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Leo Hindery, Jr.

Leo Hindery, Jr.

Posted: April 13, 2010 09:31 AM

When Two Progressives Disagree on How to Create Jobs

What's Your Reaction:

I just hate it when two progressives disagree.

But I especially hate it when it's me on one side and the esteemed Robert Reich on the other, a man who has done as much for workers and workers' rights as anyone in U.S. labor history. Reich of course was Secretary of Labor for President Clinton, and he is now professor of public policy at the University of California at Berkeley (where there's better weather than at Harvard).

In an important op-ed for the Financial Times ("Recovery depends on Main Street", March 23, 2010), Reich started off his piece by asking, "Can the American economy recover if only its big global companies, Wall Street and high-income Americans are doing better but its small businesses and middle and lower-income Americans are not?"

He immediately answered his own question -- I like doing this too, because then I always get the 'correct' answer -- by saying, "The short answer is no."

But I'm sorry, Mr. Reich, there is no "short answer" when it comes to business size. In fact, we need both big companies and small businesses right now in order to re-prosper, and I think many political leaders and commentators are making a huge mistake by over-emphasizing the old saw, which Reich repeats, that "companies with fewer than 100 employees accounted for almost half of net job growth during the last two recoveries, according to the U.S. Labor Department's Bureau of Labor Statistics."

And in truth, if I could remedy only one group right now, it would be 'big business'.

I don't at all disagree with Reich's often expressed concern that much of corporate America ignoring its concurrent responsibilities to employees, communities and the nation while it elevates, above all else, responsibility to shareholders and management -- in fact, I wrote an entire book on this issue and, like Reich, I still write about it frequently -- nor do I disagree with anyone calling for much more regulation of business, especially of its compensation practices and concerning accountability.

However, we cannot, any of us, let these fundamental concerns regarding corporate responsibility override the primary role which big business still has today in resuscitating our broken economy.

Labor economists and politicians alike fell in love with pumping up small businesses when Ronald Reagan became president, but that was only after big business had established what we thought was a largely non-erodible industrial foundation for the country, a foundation that would withstand and in fact prosper from the 'globalization' which we knew was coming down the pike. It was also only after at least 20% of American workers had seemingly firmly entrenched themselves in the manufacturing sector.

To understand this point, for the first half of the last century, manufacturing constituted about 35% of the nation's GDP, and even after our GIs returned home from World War II and military production ceased, manufacturing in 1947 still made up 26% of GDP. And manufacturing never went below 21% until 1980, when it began its persistent decline to the relatively and absolutely low 12% level it stands at today. Of course with this decline millions of American jobs were shipped overseas, more than 6 million just since 2000.

No matter what the theory of 'comparative advantage' argues, America -- with its very large population, wide geography, and great diversity -- simply can't prosper with less than 12% of its GDP coming from manufacturing. If this sector again generated 20% of GDP, which can only occur through the (re)growth of large manufacturing businesses, 12 million more workers would be employed directly and, because of the very high multiplier effect of new manufacturing jobs, up to another 30 million new workers indirectly.

It's this much desired -- and desperately needed -- large-scale job creation which calls into question both Reich's demand that any new stimulus efforts be directed mostly to small businesses and the similar orientation of President Obama and Congress that showed up in spades in the recent, much-too-small $17.5 billion 'jobs bill'.

You see, right now the number of real unemployed workers in all four categories of unemployment -- BLS 'official', part-time-of-necessity, marginally attached, and discouraged -- is a staggering 29.8 million, not the 15.0 million that the BLS announced for March; the real unemployment rate is 18.7%, not BLS's reported rate of 9.7%; and, most daunting, the economy is short 21.8 million jobs in order to be at or near full real employment.

The simple truth is that there is no way on God's green earth to create 21.8 million new jobs without the massive involvement of 'big business', especially 'big manufacturing business', since fulfilling this task is the almost incomprehensible equivalent of having to create 140 new Boeing Companies or 90 new General Motors.

Bob Reich says that, "Big companies do not know what to do with all the cash they have, as it is. They are not investing it in new plant or jobs. So why should the government cut their taxes and enlarge their cash hoards even more?"

Big companies absolutely "know what to do", which is to expand and grow. It's in their DNA, and having run a number of them, I know that it's also what they want to do. But big companies - American and foreign alike - will never expand here in the U.S. in the face of wide-spread economic uncertainty or unreasonable obstacles, or when development opportunities overseas are significantly more beckoning.

The introduction of new, and the resurgence of existing, big companies represent the only meaningful medium-term opportunity to create the bulk of the tens of millions of new jobs we need right now in America. And so, what one new sine-qua-non policy, two actions, one stimulus effort, and single change in tax policy will ensure that these companies prosper? It's pretty simple -- the administration and Congress need to:

New Policy: Throw their full weight behind an all-of-government, fully-empowered manufacturing and jobs policy that, on the one hand, is as neomercantilist as the policies of our major trading partners, and that, on the other, (1) puts U.S. workers, miners and farmers first and results in a quick doubling, from today's level, of the impacts on the economy from the activities of America's manufacturing workers, miners and farmers, whether measured by percentage contribution to GDP (now just 11.5%) or by number of employees (now less than 9% of the civilian labor workforce).

Just structurally the nation's economy can't recover and sustain with such an acute imbalance between non-manufacturing and manufacturing activities. More immediately, neither our nation's non-manufacturing sectors nor its small businesses, acting individually or together, can put more than even a very small dent into what seems today to be a Sisyphean task, namely, creating (and I don't mean 'saving') the 22 million new jobs needed in the very short term in order to get our economy back near full-employment, plus the 140,000 new jobs needed each month simply to keep up with population growth.

The positive news, however, is that if the U.S. would simply do what China and every other developed nation have already done - which is to acknowledge that having an all-of-government, fully-empowered manufacturing and jobs policy is the foundation of all efforts surrounding large-scale job creation - then this task is NOT at all Sisyphean. Unfortunately, thirty years ago, in 1981, the U.S. essentially threw this predicate into Ronald Reagan's and David Stockman's waste baskets, and now we desperately need to embrace it again.

Action: Mitigate, by whatever tools are available, China's currency manipulation together with its and other countries' unfair trade practices and illegal subsidies.

Action: Adopt "Buy American" requirements related to federal government procurement that mirror those of our major trading partners.

Stimulus Effort: Fund significant public investments to upgrade and rebuild our nation's major infrastructure, to include both a new "National Infrastructure and Production Base Bank" and incentives for private funding of public infrastructure, which would create 25,000 to 40,000 permanent jobs for each one billion dollars invested, many of which would be big-business related.

Tax Policy Change: In order to spur production and capital investment, enact major corporate tax reform both to incent corporations to create high-value jobs in the U.S. and, as promised during the 2008 campaign, to "end tax breaks for companies that ship jobs overseas".

When big business is back on track in devastated cities like Dayton, Detroit, New Bedford and Birmingham which for more than a century built their local economy on manufacturing and whose entire ethos and infrastructure are big business-related, then across the country additional manufacturing, small businesses and high-end services will also prosper. But nobody will until the large-scale industrial and manufacturing base of our economy has first been reestablished.

Leo Hindery, Jr. is Chairman of The Economic Growth/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.