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HAMILTON: Three solutions for creating jobs

Attacking business isn’t one of them

- - Tuesday, August 7, 2012

If privately held companies, which generate the vast majority of jobs in the United States, are doing well, then why isn't the unemployment needle moving, and why are we stuck in a kind of financial malaise? Our data consistently shows that the revenues of private companies are up, their profits are up and their margins are up. In addition, gross domestic product is growing, though slowly, inflation is under control and interest rates are as low as they can be. Yet job growth remains nil to lackluster.

What's behind this paradox?

Even if you assume business owners are greedy and selfish (as some in Washington seem to imply), it doesn't make sense that they're not hiring more workers. After all, reinvesting those growing sales and profits should pave the way for them to make even more money. During the early part of the Industrial Revolution when machines began doing the work of people, there were some who predicted that unemployment would become permanently high. They were wrong. What we have learned through history is that companies continually seek ways to make more profit and that this always requires more people. Consequently, I discount the idea that because of an increase in the efficiency of companies, we are stuck forever at a high level of unemployment.

Given that this situation is historically unprecedented, you have to look at what external factors may be causing U.S. companies to hold off on hiring. It's popular to blame Washington for everything, but in this specific case, the blame may be correctly applied. If President Obama and Congress want to get job growth going, they can do three things to help, but they can't wait until November. Businesses are already in danger of writing off hiring for the rest of the year because of the election.

First, iron out the tax picture immediately. Waiting until after November is a bad idea. The issue is not only whether to extend or not extend some or all of the Bush-era tax cuts -- it is the need to decide something and be definitive. Business owners need to be able to plan 12 to 24 months in advance. They need to be able to develop forecasts so they can figure out if they're going to hire and how many positions to add. They can't do that if Washington keeps debating until the last minute and then makes a policy change. Just tell us what you're going to do and then do it.

Second, Washington needs to listen to the business owners in the trenches -- the job creators, the regular people who run a grocery store, a landscaping business or a light manufacturing company -- and stop the anti-business rhetoric. At least in name, President Obama has launched several initiatives aimed at helping businesses, such as Startup America and his Council on Jobs and Competitiveness. The jobs council hasn't met in more than six months, though the White House recently launched a website to gather tips from businesses on burdensome regulations. Washington needs to listen to regular businessmen who can recommend what the government should or shouldn't do to foster long-term job growth. But when the president makes speeches like the one in Roanoke, Va., last month, it seems as if he is attacking business owners and looking at successful Americans as the problem. The first rule of the military needs to apply: Don't shoot at your own troops. Tone down the rhetoric and realize that businessmen are hardworking, have created abundance, and have done so in a fair way. Capitalism works, perhaps not perfectly, but better than any other system that has been attempted.

Both Bill Clinton and Ronald Reagan understood the wealthy play an important role in job creation. Thirty-three years ago this summer, President Jimmy Carter gave what became known as his "malaise" speech, and he was criticized for chiding Americans for their focus on self-indulgence and consumption at a time they needed encouragement. Mr. Obama seems to be putting himself in the position of an adversary, chiding businesses at a time we need business owners to want to hire more people. There's a big difference between the 27 million companies that generate most of the jobs in the United States and the few thousand businesses that happen to be mega-companies, yet it seems like the president is painting all businesses with a broad brush. I don't think he understands privately held companies.

Finally, for long-run economic growth, the deficit has to be attacked across party lines. We need to view it as a cancer on our economy. When a family has a big problem, it affects everything about the family. Similarly, does it really matter how Standard & Poor's rates our debt? We owe nearly $17 trillion and the problem is self-evident. The debt creates underlying uncertainty and a broad-based feeling among businessmen that there is a lack of control. Can you really blame them for feeling anxiety when they know they operate under an umbrella with massive holes? Businessmen know that one day, interest rates will go up as a result of risk and it will mean they will have increased operating costs. Businesses are acting rationally by not hiring more people to avoid long-run overhead costs. Taxes are the wrong answer.

Washington has got to get the national house in order, and it means cutting spending, even on military and social programs. Everybody knows that too much spending is the big problem. It's so big that no one wants to face it. But the lingering effect of not doing anything is that everyone is nervous. When consumers and businesses are skittish about spending, companies throughout the United States will remain too nervous to hire substantially more people.

Brian Hamilton is the co-founder and CEO of Sageworks, an Inc. 500 company. Mary Ellen Biery, research specialist at Sageworks, contributed to this article.