Big business can create jobs. But the problem with HP and Microsoft is they are reliant upon a declining product area.
Both have failed to move into the consumer market despite both companies previously having valuable experience in this market.
The recent news of layoffs from computing giants provides proof, once again, of an old economic saw. It is not actually big businesses that create jobs, it's the small and new ones. Our problem is that we've a political class (yes, all of it) that doesn't really quite get this. They would like there to be lots of jobs, of course …
Big business can create jobs. But the problem with HP and Microsoft is they are reliant upon a declining product area.
Both have failed to move into the consumer market despite both companies previously having valuable experience in this market.
TI and HP consumer stuff was very well made, but d.oes the 'planned obselescence' of much of the consumer market come into the category of broken windows* where "Society loses the value of things which are uselessly destroyed;"
* I just read the wikis on Claude Frédéric Bastiat.
We seem to have a regulation for everything, when starting it a good business is simply a matter of:
- Be good
- Recruit well
- Try not to get the people you hire killed.
At the same time, I don't buy the idea that it's to hard to get rid of someone. A business is given plenty of space to work out whether or not the new starter is a good fit. I do agree it can be expensive to fire someone who'd been with the business a long time (but then again, that burden has to go somewhere, unless you want to be the other sort of society).
Businesses love to bleat about red tape, and I'm willing to accept that it's a major burden in certain areas for small businesses. However, a lot red tape came about as a response to companies using the lack of regulation to exploit employees, then using the holes in regulations to continue exploiting them, then searching for more holes in *those* hole-plugging regulations.... etc. etc. etc. Obviously, this eventually results in unwieldy regulation build-up, but business (as a whole) can't pretend that it's entirely blameless for the end result.
There are times when regulations probably need to be tidied up and simplified- but only for the purpose of removing unnecessary bureaucracy and not the underlying protection. It's quite obvious that when many businesses say they want "red tape" removed, what they mean is that they want to ditch the underlying (health, employment, etc.) protection itself and to be free to do what they want.
It's probably also not a coincidence that red tape will be less of a problem for larger, more established- and politically more powerful and influential- businesses that have the economies of scale which make dealing with it easier- and thus, obviously, gives them a comparative advantage against smaller rivals who can't justify employing dedicated staff for that purpose.
Evidently you've never run an SME, so I'll excuse the bollocks you've written, but not the taint of jealousy that comes over with it
Smaller SMEs are by far the worst about abusing their employees, because they know they're too small for regulators to care about, and they'll just declare bankruptcy and vanish if they do get caught. The hospitality and restaurant industries are particularly bad, but small business in general all does it.
Everyone should read Parkinson's Law, Up the Organisation, and The Peter Principle. But if you only have time (or inclination) to read one, it should be Up the Organisation. The other two make a single key point in a humorous style, but Robert Townsend tells you how to run and improve a vast operation. The fact that it's still entirely relevant after 35 years should tell you all you need to know about the quality of modern management (despite all the millions of newly-minted MBAs).
Parkinson makes several good points, especially if you also read The Law and the Profits. The eponymous Law is only one of them - his analyses of injelititis, the function and functioning of a committee, and why the cost of biscuits is controlled more tightly than the cost of a nuclear power station, for example, are useful guidance almost every day.
You're correct there. I still like the "pissing in the soup" story about setting up your own low cost competition.
...apart from the bit where he suggests that you relocate your business every few years to get rid of the dead wood.
That might (just, possibly, I'm not convinced) have been true in the single-earner 60s, but it's kind of the opposite of true now. More likely your better employees will be easily able to find another job without having to move and you'll end up stuck with the ones who have to choice but to stay.
Was there a need to use the word Frog? Am I missing a jokey reference here or was that just a jarring style aberration in what was otherwise a great wee read?
It's actually just because I am grossly prejudiced.
It's a British insult for French people. Presumably because they eat frog's legs.
