Don’t Count Jobs, but Make Jobs Count

Texas Lyceum
Harnessing the Lightning:
An Economic Growth Summit for Texas
San Antonio, Texas
November 13-14, 2006

I’m honored to be invited to speak to such a distinguished group of Texans.

Especially since my friend, Skipper Dippel, was one of your founders 26 years ago. Skipper served on our Houston Fed board for several years. If you don’t know Skipper, you should make it a point to meet and talk to him—if you have the time. He is the kind of optimistic guy that, if he goes after Moby Dick, he takes along some tarter sauce.

A few weeks ago in San Francisco, I boarded an Air China flight to Beijing, and looked up and saw Skipper on the same flight. What were the odds of that?

It turns out that he’s been teaching values and ethics to the future leaders of the Chinese government. They use one of his books in their leadership university, and may adopt his latest. I believe the Texas Lyceum is involved in some way. Good for you.

I also did what I could on the ethics front during my visit. I gave talks in Beijing, Shanghai and Hong Kong on the importance of intellectual property protection to economic development.

I would have done more, but I had to go to the knock-off markets to do some shopping for my wife.

Just kidding—well—half kidding.

I’ve always thought of the Lyceum as a group of serious-minded Texans who probably would like to shed the stereotype of Texas personified by J.R. and Sue Ellen. I’m pleased to learn that I may have been wrong about that.

My evidence is the following quote from your Chairman:

“From the wildcatters to the high-tech capitalists, the spirit of Texas is larger than life. Texas is a big state, highly diverse in its population and terrain and full of self-confidence.”

In the Economist Magazine, December 19, 2002, there appears an article entitled, ‘The Future is Texas.’ If you want to see where America is headed, start by studying Texas.’

The article goes on to describe Texas as “America on steroids.”

“America on steroids” I like that. I hope the French don’t insist on our taking urine tests like they do with Lance. I’m not sure they realize that “Texas is bigger than France.”

NPR once ran a segment about Egypt, where 20 years ago Dallas was one of the few Western shows on Egyptian TV. The streets of Cairo emptied on Thursday nights. Egypt’s leaders approved of Dallas because they thought it reflected badly on Americans. Instead, it just made the Egyptians envious of our mini-mansion ranch houses, convertibles, big hair, big hats, and big watches.

Some anecdotal evidence suggests that Dallas helped bring down communism—especially in Romania, where Larry Hagman visited in his Stetson promoting a Russian oil company as “The Choice of a True Texan.” As Larry tells it, the people saw what they didn’t have, so they took their ruler out and shot him.

The latest Nobel-prize winner in economics, Edmund Phelps, recently wrote an opinion piece for the The Wall Street Journal, titled "Dynamic Capitalism."

In it he said . . .

There are two economic systems in the West.

Several nations—including the U.S., Canada and the U.K.—have a private-ownership system marked by great openness to the implementation of new commercial ideas coming from entrepreneurs, and by a pluralism of views among the financiers who select the ideas to nurture by providing the capital and incentives necessary for their development.

Although much innovation comes from established companies . . . much comes from start-ups, particularly the most novel innovations.

This, is free enterprise, aka capitalism.

The other system—in Western Continental Europe—though also based on private ownership, has been modified by the introduction of institutions aimed at protecting the interest of “stakeholders” and “social partners.

The system’s institutions include big employer confederations, big unions and monopolistic banks.

Since World War II, a great deal of liberalization has taken place. But new corporatist institutions have sprung up:

Co-determination ... has brought “worker councils;” and in Germany, a union representative sits on the investment committee of corporations.

The system operates to discourage changes such as relocations and the entry of new firms, and its performance depends on established companies in cooperation with local and national banks.

What it lacks in flexibility it tries to compensate for with technological sophistication.

So different is this system that it has its own name: the “social market economy” in Germany, “social democracy” in France and “concertazione” in Italy.

He could have mentioned France’s 35-hour work week at this point—their effort to spread a fixed amount of work and a fixed number of jobs over more people.

To continue quoting:

The American and Continental systems are not operationally equivalent, contrary to some neoclassical views.

Let me use the word “dynamism” to mean the fertility of the economy in coming up with innovative ideas believed to be technologically feasible and profitable—in short, the economy’s talent at commercially successful innovating.

In this terminology, the free enterprise system is structured in such a way that it facilitates and stimulates dynamism while the Continental system impedes and discourages it.

Continental Europe—old Europe—looks down on the Anglo-Saxon brand of “unadulterated” capitalism. Which implies they prefer their capitalism “adulterated.”

