WHERE ARE THE JOBS?
The WaPost's David Ignatius offers an interesting hypothesis:
I can't begin to answer the jobs question, but I can provide some shreds of anecdotal evidence, drawn from recent conversations with business executives in the United States and abroad.
My sense is that investors and managers are still traumatized by the shocks to the system of the past three years--a chain of events including the collapse of the high-tech bubble; the attacks of Sept. 11, 2001; a global war against Islamic terrorism; and the fallout from the Enron scandal.
These shocks, taken together, have made investors more risk-averse and cautious. Economists would define it as a change in the mental "discount" rate by which investors calculate how big a return they'll require in the future to part with their cash today. And at the very time investors are looking for this higher risk premium, prospective annual returns have settled back toward historical levels from the 20 percent-plus rates of the bubble years.
Adding to this culture of caution are the regulatory changes that followed the tech collapse, the Enron fiasco and other Wall Street scandals. Hoping to restore investor confidence, Congress passed the Sarbanes-Oxley bill, which required corporate chief executives, in effect, to take personal responsibility for what their underlings were doing in complicated financial transactions. That sounds great in principle, but in practice it has added to the wariness of CEOs, and probably reduced the job-creating dynamism of the economy.
One unintended consequence of the new rules is that they make it costlier for small start-up companies to go public. Ann Winblad, who is one of the principals of a big San Francisco investment firm, Hummer Winblad Venture Partners, estimates that for a company with $50 million in revenue, the extra cost of compliance could total $1 million to $3 million annually -- when you add in the three required independent directors, the outside auditors, the internal auditors, the directors' and officers' insurance, and other costs.
Certainly the venture capital business reflects the new caution: Where 629 venture funds raised a total of $105.4 billion in 2000, last year there were just 113 funds that raised $10.8 billion. Warren Buffett, the iconic figure of American capitalism, expressed the new wariness in his annual report released Saturday. Noting that he's sitting on a company-record $36 billion in cash, he explained: "Our capital is underutilized now. . . . It's a painful condition to be in -- but not as painful as doing something stupid."
Read the whole (short) thing.