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Drucker in Practice

Gallup's Jim Clifton on the Economy and Making America Grow Again: Part I

Elizabeth Edersheim
Posted: 10/28/2016

Jim Clifton, the chairman and CEO of Gallup, has his finger on the pulse of the world economy and world sentiment. The worldwide organization built on the research of pioneering pollster George Gallup is a leader in public opinion research and advanced analytics.

Clifton is passionate on the subject of how jobs are created by innovation and entrepreneurship. Innovation and Entrepreneurship happens to be the title of one of Peter F. Drucker’s best-known books.

Drucker was one of the first people to recognize the critical role that entrepreneurship plays in spurring economic growth when he taught the first course in the country on the topic in 1967. 

Clifton’s and Drucker’s writings also focus on the core principle that people should focus on their strengths. Drucker believed that management is about human beings and “making their strengths effective and their weaknesses irrelevant.”

Jim Clifton was also inspired by the teachings of his father, Don Clifton: “Dad spent his whole life figuring out people’s strengths. He said weaknesses never really develop, and strengths develop your whole life.” 

Don Clifton and Peter F. Drucker spent hours discussing, even arguing, about the practice of management. “Peter Drucker had a huge impact on Dad, and I am sure Dad had an impact on Peter too,” says Jim Clifton. 

In the interview below, Jim Clifton, author of The Coming Jobs War, explains why America needs to return GDP growth to 3.75% in order to create good jobs. 

Clifton warns that middle-class jobs are shrinking, and this job loss has created a class of “invisible Americans.” Clifton’s belief is that only start-up businesses can generate the new ideas and industries that can ultimately grow the economic pie and fund our future.

This interview has been condensed for clarity.

* * *

Q: In your book, The Coming Jobs War, you say creating good jobs in the United States is critical to the viability of our democracy. Why? 

A: Over the last 150 years, we Americans have so outperformed the rest of the world that our expectations for our quality of life are extraordinary. It is an exceptional place here; we have a massive middle class.

So if you had said, about 150 years ago, in what arenas is this country, America, going to dominate the whole world? One answer would be, you need to dominate the world economically, or you can’t militarily. 

And that is what we did. From 1858 through 2008, we grew GDP at an average rate of 3.75% every year and became the 800-pound gorilla. We became 25% of the whole world’s GDP. It looked like we would never stop booming.

Until recently, we have had plenty of full-time jobs. Unless we have that extraordinary performance, where we outperform the rest of the world, then the pie starts to shrink. And when the pie shrinks, everything changes. The middle class is crushed.

The Economic Pie

Q: What is the big-picture impact of lower GDP growth?

A: One thing that is true in the world today: We don’t have the economic strength we used to have.

The economic pie is the economy—everything that 330 million citizens produce and consume. What we make and sell to one another and to other countries (exports) is GDP.

If you look at the United States as a company, we are about $18 trillion of sales and 100 million full-time and 50 million part-time employees. The $18 trillion is the pie—and then you divide it by the number of citizens. It is increasing at a decreasing rate.

Q: What accounted for the growth of the pie?

A: The pie grows per citizen when America has GDP growth, which is created by new firms starting up and then scaling up. Nothing else creates sustainable organic growth from the hearts and minds of its citizens.

Q: Why is growth so important to America?

A: America has to create the next new way humans survive and thrive—the future. It is very exciting because when American free enterprise is thriving, within that energy lies real human development.

That’s the core character of American exceptionalism. The economic pie is not “recovering,” as you will read almost daily in many publications.

Q: The Wall Street Journal and the New York Times, among others, say the economy is recovering. Isn't that at odds with what you're saying?

A: Yes. That is because both of them are brochures. One is a brochure for the Democrats in the White House, and the other is a brochure for Wall Street. They always want people to say that the economy is doing well.

It is increasing at a decreasing rate, and there is no [political] right or left side to that.

The Invisible American

Q: Didn’t the Fed just say we have impressive job gains, with an increase of 150,000 jobs?

A: The gain comes from 400,000 new jobs and 250,000 jobs that have disappeared, so the net is 150,000 jobs.

Q: What is the impact of all those disappearing jobs?

A: There is an invisible American who had a good job, made $80,000 a year, and lost that job. That job was wiped out to sea. Now he has to take a part-time job, or even a full-time job, often in retail, making $25,000.

