Dear President-elect Obama,
In contrast to what the media portray as an overwhelming urge to take prompt and bold action to restart the economy of the United States , even in the absence of rational grounds for believing that the actions taken will lead to the results desired, here we are systematically going about creating five kinds of jobs. They are: (1) Employment in for-profit Business. (2) The People’s Economy. (3) Public sector work. (4) Working for non-profits. (5) Community service jobs. We are aiming for zero unemployment.
History and anthropology teach us to believe that there must be a 6th, a 7th, an 8th and an ……. nth kind of job. Here and now we are concentrating on the five just listed. “Here” in a narrow sense refers to a town in Chile with a newly elected mayor and city council. They have been studying the social innovations that are so plentiful in South America . I will be drawing examples to illustrate our thinking especially from Argentina . “We” includes both them and your faithful correspondent, who is one of their academic advisors. “Now” officially begins on December 6, 2008, when the new city officers will be sworn in for four year terms.
(1) Employment in for-profit business.
In our new paradigm town we will concentrate on small businesses because they generate the bulk of employment. (I will write letters later about big business and about the social functions of profit.) We will back entrepreneurs. Like Joseph Schumpeter and the early utopian socialist Saint-Simon we regard the entrepreneur as a member of the productive classes. We add a fifth factor, “organization” (contributed by the entrepreneur) to the classic trio of factors of production, “land, labor, and capital,” and to the fourth factor added later: “knowledge.”
An excellent example of local government supporting for-profit business (and thus creating jobs) is provided by the Municipal Bank of Rosario, Argentina . That bank’s Mission Statement and Charter provide that the bank’s function is to serve small business and micro business in the local area. (www.bmros.com.ar)
The Municipal Bank of Rosario does not manage footloose money endlessly roaming the globe in quest of the fastest way to make itself fattest. It manages money tied to a place.
When the Argentine economy collapsed in 2001, the Rosario branches of foreign commercial banks closed. They were there for one reason: profit. When there were no profits to be made, they had no reason for being in Rosario or in Argentina . They left.
The Municipal Bank was there for another reason. It stayed open. It bent every rule in the books to make bridge loans so that its small business clients could meet payroll, save jobs, and survive.
In addition to standing by its small business clients in times of crisis, the Municipal Bank backs entrepreneurs (and through them creates jobs) in many other ways. In its auditorium and meeting rooms it runs business seminars. Entrepreneurs and potential entrepreneurs learn of new opportunities, of new legislation, and of new research findings. Hands-on classes teach them skills.
The Municipal Bank uses the information technology expertise it acquired managing the accounts of the city government to help its small business clients calculate payroll deductions, fill out tax returns, prepare balance sheets, and track progress with management information systems. Entrepreneurs are freed to lead their businesses because the bank’s computers do the routine paperwork for them. They can pay their employees with a single deposit or transfer. The employees can withdraw their pay from one of the Municipal Bank’s ATMs.
The profits of the bank go to the Municipal Bank Foundation. The Foundation gives grants to local musicians and artists. This recycling of profits creates employment in the arts. The Foundation also supports studies on solid waste disposal, housing needs, air quality, public transportation, and other topics of local interest. To some extent the funds granted by the Foundation to do studies create jobs for scientists, but for the most part the grants only cover costs while the scientists voluntarily donate their time to public service.
(2) The People’s Economy.
The people’s economy creates jobs that do not exist in the for-profit economy. It is defined by the Argentine socioeonomist Jose Luis Coraggio (holder of a doctorate from the Wharton School and director of the Graduate Program in Social Economics at General Sarmiento University in Buenos Aires ) as an economy where the principal resource is labor and the principal objective is to make a living. Coraggio contrasts it with the larger scale more heavily capitalized and more technologically advanced economy where the principal resource is capital and the principal objective is profit. (www.coraggioeconomia.org)
The workers in the people’s economy are self-employed, whether as individuals, as partners, as members of cooperatives, or as associates in micro-enterprises. We calculate that about 26% of the jobs in Chile are in the people’s economy. Many of them are in mom and pop tiny businesses that barely generate the equivalent of a wage and never generate anything that could be called a return on capital.
In Argentina today there are some 300 enterprises that used to be in the for-profit sector, and are now in the people’s sector. They failed to survive as profit-making businesses, but their workers keep them going anyway. They generate enough income to make it possible for the worker-owners to get by.
We believe the people’s economy deserves the support of the for-profit economy. It sometimes gets it. For example, at the premises of the Chamber of Commerce in Rosario major corporations provide training and equipment for women starting self-help micro-enterprises.
We believe the people’s economy deserves the support of government. In Chile the national government has a program that favors making government purchases from the tiny firms we and Corragio place in the people’s economy category. (www.chilecompra.cl)
We believe the people’s economy deserves the support of volunteers. I doubt that any of the 300 new worker cooperatives in Argentina could have survived without the volunteer help they received from engineers, lawyers, and accountants (many of whom were associated with universities, political parties, and/or churches).
Many retired business people around the world regularly lend a helping hand to people who are struggling to get started in the people’s economy and/or in small business.
Among the plans we have for supporting the people’s economy in our town are deliberate support for traditional family businesses now on the wane. For example, there are some beleaguered ones that have been making fruit jams and/or raising chickens for generations, which we believe could thrive in today’s environment with support from a sympathetic municipality and its associated citizens movement. We have a plan for city certification of the purity and authenticity of traditional herbal medicines. The herbal medicines are produced (and more could be produced) on small plots within the town’s limits. ( Chile is divided into towns as Connecticut is, in such a way that even rural areas are in towns.)
Employment in for-profit business tops out when it hits the profit barrier. No profits, no jobs. You will only be hired in a for-profit business if the cost of hiring you is less than the value of the product you produce. However much good will and social responsibility an entrepreneur may have, she or he still needs to make a return on the capital invested.
The people’s economy breaks the profit barrier. It creates jobs where there are no profits (although revenue still has to be sufficient to purchase inputs other than labor and to amortize equipment). But the people’s economy tops out when it hits the market barrier. No market, no jobs. If the product or service cannot be sold, then nobody can make a living producing it.
The third, fourth, and fifth kinds of job creation break both the profit barrier and the market barrier. I will discuss them in another letter.
Peace and all good,
Howard R.
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