I recently had an online discussion with one libertarian friend after he posted an allegorical morality tale about a professor who gave all his students the same low grade regardless of their effort: in the end the best students stopped bothering and slid down to the same level as the worst students.
Nice fable, but totally disconnected from reality. If this is true, I asked him, then why don’t we see people with well-paying jobs quit and go on welfare, since according to the tale’s logic – why even bother to work? I received no coherent answer from him. But somehow it’s hard to imagine that anyone with a well-paying job today, especially in his industry (hedge funds) would voluntarily quit and fashion himself into a modern-day John Galt. If there’s money to be made the businesses will exist and there will always be a cache of people willing to take that job.
Certainty (or lack of) is a word we hear a lot these days from business leaders. Businesses, they say, can’t do any planning or hiring because of “uncertain market or regulatory conditions.” That’s a lame excuse: when do we ever have certainty?
“A thought for my fellow CEOs: Of course, the immediate future is uncertain; America has faced the unknown since 1776. It's just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful),” said Warren Buffett, an investor who knows a thing or two about thriving in ambiguous times, counsels in his recent letter to fellow CEOs.
It’s also rather strange to hear complaints about uncertainty coming from the supposedly risk-taking and entrepreneurial class, as if one starts or runs a business with an absolute, full-proof confidence of a success. Uncertainty has always existed and the most successful businesses have always known how to exploit it (hint: have a position, a stake in something when others are too scared or unprepared). The very nature of risk-taking, that many entrepreneurs claim to possess, is the uncertainty of the outcome. If one is certain about the outcome it’s not a business – it’s a scam, a political favor, an insider-trading scheme.
And yet many potential employers show lack of perspective, inability to see the big picture. Businesses are cutting staff and hoarding cash and, in a stunning display of shortsightedness, they fail to notice the potential of the human capital. Employees are not just people who work for you, not just an expense to be treated in the most unceremonial manner; they are also customers in a broader economy, they are clients of other nearby businesses.
“My spending is your income and your spending is my income,” as Paul Krugman keeps repeating on a daily basis.
In an ironic twist of fate it is the unemployed, especially the long-term unemployed, who learned to navigate the new economic landscape better than the suddenly timid business leaders. They had no choice. After years of sending out the resumes, of standing in line in unemployment office, of waiting for help from the government they were purged of their illusions about outside help. Since private sector is not hiring because of “uncertainty” and public sector is not hiring because of the severe budget cuts, the unemployed figured out how to survive on their own. There’s an estimated $2 trillion shadow economy where millions work for cash (nannies, yoga-instructors, dog-walker, website designers).
While we should celebrate such resourcefulness and yes, entrepreneurship, on individual level, we should also be mindful of broader implications of this trend: this is not a healthy development for the overall economy. One, there’s about $500 billion tax shortfall from this unreported cash income, which leads to a second potential problem: the further disintegration of the social contract, of the sense that we’re all in this together. When a large chunk of the population, whether by choice or by necessity, operates under the radar it puts legitimate businesses at a disadvantage, shortchanges the system and puts burden on those who pay their taxes.
Perhaps, it’s time for businesses to reexamine their approach to human capital. For many local and midsize businesses the employees and the customer base are often the same people. Moreover, businesses with good products to sell, happy employees and loyal customer base are better positioned to expand and compete. If they hire and retain talent when things are slow they won’t have to waste time on employee search and training when the economy eventually takes off. If that’s not convincing enough, then there are always opportunistic investors like Buffett that can come to your rescue: “If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.”