Not private company's purpose to create full employment

By DAVID MOON, Moon Capital Management, LLC
April 10, 2011

A recent MSNBC web headline noted that “US hiring lags even as economy outpaces rivals.” A primary point of the article was that US GDP was registering more robust growth than six of seven G7 countries, yet the US job market remains the weakest of the group.

It is an argument that has been repeated in some form for months. US companies are awash in cash. Why aren’t they hiring? Why is unemployment still around nine percent after the Fed has pumped almost $3 trillion in the economy? Why won’t companies that have that money use it to hire people?

The real question is “why would they?”

Microsoft has $36 billion on its balance sheet. Using federal government grant logic, it could use that money to hire 2.3 million minimum wage employees, or 360,000 executives at $100,000 a year.

Of course, there wouldn’t be any money to pay them the second year. That’s how federal grants often work.

What about Berkshire Hathaway. Warren Buffett’s juggernaut generates $150 million a week. He could conceivably hire 156,000 $50,000-a-year workers and keep them employed forever. And Warren’s a democrat. He ought to want to help the current president.

Except that Warren is also CEO of a company, and that isn’t his $150 million a week. It belongs to the shareholders of Berkshire Hathaway. Those shareholders aren’t running a 21st century WPA program. If his managers needed more people they would hire them. Buffett would be stealing from his shareholders to intentionally hire an unneeded employee.

It is not the purpose of a private company to create full employment in the economy. The public sector does a pretty effective job of creating an employed, loyal constituency. In the past 40 years, the number of government employees has almost tripled, while manufacturing employment has declined by 23 percent. There are now almost twice as many people in the US working in government as there are making things.

When my wife worked for Bellsouth in the 1980s, I used to be amazed that the company could regularly have massive layoffs without negatively impacting its revenues or, apparently, service quality. As thousands of people would leave in these periodic purgings, I would always wonder if the ones leaving were the non-essential personnel, or was it the ones who were staying?

While governor of Tennessee, Phil Bredesen spoke to a Knoxville Chamber group and noted that recessions force companies to find excesses and more clearly define their core mission and goals. It makes both managers and employees take that annual employee review a bit more seriously.

I read a recent story about the late Dick Devenzio, an attorney, student rights advocate and former Duke basketball player. Speaking to a Southern Cal basketball squad in the early 90s, Dick asked two questions: “Who is the hardest working player on your team?” After an uncomfortably long silence, he followed with “Why isn’t it you?”

As long as I can remember, analysts have speculated about the changing workforce needs in the US, and how American workers would eventually have to acquire new skills to compete in a more productive and competitive economy.

We’re there.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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