Same idea as the French insult (more of a derogatory term than outright insult mind you) referring to the British as roast beefs, presumably from out habit of cooking meat until it is usable for shoe soles.
Al Bundy at Speakers Corner ("Am I alone here in hating the French?")
(The entire clip is just 1 minute, 21 seconds long, and the whole scene is funny, but the crucial part starts at 1:12.)
"A certain M'sieu Bastiat, the only Frog ever to really grok economics, . . . ."
Surely Say and Turgot did as well.
(Turgot even understood time preference and the vital market function of interest! Thomas Jefferson kept a bust of Turgot at Monticello; it's there to this day. And just like Böhm-Bawerk, the man who rediscovered Turgot's insights about time preference, interest, and capital structure a little over a century later, Turgot served as his country's Minister of Finance.)
Oh, and also Bertrand, and Jacques Rueff.
(Unfortunately, despite Bertrand's incisive refutation, the errors of his fellow Frenchy Cournot haunt us and infect industrial organization and monopoly theory to this day.)
(Quesnay had an important partial understanding of economics. Despite crucial flaws in his outlook, he contributed much. But I can't say he really grokked the whole.
It also is tempting to add Gerard Debreu, who surely had some understanding of economics, and at least appreciated more than most the interconnectedness of all markets, but his gift really lay more in highly abstract math(s) than in true understanding. He formalized the general-equilibrium theory of Walras without ever really understanding or appreciating its full significance or its far-reaching implications. Most economists still don't!* So I can't say he grokked it, either.)
* Hell, even Debreu's fellow Nobel Laureate (albeit in a different year), that Limey Sir John Hicks, didn't see the implications of general-equilibrium theory. If he'd really understood the first part of his book Value and Capital (a seminal exposition of general-equilibrium theory), he wouldn't have written the Keynesian remainder, for he'd have realized that the first part undermined and refuted the rest!
Excellent essay, Tim!
Not sure I agree with the paragraph about IP,* but the whole thing was a splendid and insightful exposition.
* I haven't thought about intellectual property in years, and it's also hard to tell from such a brief sketch what your position is. It's easy to say "not too strong, not too weak . . . just right", but I suspect the correct answer consists more of what specific protections to have than of how much or how strong. But again, I'm rusty.
Big Business *does* create jobs — usually lots of them in one go — and in a very politician-friendly way, which is a big reason why politicians love Big Business and FDI (Foreign Direct Investment).
Politicians need votes and what better way to get them other than by bringing a factory with 2000 jobs, especially if the factory comes to a place with social problems and high unemployment. Never mind that the government will pay millions for this placement and never mind that this factory will be gone once a much more cost-effective location overseas is found.
Foreign Direct Investment is the cocaine-hit for lazy government. Cultivating small- and medium-sized businesses and the promotion of the necessary attitude required for entrepreneurs is hard, time-consuming and expensive, which is contraproductive when politicians need to show results before each election. You can't have other politicians claiming the credit for your initaitive and hard work.
You also need a system of capital dispension and many banking systems just aren't equipped in either mindset, experience or capital to allow new business to flourish.
"Big Business *does* create jobs — usually lots of them in one go"
The point of the article is the balance.
Big Business will create a whack of new jobs, much noise will be made about the new factory, but the fine print is
a) the government is subsidising the plant, and half the wages
b) the average wage paid in that new plant is likely to be 20% to 30% lower than the same job created by SMB.
c) the executives/managers all have golden parachutes made up of that difference accumulated over the lifetime of the dog and pony show.
d) the politician(s) involved will end up with one of those executive positiions just in time to close the plant, announce a huge reduction in costs to the company and move to a new location.
Sorry -- I think the screaming cynic in me got to the coffee before the optimist.
Big businesses don't create jobs- small ones do.
I seen it in a documentary on BBC2.
I worked at a large company that did steps a) through c) a few times, in Asia.
