Governments can’t ‘create’ jobs, so why do they keep pontificating about it?

“This will be a Government of enterprise, creating new jobs.”

“Creating 200,000 jobs by 2025” [in tourism].

“Our aim is to create 200,000 new jobs by 2025.”

“We are all committed to the rapid decarbonisation of the energy sector. We will use this as an opportunity to create new, quality jobs across the country.”

“Support the role played by Údarás na Gaeltachta in creating employment.” “Expand apprenticeships to new and non-traditional areas and work with employers to create new pathways for young people into sustainable and skilled employment.”

“There will be a July Jobs Initiative to help businesses and to boost job creation and job retention efforts.”

[A recovery fund] “will drive strategic change through SMEs, accelerating job creation”.

“Access credit and capital to support the retention and creation of jobs.”

“Expand the role of the Local Enterprise Offices, so they can go further in supporting local job creation.”

“Leverage existing hubs and national and local networks, which have developed in recent years, to help deliver local job creation.”

“This fund will drive strategic change through SMEs, accelerate job creation by restructuring towards a low carbon environment.”

An “Islands Action Plan” for “job creation and fully exploiting the potential for tourism on our islands”.

“Fisheries Local Area Group [Flag] programme, providing support for innovative projects to boost economic growth and job creation.”

These are 14 separate quotations taken from the programme for government, all citing something mythical called “job creation”. There is no such thing.

Meanwhile, the Government is planning to make it the centrepiece of its economic plan. Anyone who pontificates about “creating jobs” has never employed anyone. Well, maybe you can employ a person in the public administration and then figure out why afterwards, but that’s not how the private sector works.

Given that 85 per cent of Irish people are employed in private companies and half of everyone in Ireland is employed in small companies with fewer than 50 people, it is critically important to understand what comes first – the product or the job.

The process from product to job is a matter of sequencing. There is no business that opens solely in order to employ other people. Employment is what happens after a product is successful. Jobs are the consequence of product success. This is the iron law of business, whether we are talking about a small cafe or a huge multinational corporation.

Businesses open to sell things. The ambition is to sell stuff, hopefully lots of stuff. Some firms might opt to sell a few things expensively; others might elect to sell lots of things cheaply. But one thing is clear: business is in the selling game.

The product (or service) is created, agonised over and tinkered with in a meticulous process of trial and error. Money, energy and time is spent at every stage of this procedure. The route from conception to market can take years as the entrepreneur assesses what is already working or whether there is a gap somewhere.

In many cases there may be no gap at all, the new product creates its own demand. The small businessperson is taking this risk, bearing the responsibility of this gamble. It is always a gamble because the world is full of “sure things” that didn’t work. No one can foresee whether a new product will be successful or not.

The best laid plans and the most meticulous research often falter at the first collision with the market. Businesses fail all the time and, truthfully, you’ve no idea why one product sells and another doesn’t. Everyone starts with the ambition of selling; otherwise why launch at all?

Past success will not underwrite future success. Obviously, it helps to know the sector you are in; having the right networks is hugely beneficial too, as is understanding the customer, but we all make mistakes. Often, the product is not wrong, it is just wrong for now. It might work next year or the year after, but right now, for some reason, it flops.

Why does a certain restaurant fly and another one on the same street close? Why does a hotel become sought after and another one slump? Why does a car brand become the model people desire while another, very similar one, falls by the wayside? The truth is, no one knows.

But there is something we do know. No one “creates jobs”. Entrepreneurs create products and services. If the design works and people buy it, the process of wealth creation begins. Money and jobs flow from that process.

If the product succeeds, money will flow into the company. Then the entrepreneur might decide to expand and employ more people. These jobs are not created before but rather flow from demand, which comes when your product or your design is preferred.

The economy is a complex system of millions of people, passing judgment on products all the time, processing huge quantities of information, giving the thumbs up or thumbs down to new innovations, every second of every day. Amazingly the system works, despite having no one in charge.

In this regard, the economy is like your immune system. It is adapting all the time to new threats and opportunities. It is constantly evolving. Each person brings a little bit of new information, and when this is processed into a whole, the economic organism reacts. No one can preordain where it will go and how a product will be received.

Fortunately, this huge bottom-up system works pretty well, quite amazingly, producing innovation after innovation, product after product, creating an extraordinary array of choices. Even in the most basic of local supermarkets, we can find hundreds of competing designs for the same thing. No one is too sure why one design is chosen over the other. Jobs are contingent on these choices.

