Why Starting Social Businesses (not Job Training Programs) is Essential to Moving People out of Poverty

By Rick Aubry, CEO and Founder

One of the few ideas that won’t start a fight between Democrats and Republicans, conservatives and liberals is the social bromide to fight poverty: “We need jobs, jobs, jobs….”

But what about job training, or its current euphemism “workforce services?” The logic itself seems straightforward—people who have been chronically underemployed need skills to enter the workforce and people who have been recently laid off need new skills to prepare for a new job. Emerging industries also need newly-trained people that have the skills demanded by the industry. The government’s job is to pay for the retraining of people in the interest of both industry and people’s need for work. Job training, however, does sometimes create some political discussions about the role of government, such as who should operate the job training, the question of “entitlement” to such training, etc. Nevertheless, job training is still a point of general agreement amongst various factions; remember that the major U.S. training programs of the 80’s were co-authored by Ted Kennedy and Dan Quayle.

But what does job training mean when there are no jobs? Hard to remember, but just a few years back we had unemployment rates below 5% and were reaching what economists call full employment status. Jobs were left unfilled, employers were eager to hire, workers had choices, and job training programs had seemingly huge successes, at least as measured by the “placement counts,” that is how many people walked in for training services and left to go to a job. The fact that people were working obscured the question about how much it cost for the process in the middle (the job training) and whether there were any actual effects from the training and the placement, as opposed to the fact that there was a huge industry need for any worker.

It’s a new world order for workers now. Unemployment is disastrously high, hovering officially around 10%. Further, discouraged workers, part-time workers, and others who have given up trying to find work but still want a full-time job have the “real” unemployed rate around 17% in the country, according to the U.S Department of Labor.

A powerful investigative report in the New York Times, part of their ongoing series “The New Poor,” raises significant questions about the whole field of job training in the United States:

“It’s such an ugly situation that job training can’t solve it,” said Ross Eisenbrey, a job training expert at the Economic Policy Institute, a labor-oriented research institution in Washington, and a former commissioner of the federal Occupational Safety and Health Review Commission. “When you have five people unemployed for every vacancy, you can train all the people you want and unfortunately only one-fifth of the people will get hired. Training doesn’t create jobs.”

In such a climate, we need to re-think dramatically how we are going to help people move out of poverty, and the relative role of job training vs. job creation as an effective tool for achieving that goal.

“A lot of the training programs that we have in this country were designed for a kind of quick turnaround economy, as opposed to the entrenched structural challenges of today,” said Carl E. Van Horn, a labor economist and director of the John J. Heldrich Center for Workforce Development at Rutgers University. “It’s like attacking a mountain with a toothpick. You take a policy that was designed for the best economy that we had since World War II and you lay it up against the economy that is the worst since World War II. It can’t work.”

At New Foundry, our work has focused on the power of social businesses to create positive changes for low-income communities. In some cases this means access to goods and services at a fairer price than currently exists in urban communities. For example, our alternative to payday lending business, Emerge, provides non-exploitative emergency loans to workers while helping build long-term credit and establish savings plans. At scale, the business will serve hundreds of thousands and can change the equilibrium in the payday industry, which is currently gauging working folks and part of causing what Gary Rivlin has called “Poverty, Inc.” Another example is our newest exploration in developing a business to provide access to healthier food to address the “food desert” challenge in many urban communities.

Most frequently, our social businesses are designed to create actual jobs for folks not getting hired in the current environment. Our energy efficiency enterprise provides hard-to-employ workers who complete the Rising Sun Green Energy jobs training program transitional employment to perform residential energy efficiency retrofits. This fills the employment gap between completing the time-intensive training program and finding a full-time job and also allows the trainees to get real work experience using their new skills. Too many green job training programs are proving to be a dead end, so we are trying to create the social market for successful businesses that will create the jobs for all these trainees.

What is the new answer to unemployment? We believe that true unemployment will remain painfully high in the U.S. for a long time, particularly for the communities we serve. The best way we can have an impact is to focus on finding and starting businesses that go right to the source of the problem and address it head on by creating jobs in places where there are too few, and for people who are too often the first fired and the last hired. While New Foundry Ventures is sometimes mistakenly lumped in with job training and workforce programs, we have deliberately focused on the primary goal of job creation. Yes, many folks who come to us will be receiving training on the job. Yes, many people who come to us will move on to other employers, and we thus have some similar role in helping create a more effective workforce for the general economy.

Further, there are some great job training programs across the country we partner with who can help our entry level workers succeed and play a crucial role in the success of our strategy. Here, perhaps is the sweet spot for job training programs—helping new businesses find, train and sustain workers for a new enterprise.

Our primary role is starting businesses that create real jobs that can scale nationally and increase the net number of real jobs that exist because the businesses and workers provide a value to customers for which they are willing to pay. The current job training paradigm is about getting workers ready for an insatiable industry need for workers. The way forward is to help underemployed and disenfranchised communities create the new social businesses that have an intrinsic need for people from those communities to work and make those businesses thrive.

Follow Rick on Twitter @raubry.