Job cuts create jobs? I don’t think so

“[B]usiness is run for the benefit of its owners, its shareholders, its customers and its employees. It’s not run for the benefit of the country.”  That’s according to venture capitalist and Competitive Enterprise Institute Senior Fellow Bill Frezza in an NPR interview on Tuesday.

His point, which he laid out in a blog post a few weeks earlier, was that business views jobs as a necessary evil, a cost that reduces profits, not as a social responsibility.

It isn’t news that the goal of business is to make a profit, or that cutting costs helps do it, but the stark truth of Frezza’s statements may help to explain why prosperity isn’t reaching middle class Vermonters.

Over the 20 years from 1989 to 2009, while Vermont’s overall economy (income and gross state product) grew about 60 percent in real (inflation-adjusted) dollars, real median household income grew only 2 percent.  In essence, average Vermonters did not get ahead despite plenty of economic growth.

Business job- and cost-cutting strategies over those 20 years included new computer technology and offshoring–the practice of having manufacturing or services done less expensively overseas.  These strategies cut costs and boost profits, but they also boost unemployment.

While it’s not business’ fault, the fact remains that unemployment is a social ill.  People without jobs don’t have a productive role in society and don’t have the means to live.  So if it’s not the responsibility of the private sector to create jobs, whose responsibility is it?  The answer has to be the public sector.

But state government, chided to operate more like a business, has been cutting jobs, too.  So how does all this job cutting create jobs?  It doesn’t.

If the state wants to create jobs, it should take two steps based on the analysis in PERI economist Jeff Thompson’s August 2010 paper:

•  Reduce public money give-aways to business that supposedly create jobs.  Estimated at over $300 million each year in Vermont, these funds do little to create jobs; they simply increase profits for the lucky businesses.

•  Increase investment of public funds in public infrastructure and citizen education– both have the short-term benefit of job creation and both provide a solid foundation for the state’s economic future.

This simple shift in the use of existing public funds would have a profound impact on job creation and begin to restore Vermont’s middle class.