Unfortunately, the implication of this is that people who write about “creating jobs” have no idea what they are talking about. A firm that explicitly creates jobs and nothing else will go bust.

We can understand why the politician might want to take credit for jobs because people have jobs and people vote, so trying to glue a connection between the job and the vote is a natural tactic. But it’s misleading. The job is soldered on to the product, not the vote.

All policy should be tailored to encourage people to come up with new products, to back themselves and to reward people in the great commercial adventure that is launching their own design or product. The jobs flow from that.

We are living through a ‘Pandession’ – here’s how we escape

As the world economy remains largely closed down, it is essential to understand what we are experiencing. We are not living through a recession. Nor are we witnessing a depression. We are suffering from something new, something I’d like to term a “Pandession”.

A Pandession is a new word because it is a new thing. Language is vitally important when confronted with something novel. If you don’t have the language, you can’t visualise, conceive of or think your way out of it.

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When will the money run out in the Covid-19 pandemic?

How long can we go on like this and when will the money run out? This is the question I am being asked all the time. Whether I am out for a walk, in the supermarket (at a safe distance) or on the phone, it’s the same question over and over. How long can we survive?

Some people are concerned about the massive increase in Government spending via the wage subsidy. When will that money run out? Small business owners want to know how long this can go on before they default on loans.

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How to avoid an economic depression

Whether or not we can avoid an economic depression will be determined by what we do now. Amid the pessimism it is crucial to appreciate that it is possible to avoid this outcome if we deploy all the right levers of economic policy. The European Central Bank (ECB) has underwritten the economy at borrowing rates below zero. As a result there should be no hesitation in borrowing more to tide us over.

We can also reprice existing debt to dramatically reduce the cost of outstanding debt, and we can boost demand to cushion the slump by putting money directly into people’s and businesses’ accounts.

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Health crisis has now become a wealth crisis

Economics is not a cult. It is not a set of definitive, unchanging rules. It is not a religion. There is no creed. There are no believers and there is no dogma. While there are clubs or factions, membership of those is optional. At its core, economics is the art of the possible. It is the study of a complex system that is never at rest, a dynamic and adaptive system of enormous energy and potential. It evolves rather than grows or contracts.

The economy is like an immune system, dealing with new dangers, learning on the job and constantly acclimatising. Despite what most economists say, there is no such thing as equilibrium. A moment’s thought would tell you that an economy in equilibrium is a ludicrous notion.

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Here’s how we can avoid the predicted depression

The colours of the traditional barber’s sign, a pole with red and white diagonal stripes, signify blood and the barber’s apron because the barber use to double-up as the local leacher. He was the man who bled the sick. For hundreds of years, since the Greeks, rudimentary medics believed that sickness was carried in the blood and the solution for this was to drain the patient of blood in order to expel the bad blood. The theory was that the less blood, the less the disease had to work with. Sometimes they used leeches to do this but oftentimes, they simply cut a vein – or perhaps an artery. The barber had blades, knives and scissors, sure what more did you need?

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We should reopen the youth economy first

How we behave in this crisis will determine how we come out of it. In the 1960s Martin Luther King spoke of the “fierce urgency of now”; what is critical in a crisis is today – tomorrow can look after itself. We can view our traumatised economy in a similar way.

From the point of view of commerce, the most critical point is to keep small businesses afloat and prevent mass bankruptcies, which would prompt defaults and prevent business people from getting back on their feet.

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We need to totally reimagine economics

When events change, we change our minds. Old rules go out the window and new ideas are embraced. What was once radical becomes mainstream and what was once mainstream becomes redundant. In a crisis, you run out of time. You can’t wait; you must act.

This week, the Department of Finance acted with remarkable speed, implementing what might be called the “Danish model”, soldering the link between employers and employees by subsidising people’s wages to the tune of 70 per cent. The civil servants are to be commended in how quickly they turned this around. It should help enormously. Hopefully, we will see results in a stabilising of the rise in unemployment.

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The most critical objective is to keep businesses afloat

What can we do now to prevent this crisis getting worse? What can Irish policy-makers do to prevent company closures, militating against more mass redundancies? How can we buy time? Buying time is a critical way of looking at the crisis because in a crisis you run out of time, not money. It’s essential that actions we take today are designed to ensure that a temporary crisis doesn’t become permanent chaos.

The good news is that this will pass; the better news is we can do something to cushion the blow; the even better news is that it demands only courageous thinking and action. The bad news is that, up to now, there is little evidence of courageous thinking, and that includes the European Central Bank’s €750 billion mega-intervention.

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