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If you want to create jobs at home, don’t rely on startups

The New York Times’s Thomas Friedman was wrong to suggest we put our faith in new technology companies

Thomas L Friedman, the New York Times‘s foreign affairs columnist, is an engaging master of the pithy half-truth. He once famously observed, for example, that two countries which had significant networks of McDonald’s franchises would never go to war again, because an addiction to Big Macs signified the existence of a significant middle class with too much to lose from casual hostilities. In a subsequent book with the provocative title The World Is Flat he updated the thesis to the proposition that two countries with manufacturing industries which were part of the supply chain of giant companies such as Apple, Toyota, Dell and Cisco could no longer afford go to war with each other either.

Friedman is a significant figure because his pulpit on the NYT enables him subliminally to insert ideas into the collective unconscious of America’s ruling elite. Which is why something he wrote recently needs to be challenged. “If we want to bring down unemployment in a sustainable way,” he wrote, “neither rescuing General Motors nor funding more road construction will do it. We need to create a big bushel of new companies – fast. We’ve got to get more Americans working again for their own dignity… Good-paying jobs don’t come from bailouts. They come from startups.”

When Samuel Johnson was asked how he would refute Bishop Berkeley’s philosophical proposition about the non-existence of matter, he famously kicked a stone and said: “I refute it thus!” Not having a convenient stone, I pick up the nearest object that lies to hand. It’s an iPhone. “Designed by Apple in California”, it says on the back. “Assembled in China”.

Now of course it’s a long time since Apple was a startup, but the iPhone still refutes Friedman’s hypothesis. And it applies with even greater force to startups – a point that Andy Grove, the former CEO of Intel, made recently in a forceful article. “Friedman is wrong,” says Grove. “Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

“The scaling process is no longer happening in the US. And as long as that’s the case, ploughing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.”

He’s right. And it applies not only to the US but to every industrialised country whose government fantasises that new high-tech businesses are the key to industrial renewal. Startups do create good jobs in their countries of origin, but only for relatively small numbers of highly qualified people. That’s why – as Andy Grove points out – the unemployment rate in Silicon Valley is actually higher than the US national average.

Which is where ideology enters the picture. Evangelists for the twin doctrines of globalisation and maximising shareholder value simply shrug their shoulders at this point. The fact that manufacturing jobs have moved to China, they say, is just a fact of life, an economic version of Newton’s first law.

But actually it’s not a fact of life: it’s an ideologically driven choice. This emerged graphically in a recent TV discussion between CNN’s Candy Crowley and Jim Hoffa, boss of the teamsters’ union. Hoffa startled his interviewer by launching into an attack on Apple for sitting on its bn cash mountain and not spending it in the US. When the interviewer pointed out, mildly, that Apple was allowed to do that, Hoffa responded: “But they are not doing anything with it. And instead of investing here, everything they do is in China or is in Asia somewhere.”

“It’s cheaper there,” explained the interviewer, at which point Hoffa exploded. “But don’t they have an obligation to America to build it in America, to put people to work?” he said. “I think the president should challenge the patriotism of these American corporations that are sitting on the sidelines saying, why do we have high unemployment but I am not going to hire anybody? You know, they have an obligation just like the federal government, just like Obama. We have all got to get into the game. And I don’t see that happening. So the trillions and billions of dollars that they have on the sidelines, they have money, Pfizer and General Electric, they have trillions of dollars overseas, let’s start repatriating that money. Let’s start a programme to get America going again.”

Now of course Hoffa is a union boss and he would say that, wouldn’t he. But the point he raises is nevertheless sobering. Not only is patriotism a completely outmoded concept for major technology companies, but so also is the idea that these corporations have any wider social responsibility to the societies which provide them with the skilled and educated people who make them so innovative and profitable. Welcome to Tom Friedman’s flat world. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds