Jobs: Part 2

In yesterday’s blog I talked about some of Dr. Douglas Woodward’s keynote address at this weekend’s South Carolina NAACP African American Economic Summit.  I discussed his latest research on the important role of small business our state and the prospects for the nation’s economy.

Dr. Woodward also made it clear that job creation is what we need.  Dr. Woodward believes that South Carolina lost its focus on creating jobs back in 2003 when Harvard Professor Michael Porter convinced state leaders to adopt a new bible for economic development centered around business clusters.  We created a whole new organization for cluster development—New Carolina, South Carolina’s Council on Competitiveness. 

It wasn’t that this cluster idea was bad, said Dr. Woodward, it was that the state lost its focus on creating jobs and instead just wanted to pursue wealth and raise per capita income.

Confused?  Let me give you a real life example of what happens in state government if the focus is on wealth creation and not job creation.

In 2005 the Legislature passed a bill amending the state’s job tax credit program.  Prior to this time only certain types of businesses (primarily manufacturing) that created 10 net new jobs were eligible for a tax credit on each new job.  The South Carolina Small Business Chamber lobbied very hard to open up the job tax credits for the first time to small businesses that created a minimum of two net new jobs.  A job was a job was a job we argued.  The House agreed and included this provision in the bill.

But the Senate then caved into the state’s big business community that argued that South Carolina should not be rewarding the creation of just any net new job but only jobs that paid far above the average per capita income in that county.  Generating wealth in the state by raising per capita income was THE goal, not creating jobs.  

Our response to this misguided economic approach was that getting an unemployed person into a job regardless of the pay would also raise the per capita income of the state.  But apparently our economic development leaders were only interested in raising per capita income from the top down, not bottom up.  Fortunately we prevailed in a House-Senate Conference Committee.

While we all would like more high-paying jobs in our state and pursuing clusters can yield rewards, we must get back to focusing on creating JOBS.  As Dr. Woodward’s research has clearly pointed out, we should start focusing on the business sector that is creating the most net new jobs already—our small businesses.

Jobs: part 1

Over the weekend I was asked to speak at the African American Economic Summit sponsored by the South Carolina NAACP at Claflin University.  The topic of my panel was “Factors Driving the Current Economy”.  The keynote address was given by Dr. Douglas Woodward, Director of Research at the University of South Carolina’s Moore School of Business.

Last week Dr. Woodward and USC released a study analyzing job creation in South Carolina from 2004 to 2008.  The study confirmed what small business advocates have been saying for a long time.  Small businesses create most net new jobs in our state.  The study primarily looked at businesses with fewer than 20 employees and found that just this group of small businesses alone, representing only 26 percent of all businesses in the state, accounted for 51% of all net new jobs. 

I asked Dr. Woodward if he could run the numbers on businesses with 100 or fewer employees (our definition of a small business) to see the job generation ability of small businesses overall.

Within the less than 20-worker businesses there appears to be a small percentage of “high impact” firms that really drove economic expansion in the years studied.  Unfortunately, according to Dr. Woodward, South Carolina doesn’t do a very good job of keeping these fast-growing businesses in the state. 

In my opinion this simply reflects the abysmal job the state does in promoting the growth of small business in general.  If you don’t pay attention to all our small businesses, no wonder the ones with biggest growth potential get away.

Dr. Woodward had a lot to say about our state and national economic outlook.  He’s not optimistic and even suggested that a double-dip recession was possible.  The reason for his negative outlook was the partisan gridlock that will probably prevent the federal government from launching any new stimulus programs or monetary policy to create the jobs we desperately need.  If we think the economy is bad now, Dr. Woodward says just wait until all the stimulus money is out of our economy. 

Tomorrow:  Where the state’s economic development efforts went off track according to Dr. Woodward.