Give the states the power to build jobs

By Muhtar Kent and Ram Charan
June 29, 2011

By Muhtar Kent and Ram Charan
The opinions expressed are their own.

While the long-term fundamentals of our economy remain strong, America is struggling to recover from the Great Recession. With unemployment rising to 9.1 percent in May, we need more jobs, and we need them now. The good news is that we can create them by encouraging more small businesses and entrepreneurs to compete and win in the global economy.

Here’s the reality today: two out of three new American jobs are created by companies less than five years old. Small and medium-sized enterprises (SMEs) are powerful — indeed essential — engines of economic growth and job creation, not to mention tax revenues.

Unfortunately, not enough SMEs are geared toward competing internationally, despite the vast potential that exists in many global markets.

One of the great, largely untold economic stories of our time is the mutual dependency between America’s multinational corporations and small and medium-sized enterprises. Today, large U.S.-based global businesses directly employ 22 million Americans and support more than 41 million additional American jobs through their supply chains. That’s nearly one in three American workers.

Ironically, too much of our national discussion about job creation and tax policy separates small businesses from big, public multinationals. Most state governments, which are on the front lines of attracting and retaining key businesses, are better equipped to recognize this mutual dependency and create policies conducive to growth across the board.

Governors can provide invaluable leadership in this regard, given the levers they have to attract investment and connect local companies to overseas markets. And this is about more than states competing for business relocations and expansions. Such initiatives are fine, as far as they go. Instead, we urge each state to make the most of its unique competitive advantages.

One state that has done a good job in this area is Texas, which over the last five years has been responsible for 80 percent of America’s new private sector jobs. At a time when some other states have increased taxes, added more government bureaucracy and placed onerous restrictions on development, Texas has created an environment that is decidedly pro-business and pro-global trade.

In fact, small businesses in the Lone Star State accounted for about $70 billion in exports last year, helping Texas continue to lead the nation in export trade—something the state has done for nine consecutive years.

Other states could enjoy similar success, we believe, by organizing SME global competitiveness councils that tap into the Golden Triangle of business, government and civil society. These councils could include leaders of SMEs, larger companies, unions, area business councils, consulting firms and financial institutions.

We think state competitiveness councils could act as a bridge between SMEs and those with overseas experience, including business consultants and leaders of U.S.-based international companies.

We’re also confident that U.S.-based multinationals could help SMEs expand globally. After all, SMEs are key partners of large companies, and most corporate leaders know they can’t be successful without their partners succeeding, too. That’s one reason The Coca-Cola Company makes a point of introducing our customers and other partners to high-level business contacts worldwide. In addition, SMEs could leverage the expertise of retired large-company executives, many of whom would be willing to help on a voluntary basis.

While the Administration and Congress have teamed up on a number of small business tax cuts, Washington may not ultimately be in the best position to fix America’s unemployment problem. We believe states can and should take the lead in unleashing the global business potential of our SMEs and entrepreneurs.

Consider this a call to action for state leaders and the public. While we’re optimistic about America’s economic future and entrust Washington to facilitate job growth, we believe states could do more to create new jobs in the near-term by thinking more strategically, playing to their strengths, organizing global competitiveness councils and helping SMEs flourish at home and abroad. And doing so requires no additional funding or legislation.

It’s time to get behind our states and small businesses and help them create the kind of future for America that they are uniquely qualified and empowered to build.

4 comments

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I understand the authors and their spin, but this is laughable. Multi-national flight from the US has been disastrous for not only small business, but for the middle class and tax revenue. Furthermore, they’ve kicked their employees to the curb, pawned off pensions and health care to the federal government (read the taxpaying individual), and gotten Congress to push their tax liabilities off on the individual. Multi-nationals are a big part of the problem, and therefore, the solution, but not through business as usual as these fellows suggest. Fresh ideas are needed. If I were governor, I would tell, say, an auto manufacturer that they are right: we have the location, the infrastructure, the weather, the water, low regulatory hurdles, and the low cost of living that makes us an ideal fit for your new manufacturing facility. But, we think you need us more than we need you. I mean, all the traffic, increased cost of living, pollution, traffic, and demands on public services that always accompany such developments are going to cost our people more than they might otherwise gain. If you aren’t sure that’s the case, why don’t you pitch your factory in, say, coastal California, or the Puget Sound region, or say the Northeast. I think you’ll find in comparison this is a great place to be. So, you are welcome here, but don’t expect the taxpayers of this state to carry your bill. How about that?

