Job Creationism

Matt Harris —  December 15, 2011 — 5 Comments

I started my investing career doing leveraged buy-out deals at Bain Capital, working directly for Mitt Romney and his then small group of partners.  I left in 1997 to start my own venture capital firm, and part of my rationale was that I wanted to spend time creating jobs.

In the 14 years since then, I have learned many things.  Perhaps the first thing I learned is that 24 year old people shouldn’t start their own venture firms, but that’s another story.  One of the most important things I learned is that “creating jobs” is an extremely fraught concept.  As the scrutiny of Mitt’s career at Bain Capital begins to intensify, I’m reminded of my initial, naive take on this issue, and how far my thinking has come since then.  It seemed like the kind of unpopular topic that I should write a blog post about.

For the first 3 years of my venture career, until the spring of 2000, I did indeed “create jobs” right, left and center.  All of my companies were hiring anyone who had a pulse.  Fortunately, I was lucky enough to exit many of those investments before the music stopped, but by the summer of 2000, it was clear that all of us in the venture industry had created a few too many jobs, frankly.  I then spent much of the next 18 months uncreating jobs.  One of my CEOs at that time took to keeping a bottle of Jack Daniels in his desk, and at the end of each day of downsizing, we would grimly commiserate.  Bad times.

It’s actually a little strange that I was so intimately involved in all of those terminations.  Today, I probably wouldn’t be involved in firing anyone other than a CEO (god forbid) or a member of her senior staff, and then only if she wanted me there for support.  10 years ago I did more seed stage investing, and as such was more involved in the day to day details of my companies.  Even having said that, however, it still feels pretty self-aggrandizing to claim credit for “creating” any jobs.  I played a role in the maintenance of a healthy (or, a rational observer might claim, pathologically over-funded) early stage equity ecosystem, and I did my best to lend a helping hand as well.  But creating jobs?  I’m pretty sure the entrepreneurs did that, not the funders.

On a slightly more meta level, I have serious concerns about even the most rock star entrepreneur’s claim to job creation, on a net basis.  Let’s look at the newspaper industry (just in case I haven’t depressed you enough already.)  In 1990, the industry employed 460,000 people.  Today it employs 250,000, and is projected to shrink to 180,000.  The two companies who sucked all of the profits out of that business, Google and Craigslist, collectively employ about 25,000 people (Craigslist makes up 30 of that number.  Not a typo.)  So, did the heroes who founded and funded Google and Craigslist create 25,000 jobs, or did they destroy a quarter million jobs?

My point is this:  it’s all capitalism.  Bain Capital is a powerful motor in the capitalist machine, Village Ventures is a much smaller motor, but it’s the same machine.  It’s a big system that produces wealth for society in highly differential doses, and you either believe in it or you don’t.  Companies are naturally selected, if you will, through a process of vigorous competition, and there are definitely winners and losers.  You might even say that it comes down to the survival of the fittest.

I don’t side with the job creationists; I’m with Darwin on this one.

5 responses to Job Creationism

  1. Hate to reply to my own post, but @ataussig suggested this video clip, on a lighter note:

  2. While it’s a good post, it leaves the ‘job creation’ effect of google / craigslist only cursorily examined. IMO Google has created a net increase in GDP just from the tremendous increase in productivity due to making information available to people. So while they might not directly employ the ‘jobs lost’ people, there are innumerable number of other industries that have benefited to make up for the newspaper jobs lost.

    Not so sure about craigslist’s effect..

    • I think that’s true, re Google. But is it similarly true of Rovio/Angry Birds and Facebook? The productivity gain/loss seems like a mixed bag.

  3. I think you flatter your business to say you create wealth for “society” rather than a chosen few.

    • Well, that was my point about “highly differential doses”. Most of the wealth does go to a “few”, though I don’t know about the “chosen” part. Or, at least, I don’t know who does the choosing. It seems to me that through skill and talent and good fortune (in some proportion), a small percent of the population puts themselves in a position to becoming incredibly wealthy. The unfortunate thing is that the only way to prevent that, assuming you think it’s a bad outcome, is to do stuff that alters the performance of the entire system in pretty negative ways. The way venture capital works is that we end up looking to make sure that founders and key management own big chunks of the companies we invest in. That concentration of ownership will result in outlandish wealth for those people if the companies scale (see: Zuckerberg). But that’s not why we look for it, though; we like to see that concentration because it tends to create highly motivated, high performing teams. The wealth effect is an externality, negative or positive, depending on your viewpoint.

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