Let’s face it. The government can’t do much to create jobs next month or next year. Small businesses can, accounting for 65% of all new jobs. So why aren’t we trying to make more of them?
Because the conversation we’re having now is focused on all the wrong issues.
The problem for new businesses isn’t corporate taxes. Anyone who has actually started a new business knows you don’t make enough money for years to pay any meaningful tax on it.
And it isn’t regulations either. Even in semi-socialist cities like Berkeley or Cambridge, companies with less than 100 people are regulatory free-fire zones, often run by Mad-Max entrepreneurs.
And it isn’t capital, at least not in technology. Russian investors are now willing to fund an entire class of technology startups sight unseen.
The real reason new businesses aren’t forming fast enough is that there aren’t enough smart people who know how to build new stuff. There isn’t enough basic research to rip off. And there are never enough customers.
1. We need more engineers
Let’s start with the shortage of people who can build stuff. For all the cant about whether college is worth it, the problem isn’t college itself but what we pay people to study. Most kids today study business, which is the art of moving money around, not making the stuff that people pay money for in the first place.
My company, Redfin, could launch half a dozen new businesses if only we could hire more software engineers to lead the charge. Every tech CEO I know is in the same boat.
But schools are now charging students higher tuition to study technical disciplines or, in Nebraska, Nevada, South Dakota, Colorado, Michigan, Florida and Texas, eliminating computer science departments entirely.
Just look at my home state of Washington, the cradle of Amazon and Microsoft, which together employ tens of thousands of engineers. We produce 285 top-notch computer science graduates a year.
It’s a calamitous shortfall. But the budget for the University of Washington’s computer science department has dropped 50% over three years, forcing the program to turn away 75% of its qualified applicants.
This is a problem that money can solve. We gave away millions of acres to land-grant colleges in the 19th century to teach people animal husbandry. Let’s give away billions of dollars now to expand science and engineering departments, until every qualified applicant gets in, regardless of ability to pay. In five years, all of those people will have jobs.
2. We need more research
And then if people want to dedicate their lives to looking for a cancer cure, pay them to do it. The really basic stuff that fuels 30-year job booms almost always comes from government research, stuff like biotech, the transistor, the Internet. The idea that private capital can handle the early spade work is a joke.
Just look at the next trillion-dollar industry: clean tech. We’re hung up on Solyndra but the fact is that the private sector has lost far more money. Every venture fund that invested in clean tech over the past decade got its clock cleaned. Compared to an iPhone game, fundamental innovations take decades.
Yet even as the current administration has cast about for shovel-ready projects, investment in basic research has been flat over the past decade, and now faces looming cuts. Friends of mine in research, guys with Ph.D.’s willing to work 80 hours a week for a third of what they could earn elsewhere, are leaving the field in droves. That means the industries of 2022 are going to be built somewhere else.
3. We need more customers
And last, we need more customers. These are people who are easily parted with their money. They’ve been in short supply for the past few years because of the housing crash. The government can put money in their pocket by spending more or taxing less. It will create big deficits, and it takes a few years to kick in, but it has a small impact.
And that’s it. That’s all the government can do. None of it will make much difference in this election cycle or the next one. But we shouldn’t expect it to. Short of a space-alien invasion or an Oklahoma tornado, there is almost no problem that a democracy can tackle in a year. But that isn’t why we have a government. We have a government to solve the problems that greedy, short-sighted businessmen like me can’t.