Country in question would subsidise new employee wages, taxes, plant expansion, etc. for 2 - 3 years. Oddly enough, employees tended to leave after 2 - 3 years (fancy that), so there was always a supply of new employees with the associated salary "recovery".
Nice biz if you can get it....
Kind of hard for those of us in the rest of the world, though....
I thought Jobs created a big business.
Yeah then he got fired started a small one bought into a big one and got hired back to his old job,,,
From a politicians point of view a big business can create a lot of jobs, in one go, in one place, just where they need them to bribe; sorry influence the electorate..
Tim do you have a graph of numebr of employees in a business against total number of people employed in that size business.. I keep hearing number that 50% of people work in very small businesses.
A few years ago I was involved in analysing employment figures & concluded that the average company in the UK has about 12 employees. (The actual average was 15, but that included leavers, so 12 seemed about right).
" I keep hearing number that 50% of people work in very small businesses."
I don't have a graph but that could be right. I'd actually expect it to be higher than 50% in small business.
..in the usual manner.
It hasn't happened yet, as the worldwide recession is still a factor, but once things are on the up, M$ will do it's usual job creation rally by releasing an "upgrade" that makes half of your hardware obsolete.
And when I say obsolete, I mean completely useless as the drivers will no longer work.
HP and other players will also do their usual and refuse point blank to write new drivers, while happily pointing you toward their new shiny shiny.
This is how the old school create growth in a stagnant market, by ensuring what you bought five years ago has to be replaced.
"M$ will do it's usual job creation rally by releasing an "upgrade" that makes half of your hardware obsolete." Etc,
That is not economic stimulus (for the economy as a whole), nor even "creative destruction". It's just the same old "broken window fallacy" about which Bastiat wrote. The stimulus to one sector of the economy (be it glazing or computer hardware) comes at the expense of other parts of the economy whose losses are unseen. Those losses consist of the things that would have been bought, and produced, had we not had to waste money upgrading our machines prematurely (or buying a new window). And the higher overall level of human want-satisfaction that is foregone as a result.
"Stimulus" like this is really only a transfer, and it always leaves society and the economy poorer on net. We don't even break even on the transfer; the unseen losses always, necessarily outweigh the visible gains.
("Green jobs" are another example of this fallacy.)
as long as there"s a universal basic income (paid for by land value taxation)...
Bollocks!That will only work if there is a ZERO growth of population.
"Bollocks!That will only work if there is a ZERO growth of population"
I think that's what the greens have in mind (madman Malthus and all that....). :(
Article asserts that big companies don't create jobs, small ones do. Can't agree. If the author had said: growing companies create jobs, static ones don't - that would be more likely.
Small firms should be subject to less red tape than large companies. However in the UK and elsewhere, it is a similar level for both. As soon as you become Ltd and employ 1 other person, you have to follow almost the same rules as Ford or BP. This provides a huge barrier to entry and means it is very hard to start a successful business unless you have huge supplies of cash to begin with (to spend on the rules and administration of them). Nice bit of protection for the big companies.
We should have a new limited liability entity for small companies, up to say 1.5 million turnover a year.
Agree with author re gov lobbying. Big companies and their ceaseless and powerful lobbying (taking ministers to dinner) warp and damage the competitive fabric of the economy.
BP follows rules?
At first blush that makes sense. However, if you do that, then you end up putting a tax on growth.
In the United States, for example, there are numerous federal statutes and regulations (and some state ones as well, I believe) that exempt companies or employers with fewer than X employees; most commonly "X" is 50, but in some instances it is 15, and I think in a few instances it is something like 30 or 35. (I used to keep a list of such statutes and regulations, but no longer.) In consequence of this approach and practice, many companies deliberately decline to expand and grow, choosing instead to remain just below some applicable threshold (most commonly the 50-employee one) in order to remain exempt from the additional regulations and the vastly increased cost of regulatory compliance that would be incurred by going above the threshold. In effect, the government has erected a series of "speed bumps" standing in the way of job creation, and these speed bumps — taken together — end up having a substantial retardant effect.