I agree with Professor Phelps, as far as he goes, but he doesn’t go far enough. There is yet another brand of capitalism—a third brand—that is even more dynamic and innovative than the American or Anglo-Saxon brand.

That’s the Texas brand. Let’s call it “Cowboy Capitalism.”

When the Europeans call our President a “cowboy,” I swell with pride.

I spoke at a conference in London in 1999 at the Institute of Economic Affairs, a free-market think tank originally identified by the Austrian free-market economist, Frederick Hayek, and associated more recently with Margaret Thatcher.

I was describing the dynamic, new and improved, high- productivity, high-growth, low-inflation U.S. economy of the late 1990s, which had not made an appearance in Continental Europe. A local professor critiqued my remarks by saying our economic statistics were too good to be true. He meant it literally and actually accused us of cooking the books.

As an example of how we fudged the numbers, he pointed out that we don’t count our large prison population as part of the labor force, and, consequently, we don’t count them as unemployed. In my response, I said I’m from Texas, and in Texas we take it a step further.

To my surprise everyone in the audience got it, which pretty much ruined the professor’s day.

“Harnessing the Lightning” is an ambitious goal. A worthy goal, but it sounds dangerous. Like belling the cat—a good thing to do, perhaps, but who’s going to do it?

The chancellor’s house in College Station is next door to the Horse Center, and last year I asked its manager, Nikki, if she would give me riding lessons. I was concerned because I’d heard that the chancellor is sometimes asked to ride in the opening parade on Aggie night at the Houston Rodeo.

Well, on the first morning, Nikki showed up with a naked horse and asked me if I wanted to start by learning to harness and saddle it. I said no, I’ll leave the dangerous stuff to her. I’d just try to sit in the saddle without falling off.

As it turned out, they put us all in buggies, so I’m still looking forward to my first real rodeo.

Livestock—both large and small—has played a bigger role in my tenure as chancellor than I ever dreamed.

The A&M System is pretty complex, you know.

There’s not only the 9 universities and statewide health science center, but it also includes 7 state agencies.

When people ask me why I would take such a hard job so late in my career, I give them Roger Miller’s answer when he was asked how someone talked him into writing the score for a Broadway play. He said they made him an offer he couldn’t understand.

Now, when I’m asked what’s next, I quote Kinky Friedman. He said he was looking for a profession that didn’t require his actual presence. I believe he was referring to writing novels rather than being Governor.

I would also like something that doesn’t require my actual presence. Maybe something virtual, that I could do on-line at Starbucks and Barnes & Noble.

Baxter Black has the best combination of jobs: cowboy poet, philosopher, and former large-animal veterinarian. I don’t think he became a large animal veterinarian at our world-class Vet School at A&M. If he had, he wouldn’t have had to moonlight to make ends meet.

The “A” in “A&M” has kept up with the times. Researchers there have cloned 6 different species of animals, a world record as far as I know. My best day as chancellor was the day I took my barnyard tour of our cloned animals.

First on the tour was CC the cat. CC stands for copy cat. Our newest clone was a horse, named Paris Texas. Our most appropriately named clone is a big black bull named 86 squared. Years ago Research Bull # 86 was studied intensely because it had a natural immunity to several diseases. When he finally died, someone thought to save an ear. Years later they made a new bull from the ear and named it 86 squared. It had the same immunities.

Is this a great country, or what?

My first meeting as Chancellor was in Austin to discuss a research project we were involved in—The Bovine Genome Project. (Being a lifelong advocate of fiscal responsibility, I was relieved to discover that bovines were made of beef rather than pork.) I’d rather deal with bull my first day than with pork.

During a break in the bovine meeting, I learned that in the world of genomics, mice are bigger than cows. I’m told that a mouse has 99 percent of its genes in common with man, and that the mouse genome is easier to model than other species.

Lexicon Genetics, a large biotech firm in The Woodlands, had patented a procedure to block or knock out a single gene from mice so the gene’s function could be studied in clones of the mice--with strong implications for their human counterparts.

Fast forward about a year, and I’m signing a 3-way partnership agreement with Lexicon Genetics and the State of Texas to form the “Texas Institute for Genomic Medicine.” The acronym for the “Texas Institute for Genomic Medicine” is “TIGM.” Coincidentally.

The Governor’s Enterprise Fund invested $50 million to enable TIGM to purchase from Lexicon and house two “libraries” of 350,000 embryonic mouse stem cell lines each, one in College Station and one at our Institute of Biosciences and Technology in Houston.

Prior to this, as an economist observing the dot com boom and bust, all I knew about mice was that while the early bird gets the worm, it’s usually the 2nd mouse that gets the cheese.

