Solution to U.S. Job Losses Is Creation, Not Protection –

In recent months, the laments over the outsourcing of U.S. white-collar jobs to overseas markets have reached a deafening pitch. While many policymakers and candidates have been quick to point out the problem, solutions have been considerably scarcer – mostly because policymakers are focusing their attention on the wrong end of the jobs equation.

The most commonly heard antidote for the current job market malaise – trying to thwart the movement of jobs through protectionism – is, sadly, an exercise in futility. In exploiting lower labor costs, foreign firms have demonstrated a consistent ability to displace U.S. companies from industries in which the United States had historically dominated. It’s a pattern that’s been in place for almost 200 years, and it isn’t likely to change, unless our politicians can coax the entire population into swallowing a significant reduction in our standard of living. Simply put: Labor costs will always be a disadvantage in a prosperous society like ours.

That said, the question then becomes: what competitive advantages can the United States exploit to offset this natural pattern of job erosion? If we could stop for a moment and refocus our energies on the opportunities rather than the challenges, it would become plain that what the United States does well isn’t industry-specific or even functionally specific. One obvious answer is our venture capital system. More than anything, what differentiates the United States from its macroeconomic competitors is our willingness to provide risk capital and our ability to foster entrepreneurship. It is entrepreneurship that has allowed us to maintain versatility in a changing competitive landscape and generate new jobs to replace those that have been displaced or rendered obsolete.

Studies show that 1 in 10 Americans is involved in an entrepreneurial venture, as compared to 1 in 30 in the United Kingdom and 1 in 100 in Japan.1 This phenomenon is driven by a number of factors, including the pioneer spirit we inherited from our country’s founders and the efficiency of our markets, which reward risk-taking in the name of growth.

It is also driven by the relatively high availability of venture capital. The United States dedicates nearly 40% more of its resources to venture capital, as measured as a percent of GDP, than its peer nations.2 While these VC-backed firms often start small, many evolve into significant employers. Amazon, Federal Express, Genentech, Home Depot, Intel and Staples were all founded with venture financing. Collectively, companies originally backed by venture capital directly employ 12.5 million Americans, representing 11% of U.S. payrolls.3 Entire industries – such as life sciences, software, and Internet services – have been formed from this source of risk capital. Most important of all, future industries will emerge from discoveries in genetics, lasers, fuels cells and photonics, creating opportunities for highly skilled workers here in the United States.

The United States will always be vulnerable to a loss of jobs in any given industry (like textiles and electronics) and any given functional area (such as radiology and software development), as those spaces reach maturity. Yet, this vulnerability to foreign competition keeps us alert and facilitates the development of our core competitive advantage: an enormous societal capacity and appetite to find the next big wave. It is not obvious what industries will take over as the next major creators of American jobs. Yet, those industries, like the ones before them, will likely be financed with American venture capital. No one can predict precisely how this latest crop of displaced workers will become employed, but one thing is certain: American entrepreneurs will employ them.

For this reason, policymakers must drop their protectionist posturing and focus on fostering and enabling entrepreneurship at all levels. Doing so means supporting stock options, capital gains relief, patent protection and an expeditious and thorough FDA pre-market drug approval process. All fuel U.S. job creation. Further, we must keep the American worker at the cusp of competitiveness by making it easier for him or her to transition to new jobs through worker retraining programs and educational opportunities.

The time for crying about lost jobs is over. The time for playing to the strengths that have sustained us for so long is now.

Matt Harris is Chief Executive Officer of Village Ventures Inc. in Williamstown, Mass. Mark Heesen is President of the National Venture Capital Association.