Obama Job 1: Create Jobs

August 25, 2011 by · Leave a Comment 

By Fareed Zakaria

Democrats are finally up for a fight — with President Obama. Having despaired that Obama gave in to the Tea Party on the debt deal, they now criticize him as too cautious in his proposals to boost American jobs. They’re right that Obama should present a sharp distinction to the public between his efforts and the Republican Party’s utter passivity in the face of a national employment crisis. But perhaps Obama realizes that the most important factor that will help his reelection — and Democratic prospects more generally — is a rise in employment. And to have any impact on the actual economy, Obama needs proposals that can get through Congress, not ones that sound good on TV.

The problem before the country is more acute than people realize. It goes beyond the indebtedness issues that are surely depressing the recovery. In June, the McKinsey Global Institute published an eye-opening report called “An economy that works: Job creation and America’s future.” It points out that for 20 years, America has had huge difficulties creating jobs. After every recession since the Second World War, once gross domestic product recovered to pre-recession levels, employment also returned to pre-recession levels within about six months.

Until 1990. In the recession that began in 1990, it took 15 months for jobs to come back after GDP had recovered. In the recession of 2001, it took 39 months for jobs to come back.

And now? Since the start of this year, American GDP has returned to its pre-crisis levels — but with 6.8 million fewer workers. At the current rate of job creation, it will take 60 months — five years! — before employment returns to pre-recession levels.

Even these numbers mask the problem. The Nobel Prize-winning economist Michael Spence has found that of the 27 million jobs created between 1990 and 2008, 40 percent were in government and health care — sectors that can’t keep growing at their previous pace. Meanwhile, employment in the tradable sector of the U.S. economy, the sector that produces goods and services that can be consumed anywhere, such as manufactured products, engineering and consulting services — which accounted for more than 34 million jobs in 1990 — grew by just 600,000 jobs over the same 18-year period.

Why is this happening? Nobody knows for sure, but it does seem as though the timing coincides with the two great tidal waves that have been powering the global economy since 1990. The first is information technology, which expanded from a narrow, data-processing function in the 1980s to streamline every aspect of every business. Today, computer programs that do conceptual searches are used at law firms to read and code documents, replacing the dozens of young associates who used to be hired and paid handsomely to do the same job.

The second big shift is, of course, globalization, which has created a worldwide supply that allows companies to make new investments in regions where labor is cheap and newly emerging middle classes are eager for their products. The results have been great for American companies, but these same forces place enormous pressures on the American worker. The decline in American education has left Americans less able to compete in a world in which skills are the only path to high-wage jobs. As Bill Gross, the founder of the world’s largest bond fund, Pimco, succinctly put it, “Our labor force is too expensive and poorly educated for today’s marketplace.”

If we’re going to solve this problem, it will take a determination to make jobs Job One. Everything we do as a country should be geared toward the central task of boosting employment. Some of this will involve government spending. An infrastructure bank that uses current low interest rates, includes the private sector and chooses projects based on merit rather than patronage is one of the best ideas to come out of Washington in years. Obama should take his proposals to the country and press for a project to rebuild America.

But there are many cost-free policies that could boost jobs. Tourism is one of the largest growth industries in America, and yet because of exaggerated fears of terrorism, bureaucracy and politics, we have lost market share in global tourism over the past decade. We should make it much easier for tourists to get visas and work hard to make them feel welcome. They are, in the words of Starwood Hotels CEO Frits van Paasschen, a walking stimulus program.

The key is to subordinate politics to a national goal of job creation.

Right now, a smart program to rationalize the patent process, which could unleash thousands of start-ups, is languishing in Congress not because of some principled opposition but because of turf battles between congressional committees. We can’t keep doing this.

