Jobs killed by well-intentioned rules
By Luke Johnson
Published: October 7 2008 19:25 | Last updated: October 7 2008 19:25
The most important thing I have done in my professional life is create jobs. That is the case for everyone who runs and owns a growing business. Their personal objective may be to control their own destiny or get rich but the by-product of that wealth creation is employment and, for a civil society, nothing is more worthwhile.
For proof, I recommend Gallup’s recent paper based on its World Poll. It states that “the single most searing, clarifying, helpful fact” to emerge from its research is that citizens across all nations share a common “great global dream”. What they all want is a good job. This is a simple, obvious truth, but one that many politicians, union leaders and civil servants fail to understand.
It takes a near miracle to build a successful business. For every entrepreneur who makes it, dozens fall by the wayside – broke, exhausted or just dissatisfied. Most genuine commercial breakthroughs do not need just an exceptional leader – they need ingredients such as luck, a sound legal system and capital.
Right now the odds are stacked heavily against job-creators in the west. Markets are shrinking and finance has evaporated. Many companies are going or will go bust. Governments can do only a limited amount about this. They can cut interest rates, which makes credit cheaper (in theory). They can add numbers to the state payroll, but these have to be paid for by taxpayers. Most significantly, they can get out of the way.
It is this latter policy area that may make a difference. Certainly in Britain – and across the European Union – parliaments have enacted huge quantities of legislation that make the life of an employer more complex, more expensive, more restrictive, less flexible and generally more problematic. Human resources has become a frightening maze of regulations that are an intolerable burden on the private sector.
In the good times this did not matter to politicians. They could point to growing numbers in work because the economy was booming on a tide of debt. But the credit crunch has changed everything. The model is broken – for all to see. Now an avalanche of job losses has started and the agony is likely to continue for at least two years. In Britain the unemployment rate is 5.5 per cent. I expect it to climb to 8 per cent – perhaps even higher. This will cause immense misery and a terrifying increase in welfare costs.
All the expanding service sectors of recent years – construction, financial services, retailing, hospitality – are in trouble, and shedding workers rapidly. Companies are going bankrupt and downsizing. Investment from abroad, which fuelled the boom, has dried up.
The authorities could help by making hiring and firing less of a quagmire: the list of employment red tape introduced in the past 10 years from Westminster is mind-blowing. There were Employment Relations Acts in 1999 and 2004; an Employment Act in 2002 and another bill in 2007/8. There is now a national minimum wage, currently more than 60 per cent higher than when first introduced and more than twice the US minimum wage. The rules regarding diversity, gender, ethnicity, age, religious and sexual orientation and possible discrimination are a minefield. There are fresh regulations regarding flexible working, part-time and temporary workers, maternity and paternity leave, holiday entitlements and so on. All are well-meaning but the bureaucracy, cost and threat of litigation combine to force those who can to outsource jobs overseas. None of these hindrances was in place during the last recession.
Clearly, the direction has been set by a New Labour government in hock to the unions and obsessed about work/life balance. I meet senior civil servants at the ludicrously named Berr (Department for Business Enterprise and Regulatory Reform) who have no conception of what pressure employers are under, especially in smaller companies.
If a new UK government is elected in the next two years, that wants to stimulate entrepreneurs, investment and employment, there is one vital thing to do. It should undertake a root-and-branch revision of employment laws.
lukej@riskcapitalpartners.co.uk
The writer is chairman of Channel 4 and runs Risk Capital Partners, a private equity firm
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