guest commentary by David Potts
Potts is a certified public accountant with more than 25 years experience (Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.)
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This past Friday morning I turned on the television in time to see a discussion between CNBC’s Squawk Box hosts and Harvard Business School professor Michael Porter and the school’s dean, Nitin Nohria. These gentlemen are smart, reasonable people. One of their opinions is that high unemployment rates are the result of a structural change in the economy rather than a result of the business cycle.
For example, Whirlpool moved their previously Fort Smith production to Mexico because labor in Mexico costs $1 per hour. That is a structural change.
Mr. Porter stated that since the beginning of the Great Recession, the job losses primarily impacted people without a college education. In fact, college educated people have, as a group, regained their jobs during the same period.
The bottom-line? Without the right skill set a person is unemployable. And there is a shortage of people with the right skill sets for the available jobs. The result is that American businesses have look to foreign companies to fill their needs. This also implies that products and services in demand require higher “knowledge” value and that other countries looks to other non-United States countries to meet their needs.
As a business owner this directly affects you. In order for your business to continue to grow and prosper, maybe even to survive in this global economy, providing products and services that compete globally will require higher “knowledge” value over time. And what I mean by competing globally, I don’t mean selling your products and services in Timbuktu. I mean selling your wares locally; competing locally against Timbuktu selling here.
For decades now, jobs in America have been lost to technology and cheaper labor markets. As business owners striving to maximize profit, this is due to our decisions, our choices. I mean, who in their right mind would hire 10 people to produce what a new machine or process could do at a fraction of the cost? Only an imbecile I suppose. And if we can’t find what we need here, there’s China.
Here’s what gnaws at me. We have had a structural change in our economy. I think this change is camouflaged by and not recognized as a permanent change due to the timing of “The Great Recession.”
The unemployment rate is understated because the chronically unemployed have stopped looking for jobs. Many of the currently employed are underemployed, earning significantly less money than they made in the past. Businesses are still making money because technology and outsourcing jobs allows goods and services to be produced much cheaper. (Take the iPhone 5 for example.)
As business owners, we hire and fire people depending on our expectation of future sales and labor costs. We do feel for the unemployed, but there is nothing we can do about this problem. And it’s not our problem. It’s just the way of the world and life isn’t always fair.
People vote their self-interests. We all do. There is a huge part of our population already receiving government entitlements and not much we can do about it. (If you disagree with me, talk with your mom and dad who paid their employment taxes for 40 years that you want to take away or reduce their Social Security and Medicare benefits. Or let’s tell our veterans we don’t want to pay their retirement benefits. Tell me how that goes).
They tend to vote to protect their government check. If we have created and continue to create a class of unemployed and chronically underemployed, they will be voting for their government check too. So on what tree will all this money grow? Yours.
Job growth is an American business problem, not the government’s. Our government will just keep sending the checks in exchange for a vote. I’m sure Congress will be happy to throw money at education. More votes. It just won’t be appropriate education.
I believe American businesses need a new mindset. If the majority of Americans lose faith in the American Dream, that America offers the opportunity to maintain or advance in a high standard of living, then so money people will vote for their government check that prosperity will be lost for all. Think Greece.
In order to prosper, we need to begin a strong investment in human capital. We all need to become experts in skills development. The skills that our businesses need to grow and prosper.
I’m guilty at times in not investing enough time and money in training my employees. I bet you are too. But to gain competitive advantage, to prosper in the long term, I’m of the opinion that businesses should take education and skills development more seriously, from the bottom to the top. It’s in your own best interests.
Maybe business owners should start this process by asking themselves: “How stupid am I?” Are we really doing what it takes to compete and prosper locally in a global economy?