Just when you think no-one really understands job creation, Thomas Friedman got it exactly right into today's NYTimes editorial, More (Steve) Jobs, Jobs, Jobs.
As Friedman explained it, "Obama should make the centerpiece of his presidency mobilizing a million new start-up companies that won’t just give us temporary highway jobs, but lasting good jobs that keep America on the cutting edge."
The history of meaningful, lasting job creation is the history of innovation. Pick any industry -- computers, software, civil aviation, automotive -- and you will find business innovators at the core of job creation. And, these big new industries invariably started as small businesses.
One key point that Friedman missed, in my opinion, is the need for a focus on facilitating access to capital. The current Administration wants jobs, but at the same time, it wants to punish banks and restrict "risky lending". No businesses can grow without capital. No business can grow without investors and lenders who are willing to take reasonable, understandable risks. Banks are not willing to do that today. As a small business owner, I can tell you that banks have the most restrictive lending practices that I have seen in the 27 years that I have owned a business. The answer is not another SBA bureaucracy. The answer is access to capital from investors and banks.
Repeatedly, we hear from Washington that tax incentives for small business will create jobs. That one idea is positive proof that no-one inside the Beltway has ever run a business.
Jobs are created when innovative people see an meaningful opportunity, secure capital (in phases) to build out their businesses, and create innovative products that are in broad demand (ideally worldwide). Then, if all goes well, there will be a taxable business income at some point in the future, often 3-5 years into the future. A tax incentive years into the future is meaningless for job creation.
The option open to the Administration is simple. First, set aside the current legislative agenda and focus on jobs. Don't create another meaningless commission to study the problem. Put Congress to work and:
1. Make innovative new companies the number one national priority.This means celebrating successful business people. Focus on more than just green jobs. Make sure that the effort includes every kind of business from local start-up restaurants to long-time-frame efforts such as lithium ion battery plants. Make sure that the trade policies are in place to facilitate exports. And, help protect intellectual property worldwide.
2. Make access to capital a priority. Make sure that banks can take appropriate risks. Make sure that investors who put money into early stage businesses face reasonable tax rates if and when their investments become runaway successes.
3. Create a supportive regulatory framework that allows small businesses to succeed in the long run.
4. Most important, help the public understand that the Fortune 500 companies are not in a position to create the needed jobs. Unions can't create jobs. Nor, will government be able to create the jobs we need. The only engine of growth that can create literally millions of jobs is small, innovative businesses.
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