Thu, Nov 1, 2012
This guest post is by Rob Atkinson, co-author of “Innovation Economics: The Race for Global Advantage” and president of the Information Technology and Innovation Foundation.
The so-called Great Recession that convulsed the U.S. economy from the end of 2007 to the middle of 2009 has been officially over for years, but for most Americans it certainly does not feel that way. The official unemployment rate still hovers around 8 percent, and if the part-time workers who would rather be working full-time were included, the rate would be almost double. In fact, the United States has seen the longest period of high unemployment since the Great Depression. Less than two-thirds of adults are in the labor force, a 25 year low. Worse, from 2000 to 2010, the United States did not add a single net new job. So, finding a job has never been tougher.
One reason it’s been so tough is that America lost almost one-third of its manufacturing jobs from 2000 to 2011. That’s losing over 5.6 million jobs, a rate we’ve never experienced in our almost 250 year history. And this same period has seen the rise of intense new global competition, as many other nations have put in place national economic development policies designed to win in the new global innovation economy, and grow and attract high-wage, innovation-based jobs.
Until U.S. policymakers grasp and act on this fundamental reality, we can expect recovery to be anemic. Recovery will depend on two mutually reinforcing factors: a faith that America will once again lead in the global innovation economy and sufficient private and public investments in research, plant and equipment, and infrastructure to realize that vision.
But if you listen to policymakers from both political parties, you’d think the jobs salvation was in small business. Both presidential candidates wax eloquently about small businesses and the jobs they create. But in fact, most small businesses don’t create jobs. One study of a sample of companies created from 2004 to 2008 found that only 3 percent added more than 10 employees during that time. Another study found that among small companies in their second, third, fourth, and fifth years of business, more jobs were lost to bankruptcy than were added by those still operating. In fact, only a relatively small number of high-growth “gazelle” firms create most of the jobs.
Moreover, jobs are better at large companies. Workers in large firms earn 57 percent more than workers in companies with fewer than 100 workers. And besides getting paid more, workers in large companies get 3.5 times more retirement benefits than workers at Main Street companies, 2.7 times more paid leave, and 2.4 times more health-care benefits.
This is not to denigrate small Main Street businesses in any way. Their owners take risks, work hard, and contribute to their communities. But we should not let our emotions get in the way of reality. The engines of a nation’s competitiveness, innovation, and job growth are not mom-and-pop small businesses, but rather the firms in traded sectors (like manufacturing, agriculture, and software), high-growth entrepreneurial companies, and U.S.-headquartered multinational corporations. Although the latter comprise far less than 1 percent of U.S. companies, they account for about 19 percent of private-sector jobs, 25 percent of private-sector wages, 48 percent of goods exports, and 74 percent of nonpublic R&D investment. Most small businesses are dependent for their success on a growing economy that enables their customers to afford to buy their goods and services. And what really determines if the U.S. economy is thriving is if the companies fighting for global market share thrive.
In short, the real future of America’s economy lies in whether large firms and fast-growing small firms that want to be large firms succeed in America. And to make that happen, and get the millions of jobs that come from it, the United States will need a new national innovation and competitiveness strategy designed to win the race for global innovation advantage.