A Declaration for the Independent Contractor

The economy’s recovery is like undercooked food at a July 4th picnic: We’ll take it under the circumstances, but everybody knows it could be better.

Employment statistics for June came out Friday, and they are bad. Unemployment nationally was back up to 7%, and only 13,000 net new jobs were created last month--a precipitous fall from the 200,000-plus new jobs created in April and May. About 56,000 new jobs were added in services, but cutbacks in defense reduced employment in manufacturing.

And that anemic report sums up the whole economy at this midway point in 1993. There are signs of recovery, but they’re timid. Consumers once again are willing to take on debt, but not as heartily as they did in 1983, the start of the 1980s expansion. Economic growth is “only half the rate of past recoveries, perhaps 2.2% this year,” says economist Allen Sinai, a managing director of Lehman Brothers.

Yet most experts say we are not heading into a new recession or depression. Even though job creation is difficult, economic output continues to grow; the U.S. economy is so large that 2% growth means $120 billion more in goods and services will be produced this year.

In other words, the economy is gaining in productivity--turning out more goods and services per employee. That’s actually good news. It means the American economy is getting stronger, enlarging the pie so there will be more for all. But it seems contradictory in a time of job insecurity.

Even the jobs that are being created are not what we traditionally called good jobs. Almost all are in small companies; employers of five to 19 people are most likely to expand. Large employers--companies, hospitals, institutions of all kinds--are most likely to reduce their own work forces and contract out to small firms for specific services.

It’s a tricky economy, one that takes a lot of understanding.

But that’s why the Clinton economic program, especially as amended by the Senate, is arousing fear and opposition among business people. The fear is that the White House and Congress don’t understand this new economy at all. In the Senate’s version of the deficit reduction package, all incentives for small business were taken out, notes Stephen Roach of Morgan Stanley, an economist who identified the productivity trend two years ago.

The Senate removed a capital-gains tax break for start-up companies from Clinton’s program; other ideas--such as an investment tax credit for small firms and a small business job credit to encourage hiring--were ignored by all sides in Washington. As a result, the Clinton economic program could strangle the economic recovery as early as next year.

But maybe if Congress and the White House understood what’s really happening, they’d revive those incentives in the coming Senate-House conference.

Today’s economy results directly from more than $1 trillion of investment over the last decade by U.S. business in all the modern tools of computing and communications. Initially, the computer was understood as just another efficiency tool. It allowed manufacturers to hold less inventory, employ fewer workers; it allowed banks to serve customers 24 hours a day, without tellers.

But now, larger dimensions are clear. Modern computing/communications really allows anybody to set up a business. An accountant or two from a large company or medical center can set up an independent shop and serve not only their old firm or hospital but others as well. These days, oil companies farm out engineering services; environmental services are bought from independent companies.

Increasingly, computing services are bought from outsiders, too--the only way banks, insurance firms and other large companies can keep up with advances in hardware and software. This makes for great business and job growth at companies like Electronic Data Systems, Ross Perot’s old firm that is now a subsidiary of General Motors. EDS, which provides computer services to GM and other customers as well, is growing fabulously--revenues up 14% a year and employees up 10% a year for the last four years.

The manufacturers, banks, insurance and health-care firms that buy EDS services are presumably growing, too, by focusing on their main business and leaving services to the specialists.

This subcontracting trend produces fierce competition in the U.S. economy--and increased competitiveness. Robert Cizik, chairman of Cooper Industries who is serving this year as head of the National Assn. of Manufacturers, says the productivity reforms of recent years have made U.S. companies globally competitive. Cizik’s own company--a $6-billion sales producer of gas compressors, auto parts and oil field tools--now is “sending crankshafts and compressors to Japan,” he says.

But Cizik points out that many small manufacturers among NAM’s 12,000 members can’t or don’t spend on the latest tools and so lose out to relentless competition. “An investment tax credit for small manufacturers would help a lot of U.S. companies,” he says.

At this mid-point of 1993, however, many small companies are holding back on even routine investments, waiting to see how the Clinton program affects them. “I’ve got to spend on maintenance, but I’m waiting to see what comes out of Congress,” says the owner of an Orange County environmental equipment firm.

And while business hesitates and Congress fiddles, joblessness and underemployment increase--along with crime in every city in America. Crime too is a trend, and it has made security services--almost always provided by small contractors--a growth business.

So where are the jobs today? They’re everywhere, but not all in one place. Maybe that’s why the White House and Congress don’t understand the new economy. But maybe, too, the latest employment figures will sound an Independence Day bugle call for them.

A Slow Go

Job growth, strong for most of 1993, slowed to a tepid pace in June, with just 13,000 jobs added to the economy nationwide. The average monthly job gain over the last year-and-a-half has been about 66,000.

Thousands of non-agricultural jobs created (lost):

June, 1993: +13,000

Source U.S. Department of Labor

Researched by ADAM S. BAUMAN / Los Angeles Times