Creating Jobsby
Nima Sanandaji One of the most basic misunderstandings in politics is that politicians can create jobs in the private sector. Of course, policymakers have the option of minimizing government involvement in the economy and thus create ample opportunities for the market to create employment. Politicians can also maintain a planned economy and directly create jobs. The results of the latter policy is demonstrated by the Soviet experiment, where unemployment was pressed down by hiring old people to stand by an emergency button all day, just in case something would happen. What politicians often fail to do is to create employment by stimulating the private sector with various government packages. A striking example of this has recently been revealed in Sweden, where the government spent some 500 million Swedish kronor (about $70 million) in a two-year project aimed at creating employment for 8,000 unemployed academics. According to the Swedish government–operated TV channel SVT the program has so far only created 6 jobs this year. Similar examples are not hard to find in other countries. In the "Michigan Privatization Report No 3 2002" one can read a story about how the Michigan Economic Development Corporation uses taxpayers dollars to entice out-of-state businesses to locate to the Michigan area. An example of this is when a sports shop was offered a range of incentives to move to the state. These initiatives involved a promise by the state to purchase $300,000 in catalog advertising from the sports shop, provide marketing and publicity assistance for them for a value of $25,000, give them a free ad worth $100,000 etc. In total the package of incentives that the state offered this company was worth up to $27.8 million. A good plan to create jobs? Think again. This money comes from hardworking individuals and firms and could have been used to create real jobs in the private sector had not the government confiscated them. Also, these incentives are not only a waste of taxpayer’s money, but add up to create an unfair basis for competition, threatening the store's competitors out of business. As is often the case, government and state plans to stimulate a certain sector or a certain company have a high hidden cost in the businesses that are unfairly put out of practice – not due to fair competition, but simply because they, unlike their competitors, are not receiving massive handouts. But what drives politicians to employ such wasteful government schemes? One answer is simply populism. Policymakers want to show that they care about creating employment. The damage they do is often hidden since nobody sees the jobs that are lost as $27.8 million is taxed away, but the few jobs that are created when a sports store moves in are quite visible in the media. The local politicians can proudly claim that it was they who created these jobs.
August 23, 2006 Nima Sanandaji [send him mail] is president of the Swedish think tank Captus and the editor of Captus Journal. He is a graduate student in biochemistry at the University of Cambridge. Copyright © 2006 LewRockwell.com |
Implementing
new laws, creating new regulations, handing out new subsidies and
throwing taxpayer’s money at the problem gives politicians the feeling
that they are actively fighting a problem. Unfortunately this feeling
often seems to be more important than the demonstrable failures
of government involvement in the economy. One can only hope that
politicians one day will understand that they should leave the task
of job creation to the free market.