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Entrepreneurship and job creation: What role should the government play?

At the end of 2007 – the beginning of 2008, when the world entered a deep recession, one of the most challenging yet necessary questions was about the role governments would play to speed up economic recovery. Job creation and growth was one of the priorities on the global economic and policy agenda. People across the globe argued whether it would be appropriate for governments to retain their decision-making powers in economic affairs or stay aside to let markets grow naturally, on their own. Today, when the situation has somewhat stabilized, one can see that markets are effective enough at promoting their growth and creating new jobs. Yet, it does not mean that governments should remain passive or act as an outside observer. When it comes to entrepreneurship and job growth, the government’s role is to create structural and policy conditions that help unleash free markets. Free markets encourage entrepreneurs and businesses to create jobs efficiently toward the ideal goal of full employment.

Job creation is one of the most challenging dimensions of economic growth in any country. The quality, continuity, and pace of economic development depend largely on the number of people (or the percentage of the total population) who are actively involved in production and entrepreneurship. Unemployment has long been one of the key measures of economic development. Full employment remains an ideal goal for many national economies as they are struggling to create more jobs and reduce the scope of unemployment in the society. However, when the economy enters recession or unemployment becomes too high, many citizens want to see their governments act decisively to solve the problem. Interestingly, citizens’ reactions to governments’ actions in job creation and entrepreneurship, as well as their perceptions of appropriate roles for governments in job creation and growth vary, depending on their personal observations and experiences. According to Seligson (2008), in countries where economic growth has been rapid and smooth, citizens are more supportive of governments’ involvement in job creation and entrepreneurship, as compared to citizens in countries where governments were largely ineffective delivering their economic and job promises. Any role and position of the government have its advantages and associated risks. However, the reality is such that governments should avoid, as much as possible, direct interventions and instead focus on supporting entrepreneurship and free markets.

The role of the government in job creation and entrepreneurship is to act as a facilitator. That is, the government creates favorable conditions for entrepreneurship and business, which, in turn, open new vacancies and create new jobs. According to Addington (2012), the proposed role extends the conservative views on economic growth, with individual rights and freedoms and free enterprise. The government should never exceed or overestimate its capacity to regulate job growth or influence job creation. It should never cross the boundaries of “reasonable involvement” with economic affairs. Otherwise, the results will be the opposite – the government will have to endure additional costs, whereas jobs created contrary to the rules of the free market will become inefficient and ultimately unsustainable.

This does not mean that the government cannot create jobs; nor does it mean that citizens and entrepreneurs do not have faith in their governments. What it means the government is not an economic messiah or jobs rainmaker. No one knows what jobs are needed better than entrepreneurs who operate in a free market. Businesses will create jobs they believe to be feasible and cost-effective. They will create jobs that they think will increase their output, optimize costs, and contribute to revenues and profits (Westwood, 2012). Any limitations imposed by the government will lead to misbalanced results. Businesses and entrepreneurs will not be able to create jobs according to market demands. They may also need to endure the pressure of mandatory requirements, creating jobs that they do not need.

Certainly, the government should retain its right to create and manage jobs in the public sector. The government is well-positioned to determine the number of military jobs needed to ensure the highest levels of national security. Likewise, the government may well calculate the number of jobs required to keep its operations and public service operations running. Even then, utilizing a market-oriented mindset would be essential, as governments often suffer from bloated bureaucracy, keeping people not because they are needed but because they do not want to change the existing system.

Governments can take essential steps to make markets work for the benefit of potential and current employees. For example, better taxation mechanisms can facilitate entrepreneurship and encourage businesses to expand and improve their operations, thus increasing their demand for workers. The government may reduce its oversight over employer-employee relationships to provide some relief to businesses while ensuring the highest levels of job security and rights protection among employees. In any case, a balanced approach is best suited to produce the best results.

Thus, the role and function of the government are to foster market growth and handoff from any aggressive regulatory interventions. By unleashing market and entrepreneurial potentials, the government can create conditions for job creation and increased employment. Businesses should be free to decide when new jobs meet their demands for growth and profitability. The government should respect the autonomy and independence of businesses and recognize their ability to make effective job creation decisions.

Ed.’s Note: Samuel Alemu is a partner at the ILBSG, LLP. His partner at the ILBSG, LLP, Praveen C. Medikundam, contributed to this article. They are both admitted to the bar associations of New York State, United States Tax Court, and the United States Court of International Trade. Samuel can be reached at [email protected]. You can follow Samuel on twitter @salemu.

Contributed by Samuel Alemu