Why Government Doesn't Create Jobs

Why Government Doesn't Create Jobs
By Green Lantern on 8.24.11 @ 6:08AM

If you want to know why $800 billion in government stimulus spending has created 9 percent unemployment, all you have to do is look at the windmill in Milwaukee.

The project involves a single wind turbine 154 feet tall (small by today's standard) that is supposed to supply some electricity to the Milwaukee Port Authority. The $500,000 project is being built with $400,000 in federal stimulus money and another $100,000 from the Wisconsin Focus on Energy Program. It's been several years in the making but things finally seemed ready to go last month when the city finally put the project out to bid. The winner, Kettle Renewable Enterprises, had small subcontracts of $2,000 for women-and-minority-owned firms in its $500,000 offer. However, city alderman Robert Bauman decided this wasn't enough. He vetoed the project, saying more woman-and-minority firms should have been included. "If that means losing $500,000, then we'll lose $500,000," Bauman told the press.

In a nutshell, that's why government never gets anything done. It's not the women-and-minorities part. The problem is that with government everybody has to have a say in what gets done. In the Milwaukee case, federal stimulus rules didn't require the minority subcontracting. In fact, Mayor Tom Barrett​ is arguing that federal rules prohibit such a mandate in this case. But what does it matter? The important thing in government is that everybody gets to have a say. The Milwaukee Board of Harbor Commissioners has to sign off on the project and their stake may involve pushing some ideology or making constituents happy.

Anyone who has ever worked in a large, bureaucratic organization knows the pattern. Getting anything approved requires going through layer upon layer of bureaucracy. Pretty soon you're in a territory where people signing off know nothing about the project but only have their own oblique interests. Days and weeks are spent in meeting after meeting, trying to get everybody on board and reach an agreement. It's a wonder anything ever gets done.

Government is just the same thing only worse because there are now more stakeholders. Now everybody gets a say. Projects collect interest groups like barnacles, most of them with no interest in the main task but hanging on to push some irrelevant agenda. That's why we have K Street and why everybody there is pushing to have more decision-making moved to Washington in order to increase their leverage.

A few years ago, New York City was trying to decide what to do with Governors Island​, a beautiful mile-square piece of real estate off the southern tip of Manhattan that was dropped in the city's lap when the Coast Guard abandoned it after 200 years of federal ownership. A ten-minute ferry ride from Wall Street and dotted with century-old buildings, it would make a fantastic research park along the lines of Stanford Research Park or North Carolina's Research Triangle. When the relevant City Council committee held hearings on the master plan, however, all 12 members began by making a statement of what the project meant for their district. The first speaker, from Harlem, used his five minutes to opine that he didn't like the term "master plan" because it made him think of "masters and slaves," which had a negative association for African Americans. Things went downhill from there. Every representative reiterated that theirs was the most important district in New York City and that whatever happened on Governors Island, it better do something for their constituents. Trying to please everyone, the city has done nothing with Governors Island except hold sculpture exhibitions and outdoor composting lessons and encourage people to go out for bike rides.

It's the same at any hearing in Congress. No matter what the subject, each member gets to make a five-minute introductory speech. This is for the benefit of the television cameras back home. (The members jokingly refer to these as "talkings" rather than "hearings.") By the time the real testimony begins -- usually about an hour later -- members are taking off for other appointments. All this may work when you're investigating corruption in the food stamp program or trying to cast blame for the subprime meltdown, but for building things and getting something done -- forget about it.

Every time the federal government undertakes some simple task, it becomes an effort to reinvent the world. Last week it was revealed that a $20 million stimulus program in Seattle to weatherize homes had managed to weatherize three homes and create 14 jobs in its first year. Nothing is ever straightforward. Every city has lots of companies in the business of weatherizing homes. But the government can't just go out and hire them. It has to throw in provisions for taking people off the street for job training with special outreach for Spanish language speakers and so by the time all this is thrown into the pot, nothing gets done.

There is only way out of this bureaucratic trap -- entrepreneurship. People working in established companies say to themselves, "The hell with all this bureaucracy. I'm going to go out and do this on my own." Last month the New York Times​ ran a story about Gautam Adani, an Indian entrepreneur who is providing the country with significant portions of its electricity simply by working around the government and its restrictions. "He is able to do so well partly because he is very entrepreneurial and has found the right opportunity," lamented an official in the government finance ministry. "[I]t's a symptom of a dysfunctional state. He is able to deliver something more effectively than the state." It's the same everywhere. In The Spirit of Enterprise, his memorable history of Silicon Valley, George Gilder showed that every major company was created by employees of another company who got tired of dealing with upper management and decided to strike out on their own. The process is on-going today -- although Silicon Valley has become been dangerously enmeshed in the government's pursuit of "alternative energy." Businesses start when individuals decide to go outside the bureaucracy -- and it's those small business that still create half the new jobs in the country every year.

But the bigger the government becomes, the harder it is to go around it. With so much investment being directed out of Washington and the government controlling so much money, things eventually come to a standstill. Just as Francis Parkinson noted that large institutions usually build their monumental headquarters just as they are passing the peak of their development, so President Obama's new "Department of Jobs" will be probably mark the end of job creation in America. It will be the one last, fatal layer of bureaucracy.