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The Incredible Bain Job
by Andy Kessler, The Wall Street Journal
(July 17, 2012)
In a competitive economy,
$5,000 computers become $500 tablets. Consumers get to spend the
difference elsewhere in the economy.
-- Did Mitt Romney and Bain Capital help
office-supply retailer Staples create 88,000 jobs? 43,000? 252? Actually,
Staples probably destroyed 100,000 jobs while creating millions of new ones.
Since 1986, Staples has
opened 2,000 stores, eliminating the jobs of distributors and brokers who
charged nasty markups for paper and office supplies. But it enabled hundreds
of thousands of small (and not so small) businesses to stock themselves
cheaply and conveniently and expand their operations.
It's the same story
elsewhere. Apple employs just 47,000 people, and Google under 25,000. Like
Staples, they have destroyed many old jobs, like making paper maps and pink
"While You Were Out" notepads. But by lowering the cost of doing business
they've enabled innumerable entrepreneurs to start new businesses and employ
hundreds of thousands, even millions, of workers world-wide—all while
capital gets redeployed more effectively.
This process happens during
every business cycle and always, always creates jobs. Yet is ignored by
policy mavens. [Especially left Liberal
Presidential candidates such as Barack Obama who have no clue how a free
It is now four years after
the wheels fell off our financial system. The government has tried every
gimmick to revive the economy: fiscal stimulus, monetary easing, loan
write-downs, foreclosure modifications—all duds. It seems like no one
remembers how an economy creates jobs anymore. The right answer, in fact the
only answer, for jobs and better living standards, is productivity.
[And a laissez-faire free market economy is a
precursor to the establishment of market prices and thus productivity.
No free market, no real market prices, no productivity; it's just that
productivity as output per worker hour. But ramping up the output of
trolleys or 8-track tapes won't increase living standards. It is not just
technical efficiency that matters, it is also effectiveness—that is,
producing what the economy really needs and consumers will pay for.
And so, in a broader sense,
productivity is really about doing the right things the right way. Using
modern construction equipment, we could build a pyramid on the National Mall
in Washington with amazing efficiency, but it would not be effective.
So how does productivity
result in more employment?
Three ways. First, some new
technology comes along that allows something never before possible. Cash
from an ATM, stock trading from an airplane's aisle seat, ads next to Google
The inventor or entrepreneur
who uses the invention benefits from sales and wealth and hires people to
produce the good or service. We don't hear about this. Instead we hear about
the layoffs of bank tellers, stockbrokers and media salesmen. So
productivity becomes the boogeyman for job losses. And many economic cranks
would prefer that we just hire back the tellers and toll collectors.
This is a big mistake
because new, cheaper technology becomes a platform for others to create or
expand businesses that never before made economic sense. Adobe software
killed typesetters, but allowed millions cheaply to get into the publishing
business. Millions of individuals and micro-size businesses now reach a
national, not just local, retail market thanks to eBay. Amazon allows
thousands upon thousands of new vendors to thrive and hire.
Consider Uber, a
20-month-old start-up, whose smartphone app knows where you are and with a
simple click arranges a private car pickup to take you where you want. It
doesn't exist without iPhones or Androids. Taxi and limousine dispatchers
lose. Customers win. We'll all be surprised by new tablet applications being
dreamed up in garages and basements everywhere.
The third way productivity
results in more employment is by attracting capital to satisfy new consumer
demands. In a competitive economy, productivity—doing more with less—always
lowers the cost of products or services: $5,000 computers become $500
tablets. Consumers get to spend the difference elsewhere in the economy, and
entrepreneurs will be happy to sell them what they want or create new things
they never heard of, but will want. And those with capital will be eager to
fund these entrepreneurs. Win, win.
The mechanism to decide the
most effective use for this capital is profits. The stock market bundles
profits and is the divining rod of productivity, allocating capital in cycle
after cycle toward the economy's most productive companies and
best-compensated jobs. And it does so better than any elite economist or
politician picking pork-barrel projects and relabeling them as
The productive use of
capital is not an automatic process, of course. It is all about constant
experimentation. And it is never permanent: Railroads were once tremendously
productive, so were steamships and even Kodachrome. It takes work, year in
and year out—update, test, tweak, kill off. Staples is under fire from
Amazon and other productive online retailers. Its stock has halved since its
2010 peak and is almost at a 10-year low. So be it.
With all the iPads and
Facebook and cloud-computing growth, why is unemployment still 8.2% and job
creation stalled? My theory is that productivity is always happening but
swims upstream against those that fight it. Unions, regulations and a
bizarre tax code that locks in the status quo.
In good times, no one
notices. But in slow-growth economies, especially in the last 10 years,
regulations and hiring rules and employer mandates and environmental anchors
have had a cumulative dampening effect on productivity.
How can government do the
right thing to help productivity and the employment it fosters? Get out of
the way. Every government-mandated low-flow toilet, phosphorous-free
dishwasher detergent, CFL light bulb, and carbon-emission regulation is
another obstacle on the way to a productive, job-creating economy that
produces things consumers really want.
– FM Duck
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