With America’s unemployment rate at or above 9 percent for three years, prior to the rate being pushed down by people leaving the workforce, job creation is on everybody’s mind. Unfortunately, for many policymakers across the country the ideas to turn that rate around – tax breaks for big corporations or outright subsidies to biotechnology, solar power, or other high-tech industries – have been tried, with little to show for them.
Nearly all the proposed fixes that we’ve seen in the last few years can be categorized into one of five myths McKinsey Quarterly laid out regarding job creation: 1) Surely there’s a quick fix, 2) The key to boosting employment quickly is to help small businesses, 3) High-tech jobs will solve the problem, 4) Higher productivity kills jobs, and 5) Increasing exports will revive manufacturing employment.
None of these paths, pursued in isolation, will help the economy in the long run. Job creation involves people taking risks, investing, and working very hard. The key, as Whole Foods CEO John Mackey recently pointed out, is to allow entrepreneurs the freedom to do so – freedom from prescriptive tax policies and subsidies to their competition, inefficient regulation, and burdensome government in general. But, the U.S. is moving in the wrong direction. Once ranked third in the world in economic freedom, we are now tenth, behind Great Britain, Canada, Singapore and Mauritius, among others.
But there are some policymakers who are on the right track. Phoenix city councilman Sal DiCiccio, for example: He is working to reduce the permitting burden by the City of Phoenix, which lowers business start-up costs. He also wants to reduce the cost of government by privatizing some government services and with meaningful pension reform.
Ultimately, tinkering at the edges is no longer enough to be competitive for jobs. The states that will really thrive must be bold and make the decision that they will use freedom as the most important tool in the economic development toolbox. Indeed, “we’re the freest place to do business in the country” could be a powerful job creation mantra.
Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.
McKinsey & Co.: Five myths about how to create jobs