April 9, 2012

Can governments really create jobs?

Lower the current high unemployment rates around the world is not an easy thing to do. Some argue that unemployed people should create a job - and some argue that it is up to the government or the "rich" to create jobs, like the famous quote by Larry Summers from the movie The Social Network:
"Everyone at Harvard's inventing something. Harvard undergraduates believe that inventing a job is better than finding a job. So, I'll suggest again that the two of you come up with a new new project."

In a recent survey on what should be done about the unemployment in the US, 16 out of 24 economists believed that stimulating the economy is the right thing to do. The problem is that they couldn't unite on exactly what should be done.

Bill Clinton - the former US president - has a couple of points he thinks that the US should do to create jobs:

  1. There's a $2 trillion pile of private capital not being invested in anything. The capital is currently being hold in banks and this money could be used as a cash reserve so that banks can lend more money. US corporations also have $2 trillion not being used - this pile is supposed to be used for future compensation to employees and future dividend payments to shareholders. The money could today be used to create more jobs
  2. End the current US mortgage crisis as quickly as possible by writing of bad debt - it's ugly and maybe not fair to everyone - but it will speed up the recovery
  3. Find areas where the economy is growing - for example manufacturing. The current crisis has made it possible to manufacture more in the US 
  4. Make it easier for highly educated people to move to the US. For example, the young CEO Amit Aharoni created the company Cruisewise - but he got kicked out of the US and had to move to Canada and run his company from there. This issue was however solved and Amit Aharoni could move back to the US again

Barack Obama once asked Steve Jobs what it would take to make iPhones in the US. Steve Jobs replied:
"Those jobs aren't coming back"
One big problem with moving back factories from countries like China is that the US doesn't have the infrastructure around the factories needed to create a proper supply chain:
“The entire supply chain is in China now. You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”
If you want to create a modern competitive supply chain, everything has to be closely connected because of the delays happening when moving products around the world. It's much easier to move finished products from China to the US compared with products not yet assembled. To simulate this supply chain, you can play the "Beergame" and find out the difficulties involved when moving unfinished products.

The entrepreneur Elon Musk, who has created his own job (and fortune) by founding the companies Zip2, PayPal, Tesla Motors, SpaceX, and SolarCity, argued in one interview that there's no one solution to create jobs:
"The reality of being a president is that you are like the captain of a very huge ship and have a small rudder. If there was a button that the president could push that said 'economic prosperity,' he would hit that button really fast. You could measure the speed of light by measure how fast they press that button."

Source: Business Insider, CNN Money, mark[sweep], The Engineer - Elon Musk biography book