Q: Where does that leave the middle class?

A: The middle class is getting crushed by us performing at 1.7% rather than performing at 3.75%. To fix America, so we don’t have a revolution, we have to get the pie growing again. That is the only thing that will bring the middle class back.

Q. What do you mean by “the middle class is getting crushed”?

A: It means that the middle class—households earning a wage where they can comfortably raise a family and have affordable housing and education and health care—is shrinking.

As many as 10% of U.S. adults tell Gallup they have dropped out of middle class to lower and working class—10% of the 250 million adults is 25 million people whose economic lives have crashed. And it continues to shrink. Those 25+ million people are invisible in the current 4.7% official unemployment rate.

Q: Was there ever another time when U.S. growth was this low?

A: Reagan came in at a good time, at the bottom of a recession with low growth and got a bounce, so he went the first four years with a 4 being the first digit: 4.2% 4.3%, 4.5%, 4.4%. Somehow we boomed it back then. After this last recession, we got no bounce, and that is choking the life out of us.

Q: How can the U.S. get back on top and restore the middle class?

A: If we had 3.75% growth for ten years, we would re-dominate the world economically. That is the big number.

GDP growth is so important—and so few people understand it. Gross domestic product is sort of a throwaway term, and it gets abused and abstracted. It alone can restore capitalism and the healthy middle class.

Q. Will entitlements such as Social Security, Medicare, and government pensions be slashed due to slower GDP growth?

A: I don’t think they will be drastically cut—the voters won’t allow it on either side of the aisle. My own math says that these entitlements don’t have to be drastically cut, but rather their increase slowed down.

If Congress would slow the increase and GDP would bounce back to 3.5% or so, everything would actually work out.

Q: Does printing money or taxing individuals and corporations help the GDP growth?

A: No. These both make it worse. We do these when we have given up on human development.

Grassroots Growth

Q: How can we bring back the 3.75% growth and restore the middle class?

A: Growth comes from jobs—and jobs come when firms start and when firms scale.

Q: Are all new businesses start-ups?

A: If your firm closes, you might start up as a self-employed consultant. You can count this as new businesses, if you want. Then the number is about 450,000 a month. I don’t actually count them as a “firm” until they hire one other person.

Q: What is happening with start-ups?

A: That number, up until about five years ago, was 500,000 firms that were starting every year—and 400,000 failing. Five years ago those lines crossed, so we have 500,000 firms failing and 400,000 starting up. Hence, a shrinking pie.

Q: Where do most good jobs come from, these start-ups or from big corporations?

A: About 1 in 10 of these new firms will scale up, or shoot up. That is where two-thirds of all good jobs come from. The big companies actually shrink jobs because it is just their nature.

Acquisitions are always going on. They are higher than they have ever been in America.

Fifteen years ago, we had 8,000 public companies listed on the Nasdaq and the Public Stock Exchange; it is down to 3,700 this morning [Oct 10th]  because they each eat each other. What happens if I am a Fortune 500 company and I buy a tool company or something? Sales go up a little bit, but what you don’t see is the tool company is gone.

So the growth, real organic growth, has to come from the grass roots, from the business start-ups. Until new businesses begin starting and the ones that separate themselves and scale up begin to grow in number, our economy will never come back.

American Free Enterprise

Q: Can America hold onto the new industries created by these start-ups?

A: New jobs were created as companies and industries were born from automobiles to airplanes. U.S. manufacturers made the first microprocessor, the first firecracker, and the first raincoat, and then decades ago, that production moved. That is still happening.

America has to create the next generation of customers who cause new human development, such as the Internet, the aeronautical industries, solar power, satellites, Facebook, and world-class code. And then go ahead and lose the second generation of production and manufacturing to China, India, Africa, and the Middle East. This works.

Q: So is it entrepreneurs and their ingenuity that drive the economy?

A. It has for decades. America has to create the next new way humans survive and thrive—the future. It is very exciting because when American free enterprise is thriving, within that energy lies real human development. That’s the core character of American exceptionalism.

New firm start-ups and scale-ups are what we need—nothing else fixes America.

For more from Gallup's Jim Clifton, turn to Part 2. In that installment, Clifton explores the role of millennials and city leaders in creating new jobs as well as Gallup’s recent initiative to teach “strength finding” to college students.

Elizabeth Edersheim
Posted: 10/28/2016