It certainly is true that, as an Anonymous Coward pointed out above, larger firms have an inherent and substantial advantage in complying with regulations in comparison to their smaller competitors, due to economies of scale:
"It's probably also not a coincidence that red tape will be less of a problem for larger, more established — and politically more powerful and influential — businesses that have the economies of scale which make dealing with it easier — and thus, obviously, give them a comp[eti]tive advantage against smaller rivals who can't justify employing dedicated staff for that purpose."
This is obviously and intrinsically unfair, and unfortunate for the economy, and it also is why large businesses so often end up cutting deals with politicians and bureaucrats, acquiescing in regulations that they will be able to handle in stride (passing some of the cost on to their customers) but that will hobble — and ultimately protect them from — their smaller competitors and potential competitors.
But there is no good solution to this problem. Larger firms will always have an advantage over smaller firms in this regard, and there is nothing that can be done about it. Or at least nothing that would be wholly adequate. (Were I suddenly magically in charge of everything, I would try to find ways to give smaller firms a break all the same. I'm just not sure how I would go about it.) If you try to deal with it simply by exempting smaller firms from regulations, you will basically change the form of the problem but not make it go away, or even diminish it.
"Article asserts that big companies don't create jobs, small ones do. Can't agree. If the author had said: growing companies create jobs, static ones don't — that would be more likely." (Emphasis added.)
To some degree you're both right. Tim is right that, empirically, most new jobs tend to be created by smaller firms. But you are right as well in pointing out that it is not so much all small firms that create jobs as it is the ones that succeed and grow. Small firms create jobs — in part — not simply by virtue of by being small, but by growing and ceasing to be small!
(In fairness, others create jobs not by growing, but simply by coming into existence in the first place. They end up being significant as a source of employment collectively, despite their failure to grow (very much) individually, because they are so numerous! And because new ones are being created all the time.)
But insofar as having small firms succeed, grow, and thereby cease to be small is a key to job creation (one of the major sources of new jobs), it will not behoove you to penalize firms for growing by placing new, additional regulatory burdens upon them as they grow, conditional upon their employing additional workers. To do so, again, is in effect to tax job creation. And if you tax something, you will always get less of it.
 The terminology is confusing and somewhat ambiguous in the American context. Americans (and especially lawyers) routinely distinguish between "statutes" and "regulations", the latter being rules of administration imposed in the implementation of statutes by regulatory agencies. However, many statutes are themselves clearly regulatory in nature, and therefore count as "regulations" or "regulation" in an economic sense.
 In the United States, the Business Roundtable — a guild/clique/club of fat-cat CEOs of very large publicly traded corporations — is notorious for this sort of thing. It is the polar opposite of the NFIB, the National Federation of Independent Business. I do not know whether the U.S. Chamber of Commerce is still on the side of the angels (and the NFIB) today — I have heard that it may no longer be, and has been turned into a shill for large corporate donors — but it certainly used to be on the side of good and liberty and economic vibrancy, rather than entrenchment of the Establishment, in decades gone by. For instance, in the 1980s and early '90s, when Richard Rahn and then Larry Hunter served as its Chief Economist.
...is they're less likely to have the resources to dodge the corporation tax they should be paying (assuming they make any profit to pay tax on).
On the subject of growth isn't it really tied to population growth inexorably driving demand.
What happens when/if as predicted population growth stalls in the middle or end of this century?
Do we finally have a society where working 3 days per week is the norm? Or just a greater divide between those with jobs and those without?
or any of the self-declared Libertarians out there would necessarily agree, but another source of jobs is Government. Of course, Government can generally create only Government jobs, but some them can actually be useful. The secret, as always, is to find the proper balance. When Government listens only to Big Business, the system is thrown out of whack with some of said businesses accepting the good things Government provides (roads, disease control, etc.) but refusing to pay for them by dint of clever tax strategies or even decamping to pastures green. And as Mr. Worstall says, Government then ignores other legs of the figurative table, which are actually holding the whole thing up. Further, when Government sucks up too much of the available resources and becomes bloated, it is like the tail wagging the dog.
On another issue, I submit that growth beyond the needs of the population; growth for the sake of growth; growth to run up the numbers is indistinguishable from inflation.
I just can't get my head around growth being indistinguishable from inflation.
I see growth as each individual is getting more from whatever they do. And that, to me, looks very like deflation.
SEDT is absolutely right.
In simplest terms, inflation is simply "too much money chasing too few goods." All else equal, more goods = less inflation (or even deflation, as SEDT points out), not more.
Part of the problem is the confusion between producitivity and profit.
For solid growth, you need productiivty - doing something useful. However, profitability can disguise non-productivity. The problem in the West in general is that far too much depends on marketing rather than production. The core dev teams for Windows, MS Office etc are tiny compared to the overall organisation. Blanket advertising forces out competition - that's why we get the massive campaigns around the Voice et al. They have to exclude competition from mindshare in order to succeed. This isn't about being productive, meeting needs etc, this is about using previous profits to crush competition - not specific competitors, but competition in general.
We then end up with monopoly profits which hides inefficiencies in big business in a way they couldn't in small business. That's why you suddenly have large cuts - it takes a long time for the problem to be evident and then critical to deal with. People are getting paid, but productivity is low for their job.
Herein is the problem with MS software recently: using windows 8 over windows 7 or windows XP doesn't make most people more productive. Or at least, not enough people in the organisation are more productive to warrant the upgrade. Software has gone from an enabler, to a very large cost centre. There was some benefit to going 64-bit (i.e. v7 for Windows) but after that, MS have not really added much in terms of end-user productivity. Win3.11 to W95 gave significant UI features. Win95 to (NT/)2000/XP gave significant stability increases, W7 gave address space and UI advantages. Now (in the Windows World) we have a reasonable UI and stability. What more are you expecting from an OS?
What I want more from an OS is all the stuff they have been pumping into hypervisors. That should be in the base OS if they want me to upgrade again. UI tweaks won't cut it.
Of course, *nix/floss users are (rightly) a little smug. I don't know if MS have noticed, but I'm seeing a lot of indie games arriving for linux. I don't know if its linux per se or general cross-platform to get the OSX crowd or prepping for Android/IOS releases (probably all three) but if I were MS I'd be worried about 5 years down the line. Games are less OS dependent, but with excessive CPU power comes platform independent applications. Hard financial times mean that previously unassessed decisions come under scruitiny.
Almost all of Microsoft's layoffs will only impact their internal work force. Microsoft's major work force is at it's customers. The people that use Microsoft's products, the people who write applications, people who maintain the equipment that uses Microsoft software and O/S. This number is in the millions, which is a lot larger than Microsoft.
Big companies do create jobs, it's just that they're part-time directorships for former cabinet ministers.
Just think of all those fab new opportunities just waiting
Yes, I know, Politics is just an extension of Economics, but our democratic systems should be designed in a way that minimizes the negative effects of these natural "Monarchic" tendencies.
Therefore, HP, Microsoft, and ALL big companies need to stop F**King with the political systems.
No more PACs, Citizen Uniteds, Personhoods, the list goes on.
Quite frankly the likes of Microsoft and HP just HOLD BACK innovation, the are "milkers" not inventors, they don't create, they MILK.
HP has a PAC, a Political Action Committee, and given the fact that their CEO spent $100 million of her own dollars trying to get elected to political office, we can see that there are obvious reasons to want to have all that INFLUENCE.
Well, folks, its time to rid ourselves of the "Parasitic Class" "Elites" who contribute nothing and take all the profits.
When we do this, and we are just getting underway, there will be an explosion of prosperity.
If we don't then our civilization won't last.