In my last column I just discussed why “job creation” was so important. Now we answer the question, “How are jobs created?" "Job creation" is on the tongue of virtually every political candidate these days, because a good way to get into (or stay in) office is to play on the fears of your constituency. "Elect me, and I'll create good jobs, whereas my opponent's policies will only destroy or export jobs!"

 

  Let's do some politically correct handwringing. Here's what we are hearing about the horrible state of affairs in the American economy today:

 

 "All the high-paying manufacturing jobs are disappearing." "All the new jobs are minimum wage." "We are becoming a nation of insurance salesmen and burger flippers." "America is a shrinking part of the world economy." These statements might make you feel insecure enough to vote for the person saying them, but there is absolutely no truth to any of these statements. None whatsoever. They are all lies.

 

  America has the strongest and most resilient economy in the world. A global survey by two Swiss research groups found that the U.S. is the world's most competitive economy today. The Commerce Department projects the United States, which still is the world's biggest exporter, will ship a record $493 billion in goods abroad this year.

 

  While it is true that our share of the global economy is shrinking, it is only because other economies are growing. Our slice of the pie is growing, but the pie is growing even faster. And as other economies grow, they do more business with us. Whether you like the North American Free Trade Agreement or not, you can't deny we sold Mexicans $400 Million more than we bought from them in just the first six months of this agreement.

 

  Service jobs, including selling insurance and flipping burgers, have grown far more dramatically than manufacturing jobs in the past 40 years. But instead of bemoaning the fact that Wegmans Food Markets, Inc. is hiring more employees than Eastman Kodak Co., consider this: Not only does the growth of service jobs imply real job creation, because these jobs did not formerly exist, it also implies that people are becoming wealthier, thereby allowing them to purchase services they formerly could not afford.

 

  Even though service jobs are growing faster than manufacturing jobs, Federal Reserve data show that our industrial base has doubled since 1967. In the last five years the United States experienced a net loss of 2 million manufacturing jobs, but Labor Department statistics show that these losses occurred due to productivity gains, and most of these losses were in the lowest-paying industries.

 

  America is undergoing a profound transformation from a goods-based economy to an information-based economy. This "micro-electronic revolution" is altering our economy and our society even more profoundly than the Industrial Revolution that transformed us from an agrarian economy to a manufacturing economy. We can bemoan the fact that manufacturing jobs are "disappearing," but we absolutely must understand that this is natural economic evolution.

 

  I'm sure that farmers felt quite threatened more than a century ago when their children started going to work in those new-fangled factories, rather than till the soil. Blacksmiths, buggy-whip manufacturers and horse-drawn carriage makers all were put out of work by the advent of the automobile. Likewise, many tool-and-die makers lost their jobs when they just couldn't get the hang of that new computer attached to their machines. And how many receptionists now are unemployed because of voicemail?

 

  So let's stop panicking. From 1983 to 1993, U.S. manufacturing employment fell 3.4 percent. This means that slightly more than three out of every 100 manufacturing jobs disappeared in our country. Given the enormous strides in productivity, this is a virtually insignificant number.

 

  Having said this, we cannot overlook the fact that manufacturing jobs in New York fell 24.6 percent over that same period. This means one out of four manufacturing jobs disappeared from our state. Clearly, there is something wrong in New York.

 

  But let's also recognize that we in America are extremely fortunate because our vibrant economy also creates a lot of new opportunities. Would you have believed it if you had been told 20 years ago that in the 1990s most people would have phones in their cars? That most people would have a VCR to watch movies in their home? That you would listen to music with a laser? That you would carry an incredibly powerful computer in your briefcase? That you could transmit data over a cordless phone? That you could make a phone call through the cable-TV company?

 

  My point is there are a lot of opportunities. What we need to do is capitalize on them.

 

  Since this is the Rochester Business Journal, and since most readers reside in the Greater Rochester area, the approach we'll take is: "How can jobs be created locally?" I'm very interested in local job creation, as I was raised and educated locally, and intend to raise my family and spend the rest of my life here (even though a friend of mine once said to me: "Tell me again why I live here: Is it the good weather, or the low taxes?"). A strong economy will benefit both my family and our community.

 

  Unfortunately, this isolated approach of local job creation is naïve and dangerous, given the economic realities of our times. In the 1960s the U.S. economy virtually stopped at the border, and there was no reason to venture beyond when there was so much business to be had in our own backyard. When American companies began to expand onto foreign soil, they often were economic conquerors that found little competitive resistance.

 

  But now we are just one of many players in a global economy. In 1987, imports and exports accounted for 16 percent of our gross domestic product. By 1993, imports and exports had grown to 25 percent of GDP.

 

  Transnational corporations with global interests and frictionless capital flows are rarely impacted by local job-creation initiatives. Also bear in mind that the fundamental purpose of a company (in a capitalistic society) is not to create jobs, but rather to provide a fair (i.e., risk-adjusted) rate of return on its capital to its investors.

 

  Let's also make sure we understand that "job creation" is just that: a job created where one did not exist before. This is very different from "job transfer," where a "new" job in our community merely eliminates the same job in another community. Many government economic development initiatives do not create jobs, they merely "purchase" them from other municipalities with tax incentives and low-cost financing programs.

 

  The following "solutions" often are touted by businesspeople, entrepreneurs, and politicians as ways to "create" jobs"

 

  ~ Reduce taxes

  ~ Reduce regulation

  ~ Reduce labor costs

  ~ Increase the availability of capital

 

  Reducing taxes in order to create jobs that will then increase tax revenues seems completely illogical, but tax cut after tax cut after tax cut has proved the validity of this approach. Yet cutting taxes in order to create jobs can work only if it is done at the federal level. If taxes are cut at the local level, the result is job transfers, not job creation, as companies move their operation from a high-tax locality to a low-tax locality. politicians as the way to" create" jobs: