Group of Seven needs to focus on creating jobs

OVER THE past few weeks, US consumers have been bombarded by reports that cast doubt on the likelihood of future employment growth. Studies on the end of banking as we know it, on regional economic chaos related to defence cutbacks and steel plant closures, and on the continued restructuring of IBM, General Motors and other huge US companies have dominated the news. Small wonder that the average person echoes the concerns of the G7 heads of government in Tokyo in asking the question, where are the jobs?

President Clinton's call for the convening of an employment summit in the US to explore co-ordinated approaches to job growth is an appropriate addition to earlier proposals by the European Community and the Organisation for Economic Co-operation and Development.

In most of the industrialised world, unemployment and under-employment are growing. Even in Japan, where the post-war system of lifetime employment is under stress, the jobless rate, albeit still small, is rising - from 2 per cent to 2.5 per cent. Europe's chronic problems with the long-term unemployed and its failure to create sustainable jobs over the past 20 years have been well documented. However, it comes as a surprise to many Americans that near-term prospects in the US are equally bleak. The sluggish recovery is not creating new jobs, unemployment remains high in US terms at 7 per cent and projections for future job gains are only modest. What should the G7 governments discuss?

In addition to macro-economic co- ordination and trade liberalisation - both crucial to growth - education, training, regional development and small business creation should be high on the list. The US and Britain, in particular, have much to learn from other countries about education and training. Both do a very poor job in this regard.

For example, the US invests only 0.85 per cent of GDP on public sector labour market programmes, compared with a high of 2.7 per cent in continental Europe. US companies typically spend 1 to 2 per cent of payroll on training - two-thirds of it on management training - while foreign companies spend up to 6 per cent of payroll, much of it on front-line workers. Less than 10 per cent of US non-university educated workers, who comprise 70 to 75 per cent of the workforce, receive any formal training. By contrast, three-quarters of non-university bound students in Germany enter highly developed apprentice programmes. In both Germany and Japan, company-based training is continual and the technological sophistication of their workers much higher than in the US. In short, the US has been on a low-skills, low- wage trajectory for two decades that has undermined its competitiveness.

Turning this around will not only require a new national policy but a much stronger partnership between business and government. Simultaneously, politicians must explore the benefits of regional development, not only across domestic borders but also across national borders. These include joint funding of infrastructure improvements such as rail and water projects to enhance a region's assets, in addition to uniform tax incentives and the putting aside of near-sighted protectionism to permit labour mobility that will allow skills to be matched to available jobs. There are enough examples of such co-operative endeavours among US states in creating vibrant regional growth centres to suggest that the model can be copied more broadly. For instance, one can foresee a future growth centre that links the capital and technology of California, Texas and other south- western US states to the dynamic populations and growing economies of Mexico and Latin America.

Finally, it is important to keep reminding ourselves that small is beautiful. By far the largest proportion of new US jobs is created by small business. Only very recently, it has also been discovered that much of America's recent export boom can be attributed to small companies with fewer than 500 employees. In 1987, they exported dollars 69bn ( pounds 46bn), or 2 per cent, of total US exports; that number is thought to be much higher today, although official figures lag far behind.

Thanks to technological and communications advances, small companies in Maine, Vermont, Idaho and Georgia are now doing business globally. For example, last year the biggest US exporters - companies such as Boeing and Dresser Industries - accounted for only 1.1 per cent of total US exports, which rose by 6.2 per cent. This represents a dynamic new source of growth and job creation that, for all its momentum, is still fragile.

Saddling small businesses with payroll taxes, mandatory healthcare costs or other forms of fringe benefit inflation could prick their growth balloon. Similarly, too much bureaucratic red tape in the form of licensing controls and other export controls can also retard growth and discourage a global approach. Governments must find ways to nurture and fertilise small businesses and to avoid squashing them.

Job creation is a good addition to the list of policy issues that should be approached through international co-ordination. It is an area in which public policy can make a big difference if the approach is comprehensive but not too intrusive. The down- side for politicians is that the pay-off for such a far-sighted approach will be long-term not immediate.