Not long after TIGM was formed, I had breakfast with Alan Greenspan in Washington. He asked me what was going on in my new world. When I started explaining all this to him, he interrupted me to ask why it was that most research mice are white rather than brown. After a long moment that seemed like an hour—a place I’d been before with him—I finally said, “Mr. Chairman, It’s a conundrum.”

Pretty soon, Guy Diedrich, who had brokered the TIGM deal (and who will be on your program tomorrow) brought me another deal to sign. The A&M System had been chosen to host the statewide Texas Life Sciences Center for Innovation and Commercialization, under the auspices of the new Emerging Technologies Fund. Soon after, an A&M spin-out company was one of the first to receive funding from that Fund.

Guy didn’t do as good a job of negotiating this one, since one of the conditions was that it be located in Austin.

Soon thereafter, Texas A&M won the Big 12 competition for the most promising start-up company. You may have heard of the Big 12; yhey also sponsor a football competition.

Going down the list . . .

Over the past year, we’ve built an investor and technology commercialization network that spans the globe—hence the trip to China with Skipper.

We will soon break ground on the Texas Institute for Preclinical Studies, or TIPS, a 100,000-sq. ft. facility associated with our world class Vet School.

TIPS will have a 25,000-sq. ft. core-imaging center and conduct GLP preclinical testing of medical devices and pharmaceuticals.

TIPS should create innovations that will spawn the next generation of biotech companies in Texas. You will soon be able to go from concept to market with new medical devices and pharmaceteuticals without ever leaving Texas and without leaving the A&M System for that matter.

Most recently, the A&M System was chosen to lead the Texas Statewide Bioenergy Strategy, which will enhance our state’s national leadership position in new energy discoveries and commercialization.

And given our strength in Agriculture and Engineering, and given the current quest for alternative energy sources, our Ag and Engineering Colleges recently formed the Texas A&M Agriculture and Engineering Bioenergy Alliance.

System entities have put a lot of emphasis on research in recent years. Externally funded research by our universities and agencies recently passed $600,000,000 per annum. But not enough of this research has been reached the marketplace.

Research universities are costly: the research is partially funded by external sources, but mainly by taxpayers, directly and indirectly. We owe it to our principal investigators, inventors, our universities and Texas and U.S. taxpayers to recover as much of their investment as possible, . as a reward for past innovation and an incentive for future innovation.

With that in mind, we recently raised our commercialization efforts from the university level to the system level. We created the position of Vice Chancellor for Technology Commercialization reporting directly to the Chancellor—that’s Guy Diedrich.

We’ve also restructured the A&M Research Foundation to make it more efficient and responsive to the needs of our principal investigators without leaving commercial opportunities on the table.

The most important initiative during my tenure as Chancellor probably was the creation of the Texas Institute for Genomic Medicine, or TIGM, since it will eventually help prevent and cure human disease and raise our quality of life. But I was only one of several players in that effort, which had begun before I arrived.

The most important initiative I can call my own was reform of the faculty tenure process—known as the 3rd rail of academic politics:

The reform was

  1. to give credit for patents and the commercialization of research, when appropriate, in tenure decision.
  2. to provide for a time-out in the tenure clock to permit faculty to engage in special projects, such as commercialization efforts, without jeopardizing tenure.

While I didn’t think of it in these terms, much of what we’ve been doing in the past two years can be classified as economic development, with direct and indirect benefits to Texas citizens and taxpayers.

Many good jobs will be created as a by-product of our efforts. But job creation is secondary to the primary goals of our efforts.

Hence, my title: “Don’t count jobs; but make jobs count.”

To illustrate what I mean by that let me tell you a little story from one of my favorite dead economists, Frederick Bastiat, who lived in France from 1801 to 1850.

In 2001, I was invited to Dax France to give the keynote address at Bastiat’s 200th birthday party. The quickest way to explain Bastiat is to call him the French Adam Smith who fought an uphill battle for free trade, free enterprise and against socialism. Known more recently as a pamphleteer, his writing was easier and more fun to read than Adam Smith’s, however. He made his points with wit and humor, using satire as his main weapon.

For example, in arguing against trade protectionism, he wrote a tongue-in-cheek petition to the French Parliament on behalf of the French candle makers urging the passage of a law requiring everyone to shut their blinds to keep out the sunlight because the sun was unfair competition to candles in the provision of light. He emphasized all the jobs that would be created in many industries if only the sun were shut out and the candle makers could compete “on a level playing field.” Sound familiar?

Another example of his attack on misguided job creation was the railroad from Paris down to Spain—through Dax, in fact. Someone in a railroad town along the way wrote an op-ed piece arguing that the train should be required to stop at their town, so the passengers could get off and refresh themselves and spend some money in the town before resuming their trip. Many local jobs would be created.

