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Can a Jobs Campaign Create Real Jobs?

Mises Daily: Monday, November 21, 2011 by

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Starbucks: Create Jobs for USA
"One of the key requirements for a 'sustainable' job is a profitable business."

I went to Starbucks recently for a cup of coffee and noticed a small sign and some "Create Jobs for USA" wristbands for sale. If you want to, you can donate $5, get a wristband, and support the Opportunity Finance Network, which is a nonprofit, private community-development financial institution. The $5 donation will help poor entrepreneurs start or maintain a business in typically underserved areas with the idea that this will help create or sustain small-business jobs. This sounds quite noble but mischaracterizes what jobs are and where they originate.

A job is a voluntary contract between two parties, a capitalist and a laborer, to perform a service for an agreed-upon wage. This allows the capitalist or entrepreneur to take the risk of fronting the money to develop and make a product while the laborer assumes no risk and is paid regardless of profit or loss. A capitalist is a slave to the price structure in the economy, and these dictate whether she can turn a profit. The capitalist is speculating that his or her product will fetch a profit on the free market by satisfying consumer wants.

Extrapolating the capitalist idea to Starbucks, if I don't want to buy coffee from Starbucks I can brew it myself or go elsewhere. If Starbucks can't produce and sell its coffee and goods at or below the prevailing market price profitably, it will lose money and go out of business. However, if successful (which it obviously is), it will be rewarded for its insight and risk, and its business will grow and thrive as a result (which it has). This feedback mechanism allows those who make the best business decisions based on market prices to continue to make those decisions; each unit of profit made represents another satisfied customer, someone who is better off. Unsuccessful capitalists are run out of business and not able to make any more business decisions. As a society, this is the type of process we should be happy to see; we naturally delegate speculating and forecasting to those who are best suited to it, and we are all better off because of it.

However, this is not what Create Jobs for USA is attempting to do. While well intentioned, Starbuck's zeal is misplaced. The microfinance firm that they have partnered up with uses donations rather than actual sales transactions to raise money. One of the key requirements for a "sustainable" job is a profitable business. Profit cannot be calculated without a value scale, which measures a good or service versus some quantity of money; donations do not provide this. Donations represent money without the value of profit and consumer need, both of which are vital to the sustainability of a job or business. When the donations cease, so will the job or business.

Furthermore, Opportunity Finance Network's website invests in businesses that are "profitable, but not profit maximizing. They put the community first, not the shareholder." Implicit in this statement is that turning a profit hurts someone, which is patently false. This is exactly what we as a society do not want. We want people to ruthlessly cut costs, to give us more for less, and to provide us with better goods and services. It is ironic that Starbucks, an extremely successful business that is profit maximizing — and has created thousands of jobs because of it — is supporting an idea that will not support capitalism and actual job creation.

In a voluntary society, both parties benefit from any exchange, or it wouldn't have happened in the first place. We only want the most profitable businesses to be operational, because we will benefit the most from the best and cheapest goods. Profits are a signal that you are doing something right, not something wrong. While I don't doubt that there are investing opportunities to be had in servicing poor and underserviced areas, donating money to create jobs will not be nearly as effective or sustainable as a knowledgeable capitalist and speculator intelligently and rationally creating profitable businesses and organizations. Only then will the kind of sustainable growth that will actually create jobs occur in poor areas in and around the country.