more research grants—or through national and state-sponsored investment funds— for new and small businesses that develop new technologies, and increased investments in military research and development, which will help us maintain our military superiority in addition to creating private sector jobs.
But start-ups alone aren't enough. New companies need policies that encourage them to grow toward Schramm's billion-dollar target. Again, a lot of the reforms are structural. Reforming Sarbanes-Oxley, which cripples the ability for young companies to go public—and thus raise capital, versus dissolve prematurely, sell-out or merge—is also essential. Right now, this law imposes an estimate $4.36 billion hidden tax on public companies overall courtesy of onerous compliance, the kind of costs and headaches small companies can't handle. Before Sarbanes-Oxley, it took successful start-ups five years to go public; now, it's twelve.
Growing companies require a skilled workforce. The long-term perennials— science and math education in public schools, better training in the sciences and engineering and better rewards for strong teachers—are given. From a short-term policy perspective, however, we can tap In addition to improving the skills of our workers herie at home, we must promote more open-minded immigration policies to encourage the world's best and brightest to study, work, and start businesses here. Over 40 percent of the growth of the Silicon Valley in the 1990s came at the hands of foreign-born entrepreneurs, and 5 percent of successful high-tech start-ups are founded or co-founded by immigrants. To attract foreign talent, we need to reform our immigration policy and loosen our visa restrictions, granting citizenship for foreign students graduating from American universities and other immigrants who want to start new companies and create jobs. These individuals provide unique skills, talents and abilities that go well-beyond what may be available in the labor market.
And then there's tax policy, for these entrepreneurial companies, starting with an expansion of the federal research and development tax credit. Overall, we need to simplify and flatten our illogical tax code, starting with our complicated corporate tax, and its onerous 35 percent rate. President Obama's Presidential Economic Recovery Advisory Board has brought this argument back to the forefront of our nation's discourse, saying in August that the current corporate tax has "deleterious economic consequences" and prompts investment "for tax reasons rather than for reasons of economic efficiency."
The U.S. is the only major economy besides Japan and the U.K. that taxes multinational companies on worldwide income rather than on profits made at home, and although numerous deductions mean most companies pay far less than the statutory rate, the actual rate they pay still exceeds the rate of most other big countries (the EU averages 23.2 percent), notwithstanding the temporary investment breaks our government is currently offering.
If our economy simply grows an extra half a percentage point this year, 3.5 percent instead of the projected 3 percent, the U.S. economy would add $518 billion in growth instead of $444 billion in 2011. We can achieve this by focusing on real-world solutions that go beyond the less-than-constructive rhetoric and political posturing that is currently dominating Washington.
Douglas Schoen is a political strategist and author of the upcoming book Mad as Hell: How the Tea Party Movement is Fundamentally Remaking Our Two-Party System to be published by Harper, an imprint of HarperCollins on September 14. Schoen has worked on numerous campaigns, including those of Bill Clinton, Hillary Clinton, Michael Bloomberg, Evan Bayh, Tony Blair, and Ed Koch.
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Excellent piece Mr. Schoen unfortunately our Man/Child President will never place the needs of the American people above his desire for campaign contributions that quench his narcissistic pathology for power.
exactly. "powered by narcissism" should be the official slogan of the obama administration....
OF EVERY administration. No sense in making this partisan since any one with an iota of political savvy already knows there is only one Party: The Party of Incumbency And that party is owned lock stock and barrel by men and women you will never see or hear about.
We have the same issue on a local basis with our Chamber of Commerce. After many years of watching Fortune 500 firms leave the area, taking tens of thousands of jobs with them, our Chamber is finally making a change in its leadership. And what do they say there are looking for? Another guy, just like the one who has presided over our decline. The Chamber is run by what's left of the big companies. There has never been a President from a small company. Its a rotating honor given to the big cheeses of the big companies. These big companies, like GE are run by caretaker clerks who wouldn't know how to start a business if you carjacked their limos and held a MAC-10 to their heads. (the carjacking reference is made to highlight one area of growth here, but I don't think any of them belong to the Chamber). The Kaufmann group (which honored me some years ago--still have the beautiful trophy in my library, thank you very much), would be a good start. I would go in a different direction. I would find an experienced CEO of a big venture firm. They are experts at starting businesses and nurturing them to the next level. That's what we need. Is Jeff going to create another GE? We all know why he was picked.
I'm not worried about the 35% corporate tax rate since the REAL rate they pay is about zero.
I agree. A flat tax would ensure all corporations paid something just like it would work with individuals. No one should escape paying at least something.
Give every MA or Ph D in math and the sciences a green card, and every Ph D no matter what degree a green card. They are great talent we paid for and subsidized, and need badly. Seems a no brainer. GE since 1980 Neutron Jake has been destroying US jobs by the hundreds of thousands. They are great at growing jobs, in China and India, look at the numbers. Software and R&D jobs, not just factory jobs.
Like now, GE sold NBC to Comcast for cash to go into partnership with China to build windmills/solar power, guess this work will be in China, so much for the left accusing the right of shipping out American jobs.
No doubt that trillions of dollars in assistance has gone to the largest banks and corporations--more from the Federal Reserve by far than from Congress. As usual, I'm concerned that not enough of this is getting to the middle and lower levels of the economy, but nothing at all can be expected from Congress for the next two years. It has the makings of a disaster.
Great article. Can't this issue offer a bipartisan solution? Republicans are interested in quickly growing the economy through small and fast growing business and many of these solutions are tax related? I often wonder if in this case the issue is just too hard and abstract for the politicians to follow.
