#533. Short Term and Long Term Trends, and the Government – Conclusion

Short Term and Long Term Trends, and the Government – Conclusion

This week we conclude our series on global trends and how the impact of these trends by looking at the role of our government in growing jobs.

Government Help or Hindrance?

“I’m from the government and I’m here to help you,” Ronald Reagan famously said were the nine most terrifying words in the English language.  And, he was right!  Unfortunately, the government doesn’t seem to get it and instead of easing off on business, in the hopes of creating more jobs and opportunities, regulations from the government only continue to increase.

A May 2014 report from the Competitive Enterprise Institute found that federal regulations drained $1.9 trillion from the American economy.  That is an amount equivalent to the 10th largest economy in the world, more than the entire GDP of Canada.  In 2013, 79,311 pages of regulations were published in the Federal Register, the third highest ever, behind only 2010 and 2011.  The average cost for small business is $10,585/employee, but only $7,755 for businesses with over 500 employees.  President Obama’s threat to greatly increase the number of new environmental and work place regulations in his last two years in office, will only increase these costs more and hinder new business formation.

A National Association of Manufacturers study done during the year found similar costs of regulations, $19,564/employee/year.  However, their study also broke down the costs for manufacturers by size.  Small manufacturers, those with less than 50 employees, have a regulatory burden of $34,671/employee, whereas larger manufacturers’ (over 100 employees) cost was $13,750/employee/year.

The importance of these added regulatory costs is that they are greatly impeding the establishment of new business formation.  A Ewing Marion Kaufmann Foundation study found that during the 1990s and most of the 2000s, the USA was having 450,000 to 550,000 new businesses started each year, but since 2009 that level of start-ups has fallen to less than 400,000.  When you consider that over 80% of net new jobs are created from start-up businesses, it’s no wonder that job growth has been so slow.

While it is unlikely that any major changes will occur in DC in the next several years that would encourage new business creation, there are examples around the country of states that are taking a much more pragmatic approach.  And, they are changing the trajectory of their state and the well-being of their citizens.

Detroit was once the “Silicon Valley” of this country, when cars were in their infancy.  The city of Detroit and state of Michigan both prospered and dominated an industry that accounts for 3% of global GDP.  But bad management, arrogance, and horrible labor contracts killed the golden goose and only a government bailout saved GM and Chrysler.

During my BoomtownUSA talk days, I was on a program with Michigan’s governor at the time, Jennifer Granholm, who railed against auto management even as she lauded the auto union’s leadership.  Granholm, once a sweetheart of liberals, was big into making Michigan “cool again”, bringing in Richard Florida to figure out how to attract the creative class to the state.  The ads were great, but didn’t work.  Michigan slid into depression.

Fortunately, the voters chose the bookish, pragmatic Rick Snyder as their new governor in 2010.  Out went the glitzy ads and Snyder went to work on getting Detroit and Michigan back on a jobs creating path.  He quickly passed Right to Work legislation and firms that had once red-lined Michigan for any new plants or expansions started to reinvest in the state.

The low in national employment was February 2010.  Since then Michigan has added 373,500 jobs, an increase of 11.7%, with 110,000 of those jobs in the high paying manufacturing sector.  The unemployment rate has fallen to 6.7% from a high of 14.2%.

Thank you for following our series on trends. As always, we plan to keep a watchful eye on the issues that we see impacting our economy, especially within the manufacturing sector.