Leadership by Geoff Colvin

The U.S. has waged a war on jobs

July 12, 2011: 11:37 AM ET

As long as Wall Street and venture capitalists continue to reward corporations for off-shoring and downsizing, we continue to play the fool when we express shock that the U.S. economy is not creating many new jobs.

By Jeffrey Pfeffer, guest contributor

FORTUNE -- The U.S. seems to be shocked that its economy isn't creating many jobs, and each monthly report on the unemployment rate and the number of new jobs somehow stimulates more handwringing. I'm not an economist, labor or otherwise, but simple observation suggests one significant contributor to the nation's job crisis -- for a long time, maybe even decades, we have been waging war on jobs and those who hold them.

At a board meeting of a human capital software company I had attended, the managing director of a major venture capital firm asked the CEO to describe the company's outsourcing strategy. The VC then proceeded to tell us that it was increasingly common for the venture community to evaluate investment opportunities partly by whether the company had a strategy for off-shoring work to less expensive locales.

The logic was that shrewd business people -- the sort that deserved financial backing -- would have thought through how to lower their labor costs, even while their product or service was being developed, and then over time as the business grew and matured.  This meeting took place nearly a decade ago, and what was then a new way of thinking is now taken for granted in the start-up and VC communities.

At a UCLA conference on corporate governance and social responsibility, a wealthy and powerful CEO of a major U.S. money management company who had partly funded the gathering remarked on the successful turnaround of the U.S. automobile industry. He verbally applauded the industry's move to less vertical integration and outsourcing and seemed particularly pleased by the ability to use the distressed condition of the labor market to negotiate salaries that were, in his words, about the same as those earned by workers in Mexico.

It is commonly believed among much of corporate America and the finance community that downsizing is one way to cut costs and increase stock prices, because Wall Street seems to like layoffs. Even though there is scant empirical support for this idea -- in fact, most studies show that employment reductions lead to stock price reduction both in the short and longer term -- the pervasiveness of this belief certainly affects how leaders think about employment issues. And the idea of employment security, once a hallmark at many companies ranging from Southwest Airlines (LUV) to Lincoln Electric (LECO), is now seldom practiced.

Public employees are under attack in states across the U.S. Although it's often amusing to see The Daily Show's Jon Stewart asks how teachers became the villains in the tale of our economic troubles, the fact is that hundreds of thousands of public sector jobs have disappeared over the last 18 months and more are going to disappear in the next year.  Those lost jobs -- and the income that disappears along with them -- contribute to the sputtering economic recovery.

If VC's evaluate business plans by how quickly entrepreneurs propose to get work out of the U.S., if Wall Street looks to see how quickly jobs are being cut at the first sign of financial distress, if government leaders consider how many public sector jobs they can eliminate a measure of their acumen, and if a presumably enlightened captain of finance measures an industry's progress by how much outsourcing is taking place and how low wages have fallen, it is little wonder that jobs are an afterthought in most economic discussions.

Last summer, former Intel (INTC) CEO Andy Grove published an essay in Businessweek in which he documented the fact that there are fewer jobs in the PC industry -- a high tech bellwether -- in the U.S. today than there were 30 years ago. Grove also wrote that while there are highly successful companies in that industry, such as Apple (AAPL), Dell (DELL), and Hewlett-Packard (HPQ), most of the jobs created by these companies are overseas, many of them in China.

One can speculate on how this situation came to be -- the role of business schools and their emphasis on maximizing shareholder value, the weakening of organizations that represent employee interests (e.g. unions), a growing preoccupation with deficits over economic growth, and so forth. But the implication seems inescapable: as long as we wage war on jobs, we shouldn't be surprised when we don't create many of them.

Jeffrey Pfeffer teaches leadership and organizational behavior at Stanford's Graduate School of Business. His latest book is Power: Why Some People Have It -- and Others Don't

Related from Poets&Quants:

Join the Conversation
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.