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The Government Doesn’t Create Jobs: Entrepreneurs Do

The debate continues about the federal government’s handling of recent economic downturns and how federal spending measures affect our economy. How effective and efficient is government job creation? How does it compare to job growth in the private sector?

The United States government has spent an astonishing amount of money to stop the nation’s economic decline and promote “job growth.” Americans are still divided on how effective the American Recovery and Reinvestment Act of 2009 was in combating what, at that time, was seen as the real possibility of an economic depression. Many Americans, in a state of disillusionment, ask, “How did the $787 billion that the government spent help me or anybody I know?” Unfortunately, economic studies, which have asked these same questions, do not provide many clear answers. For many Americans, the general mode of thought is that the stimulus must have helped, and that the federal government continues to somehow control the job growth in this nation.  The details are just fuzzy.

The truth, however, is clear – crystal clear. According to the 2010 census, the government employs 19.8 million people through federal, state, and local positions, as well as throughout the United States military. In comparison, nearly 120 million people in the United States work in the private sector. This means approximately six times the number of employees work in the private business sector compared to the government. Of these 120 million employees, 59.9 million work for small companies consisting of fewer than 500 employees. Larger companies of more than 500 employees employ 62.7 million people. The question arises: if the private sector employs six times the number of people as the government, how can the government take credit for the nation’s job growth?

The Role of the Entrepreneur

The overlooked champions of job growth are the nation’s entrepreneurs and small businesses. Small firms accounted for 65 percent of the 15 million net new jobs created between 1993 and 2009, which equals a substantial 9.8 million positions. These entrepreneurial ventures are the engine of our economy, and have been for quite some time.

According to the Census Bureau, in 2009 alone, more than 552,000 companies with at least one employee were launched. Small entrepreneurial companies account for 99 percent of all private-sector employment. The nation’s economy is built on this foundation of small business, and it relies upon those small businesses to continue to lead us back to economic stability and prosperity.

The Role of the Politician

Interestingly, politicians focus on two central ideas: smaller government and more employment. These two ideas are at conflict with each other. The truth is that successful politicians don’t campaign on the idea of raising taxes and spending those tax dollars on providing more government jobs. While that may be a truthful platform, it is certainly not going to win elections. Politicians must maintain the appearance of an environment that’s friendly toward investment and job growth at the same time. Ultimately, this dilemma leads to political posing, rather than political action.

Reality vs. Public Image

Politicians, of course, are seizing as many public relations moments as possible as the private sector creates job growth. Incumbent politicians seek media opportunities that instantly show job creation on a large scale, such as the ribbon-cutting ceremony at a new plant that hired 500 employees. Those politicians are trying to guarantee that they’re associated with job growth and community prosperity in hopes of re-election. The component that’s overlooked in this scenario is that, while it is a great sign of success that 500 jobs were created in one location, entrepreneurs are consistently creating more jobs on a daily basis. If 500 entrepreneurs were able to create one business apiece that hired five people for each venture, those entrepreneurs would create 2500 potential jobs. These smaller success stories do not receive much attention from the media or politicians due to their lack of instant public relations impact.

In addition, the majority of smaller businesses are not seeing the “tax holidays” that larger corporations enjoy through government intervention. While larger companies receive loan guarantees and other incentives to try to promote job growth, entrepreneurs are financing their businesses through bank loans, credit cards, and loans from family or friends. The credit situation is improving, but it’s still not ideal for small business growth. Banks should continue to be encouraged to lend to small entrepreneurial ventures to see the greatest return on investment for potential job growth.

Instead of trying to garner false publicity for job creation, the government should be working to support our entrepreneurial culture. Through encouraging education about business practices and encouraging those successful small businesses to continue to grow through the use of technology and government incentives, the whole nation can benefit. Real job growth depends on countless Americans who focus their energy on their passion for small business, rather than the few who focus their energy on preserving their political images.

Dush Ramachandran is Business Tranformation Coach for The Net Momentum. He has built, grown and sold two of his own companies and most recently served at Vice President of Sales and Business Development at ClickBank where he was instrumental in growing the company’s revenues nearly 500% in five years. Dush is the host of the ‘Entrepreneur Effect’ radio show and is the author of an upcoming book on entrepreneurial success