CHAPTER TWO
America’s Entrepreneurial Job Machine
“WHERE HAVE ALL THE JOBS GONE?” has been the constant question in all industrial Western countries these past few years. But for the United States, another question is at least as important—perhaps much more so—and yet it is never asked: Where have all the jobs come from? All developed industrial countries are losing jobs in the smokestack industries—even Japan. But only the U.S. economy is creating new jobs at a much faster rate than the smokestack industries are losing old ones, indeed at a rate that is almost unprecedented in our peacetime history.
Between 1965 and 1984, America’s population aged sixteen to sixty-five grew 38 percent, to 178 million people from 129 million. But jobs during that period increased 45 percent to 103 million from 71 million. By this fall (1984) they are likely to reach 105 million, or 106 million, which would mean a rise of almost 50 percent since 1965. And more than half this growth occurred since the energy crisis in the fall of 1973—years of “oil shocks,” of two recessions, and of the near-collapse of the smokestack industries. Indeed the 1981–82 recession, for all its trauma, barely slowed the rapid pace of new-job creation. At its bottom, in fall 1982, there still were 15 million more jobs than there had been in 1973, despite record unemployment.
In Japan, jobs these past ten years have grown about 10 percent, only half the U.S. rate, to 56 million from 51 million. Western Europe has had job shrinkage. In Western Europe, there were 3 million fewer jobs in 1984—after full allowance for cyclical unemployment—than there were in 1974.
And the U.S. economy in 1984 had about 10 million more jobs than even optimists predicted fifteen years ago. Such a careful and authoritative expert as Columbia University’s Eli Ginzberg then thought that during the late 1970s and early 1980s the federal government would have to become the “employer of first resort” to provide jobs for the children of the “baby boom.” But without any government help we have provided half as many again as needed to absorb the members of the baby boom. This was in order to accommodate what nobody foresaw fifteen years ago: the rush of married women into jobs. Where have all these jobs come from?
They didn’t come from the sectors that for almost forty years through the 1960s provided virtually all the new jobs in the U.S. economy: government and big business. Government stopped expanding its employment in the early 1970s and has barely maintained it since. Big business has been losing jobs since the early 1970s. In the past five years alone, the Fortune 500—the country’s biggest manufacturing companies—have permanently lost around 3 million jobs. Nearly all job creation has been in small and medium-size businesses, and practically all of it in entrepreneurial and innovative businesses.
“Aha,” everyone will say, “high tech.” But everyone will be wrong. High technology is tremendously important: as vision setter, pace setter, excitement maker, maker of the future. But as a maker of the present it is still almost marginal, accounting for no more than 10 percent of the jobs created in the past ten years. And it is reasonably certain that its job-creation rate won’t increase significantly until after 1990.
New-job creation mainly is in “low-tech” or “no-tech” businesses. One indication is Inc. magazine’s annual list of the fastest-growing publicly owned businesses more than five years and fewer than fifteen years old. Being confined to publicly owned companies, the list has a strong high-tech bias. Yet 80 of the 100 companies on the 1982 list were decidedly low tech or no tech: women’s wear makers, restaurant chains, and the like. And Inc. ’s list of the five hundred fastest-growing closely held companies is headed by a maker of exercise equipment for the home.
The most illuminating analysis, however, is a study of mid-size growth companies—those with annual sales of $25 million to $1 billion a year—made by the consulting firm McKinsey & Co. A majority of these concerns aren’t high tech; a majority are manufacturers rather than service companies. These mid-size growth companies grew three times as fast as the Fortune 250, the economy’s big companies, in sales, profits, and employment during 1975–1980. Even during the worst of the 1981–1982 recession, when the Fortune 250 cut employment nearly 2 percent in one year, the mid-size growth companies added 1 million jobs—or 1 percent of the country’s employed labor force. And all that these companies have in common is that they are organized for systematic entrepreneurship and purposeful innovation.
