Why Obama Got It Wrong!

Like you, I’m a small business owner and a service provider. Most of my clients are small business owners, but Obamanomics will impact us all regardless of company size, manufacturer or service provider.

Like it or not the American consumer drives the world economy. They buy stuff that keeps factories in China running 24/7. Clothes, computers, large-screen TVs – all made off American shores, mostly in Asia. The trade deficit between the U.S. and China has always been lop-sided, and now, the U.S. owes the Chinese government two trillion dollars. A child born in the U.S. today OWES approximately $36,540 at birth!

The U.S. has become a debtor nation, in effect, the world’s largest banana republic.

And this has thinking Americans worried. U.S unemployment is running at around 10%. Unlike us Aussie spenders, America has become a nation of scrimpers and savers, not buyers. Many are running scared, afraid of losing their jobs. Every American knows someone who’s been laid off or down-sized and that has a sobering effect on the buying, spending and saving habits of the largest consumer society in the world.

(Were it not for the Rudd socialist stimulus packages I suspect I would be writing this about Australia. But that article will come later this year after more interest rate rises and those holiday spending credit card bills hit home.)

Where Obama Went Wrong

I was watching the business news recently and White House Press Secretary, Robert Gibbs, proudly announced that the unemployment rate in the U.S. had dropped from 10.2% to 10%. Jobless claims also fell. During that week, I kept hearing the White House talking heads prattling on about job creation, job creation, job creation. Job creation is the focus of Obama’s economic growth strategy – and that’s where governments get it wrong.

You can create all the jobs you want. During the 1930s, if I recall my U.S. history, there were any number of job creation programs under the Roosevelt administration. Yet, the U.S. remained stuck in an economic quagmire through the decade, and it wasn’t until World War II broke out that the American economy grew.

So, the government can create jobs. In fact, that’s one thing governments do: create jobs, with more and more of the work force on government payrolls. But job creation doesn’t grow an economy. Put people to work digging ditches and filling them in. You’ve created jobs. But you haven’t improved the economy.

The fact the Obama seems headed down a dead-end road might actually work to the advantage of the small business sector. It’s not often you bet against the house, but in this case, the fundamentals of market economics bolster my opinions.

It’s Not About Job Creation. It’s About Wealth Creation

You can throw money at rising unemployment rates and create jobs, but if those jobs don’t create wealth, they’re pretty expensive jobs.

If the U.S. wants to lower the unemployment rate, all it has to do is hire more government workers – just like we do here in Australia. More clerks, analysts and other bureaucrats. These people don’t create wealth. They simply perpetuate the bureaucracy. When was the last time you heard ANY government department say it required less money this year than last? It’s the nature of bureaucracies to expand. (Look how many “advisers” Rudd took to Copenhagen.)

These are expensive jobs. They cost taxpayers money. More importantly, they don’t create wealth. The fact is, in a free economy, it’s not the government’s job to create wealth. That task is left to the companies that function within the economy, either B2B or B2C. In either case, this is where wealth is created.

Consider the enterprising entrepreneurs. These are the men and women with an idea, a vision and a plan to see that vision come to fruition. These are the people who start with zero and build something – a business or company.

As these businesses grow to higher levels of success, job creation follows organically. More people are needed to handle the daily activities undertaken by the business.

However, unlike bureaucracies and the jobs they create, small business owners have a different objective – to run lean, to manage costs and improve margins. Their objective is to increase productivity, which in turn, creates more wealth and ultimately more jobs.

What can the small business owner expect in 2010?

I’m going out on a limb, here, but I’m confident in my understanding of economic markets and the role small business plays within these markets, whether in Australia, Mexico or the United States.

Small businesses are incubators that grow wealth. This is the starting point. The place an economy grows the fastest. I boldly predict that IBM won’t double its workforce next year. Nor will General Motors.

However, in talking with clients and small business owners here and overseas, I know of several businesses that WILL double their work force. True, they’re growing from four employees to eight but that’s a 100% increase in jobs growth no matter how you look at it. Small businesses create jobs. They always have.

So, in 2010, I see opportunities – opportunities to grow, opportunities to create wealth from an idea and the opportunity for smart small business owners to expand and actually see profit growth and margin expansion.

If you’ve been thinking about buying a new piece of equipment to boost productivity, or if you’ve been thinking about expanding your sales force to grow sales, you won’t find a better time for business expansion.

Stay lean. Grow wisely. Be prudent in your planning, and focus on wealth creation NOT jobs creation.

How can you expand margins? What new services can you offer? How can you package products differently or tap different markets?

Happy New Year.

© 2010 Michael Harrison - Strategies Plus Concepts Pty Ltd