Bastiat saw the editorial and wrote a response, agreeing that it was a good idea. So much so, he said, that there was no reason to limit those benefits to one town only. There should be mandatory stops at all the towns along the way so all could participate in the prosperity and new job creation. Bastiat said that, with all the stops, they could call it a “negative railroad.”

In my remarks at his birthday party, I likened the negative railroad to the negative bridges we had on the U.S.-Mexico border where trucks were required to unload their cargo, load in onto another truck, cross the border and then reload again to continue. Just think of all the good jobs created.

The front page of my local newspaper recently quoted a local politician talking about how last year was a good year for the local economy because of the hurricanes. Given our national income accounting system, he was right. The property destroyed isn’t subtracted, but spending on rebuilding is added. But “hurricane prosperity” isn’t the best kind of prosperity.

When I came to Texas in 1991, a big issue was the superconducting supercollider. It was hard for me to tell from reading the newspapers what it was and what it was supposed to do. The only thing they made clear was that it would create lots of jobs. People whose judgment I respected told me it was a good science project and should have been funded.

But, if all the proponents can say about a project is that it will create jobs, they haven’t made much of an argument.

If job creation is your primary goal, you can achieve it by replacing all the heavy equipment on construction projects with shovels.

If that doesn’t create enough jobs, just replace the shovels with spoons.

Or, in France, you might shorten the work week to make a fixed number of jobs go to more people.

By the way, did you know that Texas is bigger than France?

The point is that jobs are easily created. The limiting factor is finding qualified people to fill the jobs. So we shouldn’t waste good people on bad jobs or on less than optimum jobs.

Hence, my title, once again: “Don’t count jobs; make jobs count.”

Okay, here is Bastiat’s little story as retold by Henry Hazlitt:

A bunch of rowdy teenagers threw a rock and broke the window of the local bakery. A crowd soon gathered and said, “What a shame! The baker will have to replace his window.” But it wasn’t long before a philosopher in the crowd saw a silver lining. Because the baker will have to replace his window, the window maker will have some income he wouldn’t have had otherwise. And he will spend it. And whoever he spends it with will, in turn, spend it again. More and more income—and jobs—will be created.

There will be multiplier effects.

To bad about the window, but this spending will create some good business, and jobs.

But Bastiat says, wait a minute! You are only talking about what happened. You are only considering what is seen. You must also consider what didn’t happen. Consider what was not seen because it never happened.

If the baker didn’t have to spend his money replacing the window, he could have spent it on that new suit of clothes he’d been saving for. Or, a new oven to expand his bakery. Then a tailor or oven maker would have extra money to spend. Then someone else would get it and spend it. And so on.

The chain of spending and re-spending initiated by the broken window wasn’t net new spending. It was a diversion of spending.

In all such diversions—and we have them every day—we tend to see the spending and good results that happen and forget to consider the spending and good results that didn’t get to happen. If not spent immediately by the owners, it remains in the bank to be loaned to others to invest.

The broken window fallacy is a simple little story, but we hear versions of it every day. We hear about all the jobs created by new government programs, but we rarely hear about the jobs not created because of it. That includes jobs not created by taxpayers spending their own money, for example.

It was my honor to sign the TIGM contract, creating the Texas Institute for Genomic Medicine. Because it will eventually prevent diseases, cure diseases, and improve lives. And, coincidentally, I would argue, it will create new jobs; good jobs. The contract I signed on TIGM had milestones, but, interestingly, they were job milestones not scientific milestones—the Enterprise Fund being, after all, an economic development fund.

I’m not arguing against economic development here. Hopefully, the new jobs created by economic development in Texas will be at the expense of jobs that might have been created in California, or maybe France, by Jingo.

Did I mention that Texas is bigger than France?

A couple of quotes:

Stanley Jevons, another dead economist, once said: “In political economy, there is much to learn and little to do.”

Sometimes the best thing government can do to promote economic development is nothing—nothing, but get out of the way, and do no harm.

Remove obstacles to free enterprise created by ill-informed past government decisions and actions and create no new ones.

Adam Smith didn’t invent free enterprise, or even discover it. What he did was describe it and explain its beautiful logic. What he described was only what people do naturally when they are free.

If I had been your only speaker on this topic, I would have given a different speech. But, my guess is that most if not all of the other speakers will take an enthusiastic, exuberant, aggressive rah-rah approach to economic development.

I just thought it important that at least one person play the role of devil’s advocate and urge caution. Not to stop you, or slow you down much, but to make you think twice.

Thank you.