September 4, 2011

I recently had a thought-provoking conversation with a good friend of mine. This friend works for an organization that operates on the currently-limitless funds of a prominent venture capitalist; the organization itself isn’t one of the VC’s investments, instead it is something like an expensive pet project.

The situation is somewhat uncommon, for the organization (which, at just a few years old, is admittedly young) has never had to be accountable for the efficacy or efficiency of its operations. Its growth model is correspondingly skewed: since money is of little concern, they grow when they feel like growing; if they want to hire someone new, they do. There are few metrics by which to measure whether more blood and talent is actually necessary, and little structure in place to re-order operations once new hires have been taken on.

Under these circumstances, the team my friend belongs to within the organization is about to double in size. There is a fair amount of confusion on the part of the current employees about such a move, for they feel neither overwhelmed by their current workload, nor entirely certain of exactly what their responsibilities are at the moment or will be in the future. The leader of the organization simply wants to grow, and is doing so by hiring — whether the demands of operation necessitate it or not.

The discussion reminded me of our current jobs crisis here in the US, as this unrestrained hiring is pretty much exactly what politicians would like to see happening on a widespread level.

Whenever talking heads turn to discussion about how to “put America back to work,” there are just a few heavy-hitters in the arsenal: tax cuts and infrastructure improvements. Tax cuts can take myriad forms, but the current hot trend is the elimination of the payroll tax: by freeing up capital that was previously being funneled to the government, businesses will have money to be able to hire new people.

That’s how it’s supposed to work, at least.*

Regardless of politics, the fundamental problem I have with this approach is that it loads the wrong side of the equation. Businesses (the good ones, at least) are all about balance. Balancing group dynamics. Balancing flexibility, accessibility, and employee sanity. And arguably most importantly, balancing the workload-to-worker ratio.

To a certain extent, businesses are inherently founded upon something of an “if we build it, they will come” philosophy. Just about every entrepreneurial endeavor requires a leap of faith of some magnitude. But there is a significant difference between inhabiting this philosophy in its purest form (à la Dubai), and engaging in careful, robust research and thought ahead of time about who will come, when they’ll arrive, why, and how likely they’ll be to come back — and then beginning to build. This is the less-than-glamorous, but nonetheless standard practice of companies that take that leap of faith and succeed.

There is a danger then in encouraging businesses to hire without accounting for demand; it will likely even be somewhat anathema to most businesspersons’ general philosophy to abandon consideration for whether the invariably large investment of resources (which go far beyond money) required of hiring and training a new employee is actually necessary. That workload-to-worker relationship is complicated and sacred, and most business owners know that causes tend to lead to effects — not the other way around.

So this idea of simply giving businesses money to (hopefully) hire more people is flawed: what they actually need is more of a demand for the fruits of their labor. And I’ll bet all the money I have in the world (which is admittedly very little) that we haven’t lost millions of jobs over the last four years because companies are getting slammed with orders but somehow can’t pay their employees to fill them.†  Demand dried up, so supply had to accommodate. That accommodation meant people lost their jobs. Cause, meet Effect.

Feeding things from the wrong side is what leads to bloated organizations where not everyone has a purpose (exactly what my friend is currently struggling with, even pre-new-hires). Hierarchies and regulations are put in place to artificially boost the amount of work for employees (to make them feel as though they’re necessary, and to stop management from feeling like they’re throwing money away). Administrative costs explode. Chains of accountability become convoluted and lumbering, and ultimately fail.

Essentially, you end up with the auto industry of the mid-2000s. Which is a road we’ve already been down, and one which most of us don’t care to re-visit.

Instead, we should be focusing on the other side of the equation. If we want people to spend money in their communities and businesses to grow organically and sustainably, give citizens vouchers that can be redeemed anywhere in that community, and make it outrageously easy for the institutions people patronize to obtain refunds for the vouchers they fill. Solicit input from businesses about projects or niches on their radar that, if fleshed out, would provide them with enough work to warrant new hires (this is where infrastructure comes in). Find out what would make growth logical for companies, and focus on bringing the answers to that question to life.

The situation is obviously more complicated than these thousand words can properly address,§ but the crux of the matter is that the current hands-off ideal the government seems to be striving for is ineffectual at best, and counterproductive at worst. There are better, faster, more robust ways to climb our way out of this mess. These alternative solutions involve getting on the ground, paying attention to nuance, and figuring out how things actually work at a micro level, rather than acquiescing to how they should work at the macro level.


*My perpetual argument about tax-cuts-as-stimulus is that it’s a tool based as much on wishing as it is on established fact. It’s wielded with the hope that people will spend their money a certain way, but there is no way of enforcing it or really even knowing what happens after the benjamins leave the big fancy government bank account (or never arrive in the first place, which, for all practical purposes, is the same thing).

† I’m very consciously avoiding the concept of credit here. I believe the concepts stand regardless of whether or not it is available, and it therefore introduces more complexity than is necessary for the purposes of this piece.

§ For instance, I fully recognize that when people work, they have money to spend, and that money gets pumped back into the economy. I also fully recognize that this is a complex process without direct relationships between all the various industries within a community, and that it takes time to work. It is because of these latter facts that I choose to have more confidence in and focus on the potential of increasing demand.