Wealth Creation is A Precondition of Job Creation

I was pleased the other day, while attending Demo Day at FlashStarts, to hear founder Charles Stack state that the goal of the accelerator and each of its companies was “wealth creation.” That was the only goal he discussed, and he pointedly mentioned it several times.

For the last decade I have participated in and supported many initiatives to remake the economies of Ohio and Michigan into entrepreneurial ecosystems, including engaging in early stage venture capital investing. Many people from the private, public, and non-profit sectors were involved in creating many programs and activities, including:

  • Technology investments from Ohio’s Third Frontier program
  • Funds-of-funds such as the Venture Michigan Fund, the Ohio Capital Fund, Renaissance, Cintrifuse, and the 21st Century Jobs Fund
  • Incubators, accelerators, and entrepreneurial assistance organizations like BioEnterprise, Ann Arbor Spark, JumpStart, and NextEnergy
  • Enhanced technology transfer at the region’s universities
  • Formation and support for pre-seed and seed funds
  • Loan and equity investment programs directly from Jobs Ohio the Michigan Economic Development Corporation, and Cuyahoga County…
  • …and many more.

Most of these activities have been supported by non-profit foundations and by taxpayer funded programs administered by government. Never once have I heard a public official or a representative of a non-profit organization state that “wealth creation” was one of their goals (although I was pleased to see Cleveland’s foundation community well represented in the Demo Day audience). And therein lies a fundamental difference between the objectives of the private sector and the public and non-profit sectors.

For politicians and people in the non-profit sector, the overriding interest is “jobs.” “Jobs” is the goal discussed in every speech and news release and the central variable measured in progress reports. It is the obsession of the media and of critics of the above programs.

What I have never understood is how jobs are supposed to be created without wealth also being created. I understand that government spending can temporarily create some types of jobs and that many people want to believe that having government create jobs and give them to people is the way to alleviate unemployment and create economic growth. All of the research, however, shows that this approach doesn’t work: these jobs cost more than they repay, and they require ongoing subsidies.

We have just gone through a cycle in which government spent huge sums of money to move the unemployment needle, without much success. It is true that some individuals and companies can do well by feeding off of government spending, but it is an illusion to believe that jobs created by crony capitalism are self-sustaining. Money must be taken from productive sources to continue subsidizing them.

Unfortunately, there is a divide in American society: in the public sector, media and non-profit worlds, the words “profit” and “wealth” often carry negative moral connotations. The pursuit of these objectives is deemed to be “greedy” or exploitative. That’s one reason that the public sector tries to create jobs without creating wealth.

In the private sector, businesses and business people understand that profit and wealth creation are the measures by which they can determine that they are serving customers and creating sustainable companies and employment. Yet, the business community has been  put on the defensive by a public and media assault on profit and wealth.

Over the last decade, I have spoken often about the need to publicly support wealth creation. I haven’t had much support on this subject; maybe I have been traveling in the wrong circles. It’s good to have Charles speak up, and he is doing so with his own money and investor money.

Wealth creation must be the goal in entrepreneurial ecosystems. When wealth is created, so are jobs. Wealth is what will feed government coffers and the endowments of foundations. It is a virtuous cycle when it is working properly. Except in pockets of our economy, as Richard Florida points out in The Atlantic Monthly, we are not creating enough wealth.

It’s time to fight back and speak the truth: If America wants to create economic growth and new jobs we must embrace profit and wealth. There is no other way to get out of the economic doldrums.

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