“Entrepreneurs Create Jobs” Backwards Reasoning

There was a discussion on TV this morning about sin or greed or something. There was an entrepreneur who was very pleased with his accomplishments. When his turn came to speak he immediately said he hates socialism “all around the world” and that greed is an intrinsic part of a healthy economy. He also, on behalf of capitalism, took credit for all human progress [2].

He argued, of course, that as an entrepreneur he “created jobs” and society rewarded him for it by making him a millionaire.

The idea that entrepreneurs create jobs is, to me, obvious nonsense. Private commerce acts to reduces costs. Jobs are a cost. A theoretically perfect private sector would operate at zero cost, doing so would require, either, a voluntary human work force, or no human workforce. Of course, this couldn’t possibly operate in reality [1] because if no-one has a job no-one has an income, and so the private sector would have no customers. Assuming an economy and monetary system that we would recognise this can’t work. This is one of the reasons government has to exist to facilitate a private sector.

The public sector doesn’t need to make a profit and so isn’t subject to pressures to eliminate costs (until a conservative government starts playing with austerity). The existence of the public sector creates the demand that allows the private sector to function.

When someone says “I created jobs” a perfectly valid interpretation of that could be the reverse: “jobs created them”. What I mean is that jobs are created by the economy. By society. Companies then section off those jobs in order to create a system that, generally, makes a few people richer. In this interpretation jobs are like plots of land. Companies can erect things on plots of land, but they can’t create plots of land. So a person saying “I create jobs” is like saying “I created the land my factory is on”. Whereas land is a finite factor of the environment, jobs are a variable factor of the economy as a whole. The number of jobs that an economy can sustain is a reflection of the health of the economy as a whole [4].

If you start making widgets a few things have to happen:

1) you need a work force. A workforce isn’t just a group of humans in a field. A group of people being in a position to work for you has to be orchestrated. For example, if people have to spend 10 hours a day getting clean water they aren’t available to work much.

2) you cant make money without selling your widgets. You need customers. Again, customers aren’t a group of humans in a field. They are people in a position to buy your goods. Having easy access to lots of customers requires lots of things to happen. For example, it requires many types of security else populations collapse. It requires infrastructure that, whether you think that public funding for infrastructure is necessary or not, the infrastructure in the UK is almost entirely publicly funded. Maybe in a hypothetical world it would all be privately funded, but we aren’t in that hypothetical world.

3) there are lots of things that happen that allow you to run your business on an ongoing basis. Like being protected from people robbing you.

4) you will want to do almost none of the work. The person who owns the business, has a personal fortune and commands most of the control over the company, will have contributed only a tiny proportion of the effort necessary for their perceived personal success. They will likely talk about how they work 70 hour weeks and built the company from scratch. They could work every hour god sends but still contribute a tiny amount of the real effort that supports the venture that they argue is their success, because they’re in a team. That team at the very least could be said to contain the people in the firm but in a real sense is made up of everyone in the society. So how could it be considered OK to take credit for the success of a team? Sure they were there at the beginning, but even if that argument were valid, surely the same should be said of all the ventures that happened before their venture, that allowed them to start anything. If you want to erect a factory to make widgets… who invented factories? Surely you’re just extending their venture. So really that argument could only be forwarded by the worlds first ‘person who did something’ since they were the ones who built everything else ‘from scratch’. If an entrepreneurs’ financial success was really proportional to the effort they put into their ventures they would be unrecognizable as entrepreneurs, they’d just be quite busy people, and they wouldn’t be particularly rich. Mothers in the Sudan would be better off [3].

I expect some people will take this as only a valid argument in an interpretation of the world that excludes laissez-fair capitalism (in that all the above is provisioned by a free-market private sector.) Actually, even if we lived in such a world, my argument would still hold. If you set up a venture a few things have to happen to make it possible and some things can happen to make it far more easy. Whether that is provided by the private sector, public sector or a public/private hybrid doesn’t matter, the fact is you need someone else to do a huge number of things to do what some entrepreneurs take personal credit for. You have to be in a team.

[1] Actually a theoretically perfect private sector wouldn’t really be an economic system. It would have no need for customers, it would just be an autonomous independent system that provides it’s owners with whatever they want. Money would be of no use except, perhaps, as a book-keeping unit within individual firms.

[2] He also said that people have spat into his parked car because “people hate success”. I suspect this is only true if you define ‘success’ as “continuing to exploit an economic system we all know is broken and has ruined lots of other people’s lives to make yourself rich”.

[3] As a further point we always kind of just assume that those widgets are something that should be produced. That all economic activity is good. It’s interesting how whorish we are for private economic activity of any type yet become economic hyper-prudes when talking about what the public sector should do.

[4] Actually my language is a bit fuzzy here so it might seem like I’m playing with definitions. Taking the analogy from above: factories are built on land. You can create factories but you can’t create land. ‘Jobs’ could be analogous to the factory: you can’t create them without a ‘job space’ to put it in. The trouble is we don’t seem to have an equivalent word that means to job want land means to factory. Also different types of land can support different types of building. This is probably analogously true for jobs. An economy can support some amount of different types of ‘job spaces’… but again, I don’t think we have any theoretical basis or language to talk about it.

  1. Stumbled upon your website. FRom what I’ve read all seems very concise, so not much to add or debate from me (sorry for the boring post). Just like to say that what I have read appears to be a very novel logical approach to analysing many of the common dogma that exist within the issues that dominate the media/society today.

    I am from the UK and would consider myself a socialist, but live in the midwest of the US at the moment where there are plenty of decent people, but many watch Fox news, and most males I know aspire to be like Rush Limbaugh. Don’t want to stereotyoe too much, so just like to say this is a breath of fresh air. We don’t see enough of this. Will be looking forward to future posts.

    • Hello Victor. Thanks for the comment. I don’t really expect anyone to read what I write, it’s just an exercise in organizing my thoughts.

      Socialist in the US, that must be rough.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: