Revisiting the Loss of Jobs


Recently I argued that it is customers who cause the loss of jobs; companies merely deliver the message to employees and investors that customers have decided to go elsewhere to buy goods and services. In a free market, that is exactly how things would go. Even when companies leave the country so as to produce their goods and services, in a free market world this would happen mainly because customers have made clear they will not purchase at the price driven by the cost of production in the home country.

Of course, we do not live in a free market world by a long shot. In the world as it is, with a vast number of laws and regulations hampering the free flow of commerce'-including, of course, labor'-there are many other, rather more artificial, causes for the loss of jobs. Sure, sometimes innovation, entrepreneurship drives out some companies'-after CDs hit the market, customers abandoned cassette tapes in droves, so those who made those tapes had to find new work. But that's only part of the story. The rest has to do with why Arnold Schwarzenegger got elected governor of California: the inhospitable business climate in so many regions of America.

In California these days, businesses have to jump over innumerable hoops in order to start up or carry forth production. One license after another, one permit after another, accompanied by zillions of forms that need to be filled out daily, as well as fees to fund, for example, workers' compensation programs, that must be paid, and pressure groups--with their teams of lawyers'-that have to be appeased. Several businesses have made a pretty big deal about leaving the state, for others like Nevada and Louisiana, intent on demonstrating to all those interested that it isn't greed or obsessive concern with the bottom line but the plethora of government regulations that induced them to move.

Sadly, economic ignorance and, even more, the sheer unwillingness to think these matters through thoroughly enough, has led a great many employees to despise company executives when they either lose their jobs or have to move away from neighborhoods in which they like to live. Instead of seeing the government's near-Draconian measures'-imposed by the hundreds of regulatory agencies'-as the culprit, they blame the greed of managers and investors for their woes. But they are sadly mistaken. By insisting that government impose measures that benefit them even when companies are squeezed beyond repair with these measures, these folks are asking for the transformation of a relatively free American market economy into the quasi-socialist European model where unemployment is in the double digits and entrepreneurial activity is practically nil. When government forces companies to provide employees with life time benefits, who can afford to start up a business?

On top of this we have the side effect of the gradual elimination of small businesses around the country, firms whose owners just cannot afford to comply with all the regulations and haven't the resources to staff huge legal departments so that these regulations might be cleverly circumvented. Yes, Virginia, it is the pro-regulation crowd, led by the likes of Ralph Nader, who help promote the growth of huge corporations. Only such large firms can stand up to the government'-and the trial lawyers who make use of the regulations to beat up on business'-with somewhat comparable legal power.

So, while in a free market economy it is ultimately the customer who is king, in the halfway house of the government regulated mixed economy the people who cause the loss and escape of most jobs are promoters and executors of government regulations. If Arnold, and perhaps even George W. Bush, really wanted to do something about rescuing the country from economic demise, let them not only cut taxes, which is of course a good thing to do in any case, but repeal the laws that burden and often outright bury so many businesses.

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Tibor R. Machan's picture
Columns on STR: 70

Tibor Machan is a professor of business ethics and Western Civilization at Chapman University in Orange, Calif., and recent author of Neither Left Nor Right: Selected Columns (Hoover Institution Press, 2004).  He is a research fellow at the Hoover Institution, Stanford University.