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Labor Day and the Myth of Job Creation

It is the custom on this first Monday of September to celebrate workers. However, given the current economic climate, it is also a good time to wonder whether the “worker” celebrated on Labor Day is a disappearing species.

Henry Ford created the modern American factory worker at the start of the 1900s by offering high wages in return for their effort and loyalty. This model quickly spread throughout the economy because increased wages generated increased demand for consumer goods, which created more customers for goods produced by the factories. To meet this increased demand, you built more factories and hired more people. The basis of an entrepreneur’s worth was his square footage and head count.

However this expansion started to plateau in the 1960s and 70s, so entrepreneurs needed to look for other ways to increase productivity. Increased mechanization started the decline in employment. Offshoring muscle-based jobs to cheaper countries increased the trend. Knowledge workers thought themselves immune to the trend because brain-based work stayed in-country until that too could be more cheaply outsourced.

In hindsight, the trend to producing more with less is totally predictable. Entrepreneurs are driven by the desire to create value for their customers by doing things cheaper, faster, better. Innovation is the leverage that allows us to do more with less. This is reflected in the traditional balance sheet business valuation, where machines are assets and employees are liabilities.

Politicians and economists now are piling the responsibility for creating jobs on the shoulders of entrepreneurs. I believe this is a grave mistake. “Job creation” is not a priority for entrepreneurs. I have yet to meet an entrepreneur who is primarily motivated by creating jobs. If job creation is a by-product of increased sales, that’s great, but it’s not the goal.

In the past the entrepreneur’s power came from the size of the factory and of the workforce. Now you can serve thousands of customers from a laptop in your bedroom. Companies whose assets are a few office buildings have higher capitalizations than the big automakers, with all of their factories, machines and workforce combined. The power of today’s entrepreneur is in the number of users.

What does this mean for the prototypical wage-earner? If they hope to return to the way they were at the core of the economy in the 1940s and 1950s, it is bad news. This first part of the 2000s are all about an economic shift as profound as the shift from the agrarian to the industrial economy in the first part of the 1900s.

The solution to the problem of unemployment and the shrinking economy goes beyond just doing more of what was done in the past. The Old Economics leave too many intangibles off the balance sheet: ecological, societal, personal, familial. We need to invent a New Economics that includes all this and more.

The old rules are gone and the new ones are yet to be written. It may take 20, 30 or even 100 years to figure out a new way of measuring value and wealth.

The future we desperately need will be created not by politicians, or by the CEOs of the old guard, but by a new generation of citizen-leaders who are crystal-clear about their purpose, who are powered by the passion of a big vision, and who transform the status-quo by mobilizing communities of people to build systems that create profit and prosperity for all.

For more information

This line of thought is the foundation of my personal manifesto:
http://about.me/coachdavender

Image credit: Stefan Ray (slinky2000) via Flickr
Link: http://www.flickr.com/photos/slinky2000/2175943057
Used under Creative Commons Licence

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