Marsh Business Advisors, LLC
"CAPITAL"
Creating Jobs Requires Demand In The Marketplace
By: Stuart Wm. Marsh
President, Genesee Capital, Inc.
November 4, 1994
What creates jobs? Last week, we offered a one-word answer: demand.
When there is demand for a company's product or service, the company will hire people in order to fulfill that demand.
Tom Golisano is creating jobs because Paychex, Inc. offers payroll and tax accounting services that more and more customers are demanding every day. Robert and Danny Wegman are creating jobs because Wegmans Food Markets, Inc. offers goods and services that customers want, and more importantly, in many cases were not able to purchase before Wegmans offered them. Ronald Bittner is creating jobs because in our information-based economy, people need to communicate more frequently and in more detail, and Rochester Telephone Corp. (soon to be Frontier Corp.) is filling those needs.
In the February 1992 issue of Economic Inquiry, two University of Tennessee economists, Charles Garrison and Feng-Yao Lee, published the most extensive study to date on taxation patterns and economic activity, analyzing 63 countries, both industrialized and developing, from 1970 to 1985. While they found that an increase in marginal tax rates reduced the level of economic activity, Garrison and Lee concluded: "Our results suggest that economic growth depends far more on aggregate demand and the state of a nation's human, technological and physical resources than on the incentive of low marginal tax rates."
What does this mean for creating jobs in Rochester?
Assuming that there is demand for a company's product or service, the ability of that company to prosper and create jobs is a function of the human, technological, and physical resources in the Greater Rochester area.
We are blessed with an abundance of extremely good educational facilities, and a pool of highly skilled and talented people. In this regard, I would argue that the University of Rochester, Rochester Institute of Technology, SUNY College at Brockport, Nazareth College and St. John Fisher College are all creating jobs because they are providing local companies with employees that have the skills to make the goods and services demanded.
We have the technological skills needed to not only make the products customers demand, but to design and engineer entirely new products. Not only was photography virtually invented here, so was xerography, and the list goes on and on.
We have a competitive advantage many other comparable communities do not have: High Technology of Rochester, Inc., which provides advice and assistance to young, high-technology companies, and will now be able to "incubate" them in a brand new $6 million facility.
As a corollary to the requirements of technological skills, economist Frank Lechtenburg of Columbia University's School of Business studied the relationship between levels of research and development investment, and productivity growth rates and living standards in 53 countries from 1960 to 1985. His analysis concluded that the rate of return on R&D was some seven times the return on expenditures for the plant and equipment, that is, R&D is seven times more potent in facilitating productivity growth and higher per-capita income than a dollar of conventional capital investment. Think of all the research and development done right here, from the labs of Kodak to the labs of UR.
Rochester also has the physical resources necessary. A brand-new international airport, excellent highways and, maybe most importantly, fiber-optic telephone cabling, which is the on-ramp to the much vaunted information superhighway.
We are fortunate that we have a mayor and a county executive who are progressive and are working to maintain the infrastructure of our community that serves as a powerful magnet for business. We have reasonable real estate prices and high quality housing. Many would say that Rochester beats most other communities for its "quality of life."
We also have plenty of entrepreneurs who are willing to take big risks to see their companies succeed. (I should know, most of them come to see me for financing.)
Assuming the demand exists for their products, there really are only two elements that need improvement to enhance job creation in Rochester.
The first element is a friendly tax structure.
Unfortunately, no matter what we try to accomplish here in Rochester, it is a very tough sell trying to persuade a business to stay in or move to the most heavily taxed state in the nation. I am not worried about competing with Taiwan on taxes; I am worried about competing with Tennessee.
The second element is the supply of venture capital, which I will address in my next column
Not bad. We Rochesterians really only have two problems facing us when it comes to creating jobs. And both of these problems can be easily solved.
When it comes to creating jobs, let's stop listening to the political rhetoric and stop wringing our hands. Rochester has an enormous head start over most other communities, and we have everything right here to make our next century even more prosperous than our last.