For about ten years now, the U.S. economy’s dynamics have been shifting to entrepreneurial and innovative businesses—mostly low tech or no tech. In economics ten years is a long time, long enough to talk of a “structural change.” What explains this shift isn’t clear yet. Surely there has been a sharp shift in values, attitudes, and aspirations of a lot of educated young people, a shift totally different from the “Greening of America” we were promised fifteen years ago, when the real change actually began. There are many young people around now who are risk takers and who want material success badly enough to impose on themselves the grueling discipline and endless hours of the entrepreneur.
But where does the money come from? A decade ago, we worried that there would be no capital available for new ventures; now it seems there is more venture capital than there are ventures. The biggest factor in the entrepreneurial explosion—and the one truly new technology—is probably a managerial breakthrough: the development since World War II of a body of organized knowledge of entrepreneurship and innovation.
The American development clearly disproves the most widely held and most serious explanation of the economic crisis of the past ten years and the most widely held and most serious prediction for the decades to come: the no-growth theory based on the “Kondratieff long wave” (named after the Russian Nikolai Kondratieff, born in 1892 and executed sometime in the 1930s on Stalin’s orders because his economic model accurately predicted that collectivization would cut rather than multiply farm output).
According to the long-wave theory, developed economies enter a long period of inexorable stagnation every fifty years. The technologies that carried the growth in the earlier ascending stages of the Kondratieff cycle still seem to do very well during the last twenty years before the “Kondratieff bust.” Indeed, they show record profits and can pay record wages; being “mature,” they no longer need to invest heavily.
But what looks like blooming health is, in effect, wasting sickness; the “record profits” and “record wages” are already capital liquidation. And then when the tide turns with the Kondratieff bust, these mature industries all but collapse overnight. The new technologies are already around, but for another twenty years they can’t generate enough jobs or absorb enough capital to fuel a new period of economic growth. For twenty years there is thus a “Kondratieff stagnation” and “no growth,” and there is nothing anybody—least of all government—can do about it but wait it out.
The smokestack industries in the United States and Western Europe do seem to conform to the Kondratieff cycle. In Japan, too, they seem to be headed the same way and to be only a few years behind. High tech also conforms: it doesn’t generate enough new jobs or absorb enough new capital yet to offset the shrinkage in the smokestack industries.
But the job creation by entrepreneurial and innovative businesses in the United States simply isn’t compatible with Kondratieff. Or, rather, it bears a remarkable resemblance to the “atypical Kondratieff wave” of Germany and the United States after 1873—twenty-five years of great turbulence in these countries and of economic and social change, but also twenty-five years of rapid economic growth.
This atypical Kondratieff wave was discovered and described by Joseph Schumpeter (1883–1950) in his classic Business Cycles (1939). This book introduced Kondratieff to the West; but it also pointed out that the Kondratieff stagnation occurred only in England and France after 1873, the period on which Kondratieff based his long wave. Germany and the United States also had a “crash.” But recovery began almost at once, and five years later both countries were expanding rapidly and continued to do so up to World War I. And what made these two countries atypical and made them the growth economies of the late nineteenth century was their shift to an entrepreneurial economy.
There are massive threats in the world economy. There is the crisis of the welfare state with its uncontrolled and seemingly uncontrollable government deficits and the resulting inflationary cancer. There is the crisis of the commodity producers everywhere, in the Third World as much as on the Iowa farm. Commodity prices for several years have been lower in relation to the prices of manufactured goods than at any time since the Great Depression, and in all economic history, there has never been a prolonged period of very low commodity prices that wasn’t followed by depression in the industrial economy. And surely the shrinkage of jobs in the smokestack industries and their conversion to being capital-intensive rather than labor-intensive, that is, to automation, will put severe strains—economic, social, political—on the system.
But at least for the United States, the Kondratieff no-growth prediction is practically ruled out by what has already happened in the American economy and by the near-50 percent increase in jobs since the smokestack industries reached their Kondratieff peak fifteen or twenty years ago.
(1984)