Why Great Companies are not Creating Jobs

PSX_20170403_140432Yes, we are in trouble, huge trouble. This is because the pools of job creation otherwise known as companies are drying up overnight. Why so? There is a new business model orchestrated by a marriage of globalization and technology explosion. Let me explain:

Globalization was seen as the silver bullet of the 20th century. Factors of production (labor, capital, and entrepreneurial instinct) could move to their most product spaces. The opportunity to create wealth was immense. And wealth was indeed created only in a few hands.
– What we did not foresee was that a departure from national to global value chains meant our governments would have lesser control on employment creation and even final destination of gains. This was not a bad thing had they seen the entire equation besides their silent acquiescence to multinational demands for cheaper labor.
So we have a situation where something is invented in India, designed in America, produced in China marketed from Europe – with the parent company registered in a tax haven where most value returns.
– The results have been an unprecedented skewed wealth accumulation by few players at the helm of the global value chains. This accumulation is driven by two culprits – multinational corporations (MNCs) and shrewd tech companies. This article is about me being opinionated about the two because I have seen first hand where their continued behavior and the inactivity of our governments will leave our youth – Africa’s most abundant resource.

If our governments relinquished control to the MNCs and tech companies (most of whom we celebrate) does it mean they are our savior? Maybe they are the future of jobs and decent livelihoods. Evidence suggests that these are great vehicles of wealth accumulation not social good. Consider the facts with me:
First, when we officiated a marriage between technology and globalized economies we also disrupted how these companies create and deliver value; whom they would collaborate with and also whom they fear (competition). The discomfort and risks associated with this landscape have seen most companies adopting a survival mode.
To a large extent, a sizable number of MNCs and well to do national companies have jumped into a cost-cutting frenzy that continually becomes intoxicating. It is increasingly becoming a matter of survival for boards and C-suite execs to post better figures per quarter than to stand for something or mean something socially. Our business segment is now punctuated by news of blatant layoffs cosmetically packaged as necessary cost cutting or the more trendy one of ‘going lean’. – so what is my fuss all about? Going lean means a disrupted livelihood, sometimes long-term unemployment – it is a very disempowering encounter. This is why I tell our awesome UReadyAfrica students that blue chip companies no longer create jobs, unlike popular opinion.

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I know what you are thinking, that some are truly justified and had no choice – true. However, the philosophy behind most layoffs lacks a human and social face. Let me emphasize this: There has never been a time when companies laid off so many people despite the fact that they were still profitable. Indeed, there has never been a time that we glorified quarter, mid or end of year results like today.

Secondly, I would like you to now consider the celebrated tech companies that led the disruption. Before their razor sharp PR campaigns and the appeals of their gadgets fool you ask yourself whether their business model is socially conscious. You will discover that most of these trendy tech celebrity companies are by no measure awesome job creators.They are machines of wealth creation for investors. Here are a few pointers:

a). Crazy valuations
Just imagine that Apple’s market value is bigger than all but 19 countries GDPs – note that most of the 19 countries either have oil, colonized someone or are extremely large. In fact, Saudi Arabia, world’s oil richest country is only $68 (the current valuation of Uber) billion richer than Apple. Which is fascinating since if Apple acquired Uber it would surpass oil fields and people of Saudi. Now think about how much jobs this company or its peers have created.

b). Growth without jobs.
If we leave Apple and look at its younger siblings such as Facebook, LinkedIn, Twitter, Groupon you will be hit but equal crazy valuations that rise year to year. Sure, we were in awe of their growth – the story of Uber, Facebook, LinkedIn among others inspire us, they epitomize human ingenuity. Unfortunately, that is all, we do not see an upward spiral in job creation – they barely get an invitation to tag along. For decades it has been known that company expansion means job pool expansion until now.

c). Displacement and quality of jobs
I suspect that for every 10 jobs Uber, Facebook or Indian algorithms take they will mostly create fewer jobs of lower quality. They will also displace jobs from the base to another area. Uber, for instance, has led to joblessness of traditional taxi owners and drivers. While it appears great on efficiency and consumer experience the guys displaced were in taxi business for life i.e. unlike new Uber owners who are already middle-class folks trying to diversify and boost main revenue base, these guys may not survive the knocked out.

Now you want to scream at me, be gracious Ndirangu, be gracious. Okay…just so we are clear I too enjoy riding an Uber, the conveniences that technology affords us or advertising on Facebook. So this is not me making a case for inefficiency or status quo; this is me inviting us to see a bigger picture beyond that which fits in our frame as consumers. To acknowledge that there is a wider context here beyond efficiency. Indeed these tech companies can no longer play the non-conformist income being gagged by policy and traditional players. Some are not underdogs but bulldogs salivating at the idea of turning wild.

Of course, I do not intend to blame innovators I cannot bear the crime of stifling progress; but I intend to call out a business philosophy that is out of touch with the social realities of our time.  As for our governments, become more creative in policy; the layoffs we are witnessing are not a cyclical recession issue. Stop watching the cycle hoping it will pass, IT Won’t, read the bold writing on the wall – that this a new business model, an economic reality sustained by owners of capital. It will not pass! I have heard you though, that I need to be more gracious and positive that is why in the next article I will share my thoughts on how we can get into youths productive jobs despite this not so good news. At UReadyAfrica we want you to know that Africa has a solution within it.

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Author: Simon NDIRANGU MWANGI

A consultant strategy and capability development - a trainer drawn to the magic that is the knowledge in people. I am an emmerging thought leader in the sphere of workorce development who uses my industry wide experience to prepare pools of talent

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