It's ironic that Sarbanes-Oxley impedes start-ups from going public at the same time it attempted to regulate fraudulent accounting in the wake of the Enron scandal- a phenomenal startup gone awry. Is it possible that cooking the books is essential in the brave new world of corporate entrepreneurship? Job creation certainly is not an essential aspect of high tech startups. The phenomenon that few commentators are addressing pertains to the fact that technology inexorably eliminates more jobs than it creates. Advanced economies become service economies by necessity. The challenge is to provide essential services that create middle class jobs. It's a daunting challenge.
You have hit the nail on the head. I am convinced the whole downfall of our economy came about ten years ago with the requirement of expensing stock options. Start-ups like my old company used these options to lure qualified staff in lieu of high salaries, which we could never have afforded. That option is gone as options now have to be expensed. They were always disclosed, but once we applied this to GAAP rules start-ups didn't look so good anymore. Sarbannes Oxley? Also known as the Lawyers and Accountants Retirement Act, is another overreach to Enron. We had plenty of laws to prohibit Enron. No one enforced them. Now, compliance is so hard, small companies don't bother. The SEC doesn't want small public companies. Too much work for their overworked staff. Its easier just to comment them to death when they file. We have to decide there is a need for public start ups and realize they are high risk. But, take it from a guy who made it work, they can also be very high reward. We continue to tie our own hands while the rest of the world laughs at us.
Volker left One of the few with integrity but marginalized by Summers, Timmy and Ben In the end its about Wall Street looking after its own with a compliant government From Jesses Cafe: "America is caught in a confidence or credibility trap, in which the changes, investigations, and reforms necessary to restore trust to an economy or market are rendered unlikely because doing so would expose a pervasive corruption that the principals fear would destroy any remaining trust. It could also endanger the careers of politicians and business people who may have permitted and even appeared to facilitate the control fraud that caused the financial crisis in the first place. Personal risk trumps public stewardship. The fraudulent activity is covered up and therefore continues or at the very least appears to continue, crowding out most productive business investment and activity which cannot possibly hope to compete with the highly profitable fraudulent activity ad asset bubbles under such opaque and uncertain circumstances. Informed market participants are unwilling to invest their liquid assets in a system which they suspect is riddled with accounting fraud, insider trading, and regulatory weaknesses, except of course in a few situations and somewhat ironically in some existing frauds, such as a bubble in equity valuations for example, which they think they understand. The American government is indeed acting as if it is involved in a massive coverup of a control fraud and corruption that could perhaps be the worst in its history. I think many people who are looking at this know in their hearts that all is not well, that there is something not quite right in the current situation. How else can we explain such massive and widespread financial fraud, with so few meaningful indictments, or even ongoing investigations with credible disclosures? And the worst perpetrators appear to be dictating the remedies and reforms to the system for this government sponsored recovery. Hank, Tim, and Ben alluded to the consequences of the discovery and uncontrolled disclosure of this fraud, and it frightened the Congress so badly that they immediately gave up and signed over 700 billion dollars, and many billions more, to facilitate the coverup of this under the guise of recovery and stabilization. I would like to imagine that those in charge are attempting to prevent a panic while they put out the fires, but I see little serious remedies designed to save the public, much less than to perpetuate the firetrap. And so the corruption continues to smolder and fester, and thereby debilitate the nation. More than an American scandal, this fraud reaches deep into the halls of power in Europe, some of whose national governments are already failing. What had been the Keating Five is now the Global Finance 500. People say they understand this, but they really do not understand the implications of it. They intellectualize and theorize around it, try to deal with it by smashing it down into something they can get their mind around and accept. They may even try to turn it to their short term personal financial advantage. But they are not dealing with it and certainly not facing up to it. The US banking system controls the issue of the reserve currency of the world, which impacts the price of virtually everything that is bought and sold. And as you might expect there are many whose vested interest is to distract and to change the subject away from it. There is a great deal of money to be made by serving the desire to turn people's attention away from the problem to find someone else to blame, some other problem to focus upon, and some new victim class to absorb the public anger. It is an old story, often repeated in tragedy. But unfortunately, confronting the truth and fixing the situation is key to any sort of sustainable recovery. And this is the trap of crony capitalism and control fraud, when it has nearly exhausted its victims, and is having difficulty finding new ones to maintain its growth and facade. Until that time there will be a procession of scapegoats, defaults, bailouts, and property seizures, both implicit and explicit, and a growing toll of innocent victims and systemic destruction, ending finally in the collapse of the US national currency and international trade. If it had not been that the US is so large, and for the time being controls the bulk of the world's reserve currency, it is likely this would have already come to some conclusion before spreading so widely and pervasively. But the situation remains highly unstable and threatening, despite assurances to the contrary. What can one person do besides to spread the word, and demand the truth in their own place and their own way? Support those who stand and tell the truth, sometimes at great cost. Insulate and remove yourself from the fraud as best you can to preserve your wealth and your integrity. Above all resist the disinformation, propaganda, and distractions, and all the insidious rationalization and convenient skepticism to complicit apathy, making it clear that you will be neither a willing victim nor a silent bystander to the intoxicant of blame and hatred, and the victimization of others designed to turn the people on one another, be they Gypsy, Muslim, Jew or Christian, black, white, Asian, Hispanic, disabled, old, poor, ill or weak, or any other variety of outsider and convenient target. For once the madness starts, it can never be controlled, and will eventually come for all, and consume all."
GE Capital was what made GE an investor's darling. They managed to ruin NBC and ship thousands of American jobs overseas, including green jobs on which Obama planned to build the future.
modified from "The Princess Bride"... "i do notta think that man is who you thinka he is". he is in fact bought and paid for by corporate USA and was hired to further the amerika, inc. agenda.
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