Instead of dealing with the economy at the macro level or simply giving broad strokes, the country needs to get down to specifics to see what should be done about unemployment, said a leading U.S. business expert in a recent discussion at Harvard Business School.
Bill George, former Chairman and CEO of Medtronic and once named one of the "Top 25 Business Leaders of the Past 25 Years" by PBS, is now a professor at Harvard Business School.
Figures from the U.S. Bureau of Labor statistics show that the country's jobless rate in October shot up to 10.2 percent, reaching double digits for the first time since 1982.
"The last administration and this administration are way too dominated
by economists who are looking at the wrong historical data and looking at models that are not predictive," George said.
He said economists were very firm that there would be no recession in early 2008, but when statistics came in later, things were just the other way around.
"Now the mantra is every report you see is immediately picked up by media that jobs are lagging and they will come back," said George, who held that there were much deeper problems lying beneath the unemployment rate and it would take a long time for jobs to come back.
According to the expert, things have changed fundamentally in the job market.
He pointed out that, with the trend of globalization, big companies in the U.S. outsource many of their business activities outside the country at a fraction of original cost. "None of the big companies CEOs I know are
hiring, at least not in the U.S."
So where will the new jobs come from?
U.S. Census Bureau data from 2006-2007 revealed that nearly all net job creations from 1980 to 2005 in the U.S. were less than five-year-old.
"This is to say that the jobs added by large companies are basically traded off by the jobs shed by large companies," George said.
He believed that the answer to job creation lied within small businesses and new company formation. However, in George's view, the
government did not do a good job in this regard for the past decade.
"During the 1990s, we were very much focused on investment economy, new company creation and company formation. Now we've lost it," because the politicians "are so much fed by instant gratification" as is the general public that no one is going to look at the fact that startup companies take time to produce, he said.
George also cited examples from today's big companies, such as Wal-Mart, Target, Google, Intel and Microsoft -- all "barely existed back in 1980s".
"Where are great companies like these in the future if they cannot get funding to start new business today," he said.
Fundamentally, "we need to get back to an investment economy," he said, adding all the incentives from the government were at a macro level, not enough to get at the R&D investment and capital equipment investment.
He proposes that government change the capital gains law so that investors don't get the capital gains treatment until after much later, and on a sliding scale -- the longer investors hold the asset, the longer they get to keep the gains.
He recalled U.S. President Barack Obama's idea during the campaign: If someone forms a new company or invest in a startup, he or she will have zero capital gains tax upon first time selling the company.
However, this idea "never seemed to be liked by the administration", George added.
"In my personal view, THAT IS the kind of thing that will accelerate new company formation and will make us much more competitive."