Texas is not a good example here. Texas has been enriched by war and oil. War and oil have taken a major toll on folks lately. Our nation is impovershed as a result. What’s good for Texas is not necessarily good for everyone else.

Relatedly, I hear another Texan is being pushed for a job in the White House. Let’s look at history for clues as to what this means: the last three Presidents from have cranked up the war machine-because war is good for Texas. But its the last thing this nation and the world need right now. Let’s not make that mistake again.

Posted by Soothsayer | Report as abusive

I agree with the devolution, but disagree with states being effective. A majority of our GDP is produced by cities and in the last 30 years, states have treated cities like lessor citizens by continuously under-funding urban services and infrastructures. Many Governors represent a minority rural population through gerry-mandered districts.

So what do states do effectively? They try to do it the easy way by throwing land and tax free zones out for factories and agriculture. Sorry, we may claw our way back up the high tech manufacturing ladder a couple of notch’s or make more food or extract a bit more gas but our future is in keeping and growing services. Governors of most large states dont do a good job because their base doesn’t care.

Look at the stats folks. Cities are 80% of our GDP. A city wracked with problems like DC still manages to have a higher per capita GDP than ANY state. New York City’s per capita GDP is almost triple Texas. I work in a complex of buildings in Jersey City that probably “exports” millions of services a day that arent accounted for as exports.

Texas, actually exports a lot of natural resources and defense so top exporter growth is not really valid. But in the scale of things Texas is at least OK for cities because they do encourage growth – but neither Dallas or Houston has any concept of urban planning, structure or mass transit that would make them viable cities when their population doubles in 20 years.

Look at Georgia. An incredibly energetic and vibrant Atlanta is at whim to a series of non-caring state governors who starve urban development and ignore the schooling and development of a good quarter of the population. Atlanta receives ZERO state money for public transit while the state rewards rural voters with pork projects, 4 lane highways and the occasional big European Auto factory. Big deal – if the money was funneled to Atlanta they could get a lot more bang for the buck. And Georgia is probably the norm.

If you give more power to governors, you are effectively replicating the problem of the US Senate which doles out a majority of funding and projects to a minority rurual population that is not engaged in international commerce.

Posted by John2244 | Report as abusive

Our future economic prosperity lies in our ability to export, not to consume. The authors recognize this reality, as has Texas; Washington has not.

Posted by exportfuture | Report as abusive

[...] we can create them by encouraging more small businesses and entrepreneurs to compete and… The Great Debate Tags: build, Give, Jobs, power, [...]

[...] Dakota is booming. Virginia is the top state for business. A couple of Reuters bloggers say that most state governments are well equipped to create policies conducive to growth. Philadelphia’s mayor says no to a [...]

[...] Dakota is booming. Virginia is the top state for business. A couple of Reuters bloggers say that most state governments are well equipped to create policies conducive to growth. Philadelphia’s mayor says no to a sick [...]

All business’ require credit to grow. Our current system of private banks is performing it’s function anemically. One reason is that derivatives are still in vogue. As long as banks can make money placing these bets as to which endeavors fail or succeed, there will be no impetus to help companies expand our economy. Remember, all the remaining investment banks have received commercial bank charters. The banks have also paid record bonus’.

Our real problem this nation must face is moral conduct. Police can lie in an investigation but a citizen suspect will be prosecuted for perjury should his or her memory improve with time. Hence the attitude “That’s my story and I’m sticking to it”. Many citizens now believe torture to be a proper technique for military interrogation. One would have to be naive or foolish to believe individuals in financial power would conduct themselves differently. Neither church nor law has been able to right the U.S. ship of conduct. Perhaps a reading of Adam Smith’s prior work the “Lectures” rather than the “Wealth of Nations” is in order.

Posted by coyotle | Report as abusive