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Getting Past the Paralysis on Jobs

June 16, 2011 by · Leave a Comment 

By Fareed Zakaria

TV CNN ZakariaEvery week brings fresh evidence that America’s unemployment crisis is much deeper and more systemic than predicted — yet Washington seems unwilling or unable to do anything about it. Fears of the budget deficit and a dysfunctional political climate have paralyzed people on both sides of the political aisle. The result is that America is “sleepwalking” through its biggest crisis, writes Mohamed El-Erian, the low-key co-CEO of PIMCO.

Around 24 million Americans are unemployed or underemployed (the latter in part-time jobs that average $19,000, half the median wage). If these people don’t find jobs soon, they will lose skills and work habits and become permanently unemployable, with grim consequences for their families, communities and the country. And if employment growth does not pick up significantly, tax revenue will stay depressed, unemployment costs will rise and the deficit will balloon well beyond current projections.

We still seem to be hoping that somehow this problem will resolve itself, but it won’t. Federal Reserve Chairman Ben Bernanke explained this week that the economy has gone through the worst financial crisis and the deepest housing collapse since the Great Depression. In fact, the problem is even worse. Employment growth has been stalled since 2000. If not for the housing and credit bubble, this jobs crisis would have revealed itself much earlier.

We’re in a new world for the American worker. Technological change and globalization allow companies to get more output with fewer workers. Emerging markets provide millions of skilled workers who can produce the same products at a fraction of the price that Americans can. The Bureau of Labor Statistics notes that from 1947 till 2000, productivity growth was correlated with employment growth. Since 2000, they have diverged. Productivity has risen while employment has fallen. The Nobel Prize-winning economist Michael Spence has concluded that in America, growth and employment will diverge in the future.

Does this mean that we are stuck in a low-growth, low-employment future? No, but the crisis is structural, and we have to recognize its scope and urgency. “Shutting off the alarm and pulling the blanket over one’s head is not a solution,” says El-Erian.

Republican concerns about government spending over the long term are understandable, but cutting spending in the short run will result in more unemployment and slower growth. President Obama talks about jobs but seems too paralyzed to do something ambitious to help create them. Even Bernanke said this week that there isn’t much he could do about the slow-growth, high-unemployment trajectory we are on. Have we all become fatalists?

In fact, we could enact some measures that would spur job creation, many with a limited effect on the deficit. Most immediately, Washington needs to find ways to employ the millions of workers whose jobs disappeared with the housing bust. The simplest way to help them, and the country, would be to create a national infrastructure bank to repair and rebuild America’s infrastructure — which is in a shambles and ranks 23rd globally, according to the World Economic Forum — down from sixth only a decade ago.

House Majority Leader Eric Cantor has played down this proposal as just more stimulus, but if Republicans set aside ideology they would see it is actually an opportunity to push for two of their favorite ideas: privatization and the elimination of earmarks.

The United States builds infrastructure in a remarkably socialist manner; the government funds, builds and operates almost all American infrastructure. In many countries in Europe and Asia, the private sector plays a large role in financing and operation of roads, highways, railroads and airports, as well as other public resources. An infrastructure bank would create a mechanism by which such private-sector participation would become possible here as well. Yes, some public money would be involved, mostly through issuing bonds, but with interest rates at historic lows, this is the time to rebuild. Such projects, with huge long-term payoffs, could genuinely be called investments, not expenditures.

A national infrastructure bank would also address a legitimate complaint of the Tea Party — earmarks. One of the reasons federal spending has been inefficient is that Congress wants to spread money around in ways that make political sense but are economically inefficient. An infrastructure bank would make these decisions using cost-benefit analysis, in a meritocratic system, rather than basing decisions on patronage and whimsy.

The country needs much more: a revival of manufacturing, emphasizing technical training and apprenticeship programs; aggressive measures to promote those industries that are booming, such as entertainment and tourism; an expansion of retraining; streamlining the patent process; more visas for skilled immigrants to stay and create companies and jobs in America. These should be part of a national plan for jobs that President Obama must lay out soon. But start with something that would have an immediate impact and put people back to work — the rebuilding of America.

comments@fareedzakaria.com

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