The conclusion, I must say, is not that we should lower the minimum wage and remove all regulations. Rather the different landscapes seen in the US and continental Europe reveal the extent to which everyone’s Great Safety Net 1.0 is ill-fitted for the Entrepreneurial Age—and how much institutions from the past always stand in the way during the transition toward a new techno-economic paradigm.
Because the US has been weakening its own Great Safety Net at a faster pace, it creates more jobs in proximity services. Alas these are too lousy for the coal miners from West Virginia or the factory workers from Michigan to take them. Many positions remain unfilled because too few workers are able or willing to settle in the large cities where those jobs are, as reflected by the extremely low unemployment rate in cities such as San Francisco[371]. And so the hastened transition in the US doesn’t mean it can afford to not build the Great Safety Net 2.0 for the Entrepreneurial Age. On the contrary, if it fails to do so, it is certain that the lack of economic security will harm prosperity and cause the US to lag behind. Inequalities will rise, standards of living will plummet, agitation will grow, and illiberal politics will continue in their corruption of democracy[372].
As for the stronger Great Safety Net 1.0 in continental Europe, it makes the labor transition more difficult yet no less necessary, as the technological trends of the Entrepreneurial Age do not stop at national borders. Continental Europe isn’t creating enough jobs in proximity services, which is leading to a higher unemployment rate, a lesser quality of life for those inhabiting large cities, and fewer opportunities for those living elsewhere. Many potential jobs matching a demand for better proximity services are simply never created. And many business leaders and policymakers don’t even realize that those jobs could exist if only we had a better version of the Great Safety Net.
Everyone—the US, the UK, continental Europe—needs a Great Safety Net 2.0 tailored for the new working class. This is what it is all about: creating many jobs in proximity services while improving the condition of workers in the related sectors and making the services they perform more affordable. Participating in this segment of the job market must come with enough purchasing power, economic security, and a sense of social recognition. Jobs in proximity services must become more attractive not only for those who have nothing and enter the job market for the first time, but also for workers that are already part of the workforce. Unlocking that potential is key for the Western world to maintain a high rate of economic development. The urban service class must become the new middle class.
It’s difficult to say whether the US or continental Europe is best positioned to achieve such a goal. In the US, the Dark Ages of financialization have been a powerful drug. They have blinded many of the elite to the fact that new institutions are needed to make the most of the Entrepreneurial Age. Meanwhile in continental Europe, having maintained more of the Great Safety Net 1.0 makes for more economic security—but it also makes the current transition feel more radical and thus more difficult.
That being said, my bet is that Europe’s lagging behind in dismantling the Great Safety Net 1.0 reflects a deeper attachment to economic security, which could eventually lead to more swiftly building the Great Safety Net 2.0. The only problem, as seen in Chapter 3, is that Europe lacks the economic power to do so. Conversely, the US is already enjoying returns on their earlier actions (notably under the form of more jobs in proximity services). Alas it can give them the illusion that they’ve already succeeded and thus don’t need to run the second half of the race—namely the harder, imaginative, counter-intuitive institutional work required to resume the economic security and prosperity of the past.
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Key takeaways
● The displacement of the old working class has many explanations: globalization, financialization, automation, but also the concentration of economic activities (and most jobs) in large cities.
● Cities as the new factory floor aggravate problems that were previously overlooked. Improving the condition of the new urban working class is the main social challenge of the day.
● Imagining the Great Safety Net 2.0 is critical for creating good jobs in proximity services. It’s not about deregulation but about replacing old mechanisms that don’t fit today’s world.
Chapter 9
The Lost Art of
State Intervention
“Liberalism has spent the better part of the past century attempting to prove that it could competently and responsibly extend the state into new reaches of American life. With the rollout of the Affordable Care Act, the administration has badly injured that cause, confirming the worst slurs against the federal government. It has stifled bad news and fudged promises; it has failed to translate complex mechanisms of policy into plain English; it can’t even launch a damn website.”
—Franklin Foer[373]
The state as the solution to many problems
I was once drawn to working for the government because I wanted to make a difference in the world. It helped that in France becoming a senior civil servant is still the opportunistic dream of many ambitious students. Entering such spheres is the French equivalent to joining the ‘Oxbridge’ establishment in the UK or receiving an Ivy League education in the US. The state grand corps I joined, the Inspection générale des finances, is an exclusive society of about 250 living souls which in the last few decades has given France two presidents (including Emmanuel Macron, who was once a colleague of mine), several prime ministers, and many top executives in France’s largest corporations. But there was also a more altruistic reason for my choosing that path: in the past century, government came to be seen as a mighty force you needed to harness in order to solve critical problems.
The history of how the state emerged as a positive agent of change is often unappreciated. In 2004, the late Michael C. Janeway, former executive editor of the Boston Globe, published The Fall of the House of Roosevelt, a book tracing US politics from the New Deal through Lyndon B. Johnson’s presidency[374]. In one way, his work was an intimate portrait of his parents, Eliot and Elizabeth Janeway, who played a role throughout this period. But it was also a wider picture of the complex games played around Franklin D. Roosevelt and his successors by an improbable entourage of men (yes, all men) who were neither politicians nor businessmen, but middlemen: Tommy Corcoran, the corporate lawyer who became the ultimate Washington power broker; William O. Douglas, the Yale professor turned Supreme Court Justice; Abe Fortas, another lawyer who then became Lyndon B. Johnson’s closest confidant.
All were part of a tight network that turned the New Deal into reality. They spread ideas, aligned the interests of conflicting parties, and became masters in the art of wielding power to advocate their big idea: the state taking over from the market. As written by Janeway, “these ‘president’s men’... executed a broad-based professionalization of policy making marked by strong departures in theory and practice—such as in governmental intervention in the economy”[375]. Far from being the people overtaking the elite, the New Deal was in fact the elite coming together, from politics to academia to business, and making the case that government should take a more active role in social and economic matters.
In a world still impregnated by the nineteenth-century ideology of laissez-faire, this was not easily done. Indeed in the context of the crisis of the 1930s, state intervention was not imposed to comply with principle. Rather it was prompted by a national emergency. Because they were the first of their kind to do business on large consumer markets, the industrial corporations of the time were confronted with unprecedented market instability, a macroeconomic setback that led them (and the entire economy) into the Great Depression. It fell upon the state to save them: only the government could face the critical risks that came with the nascent age of the automobile and mass production[376].
Another trend that contributed to favoring state intervention was a growing demand for fairness and social justice. As the labor movement intensified calls for
worker empowerment and economic security, the private sector alone was unable to deliver such outcomes. Market imperfections made it impossible for a laissez-faire approach to hedge people against risks such as old age, sickness, and unemployment. Either those risks were too critical, with the probability or magnitude of a loss higher than average, or the market to cover them was ridden with imperfections, such as moral hazard or adverse selection. Thus such risks were better covered at the scale of an entire country rather than on a local or individual basis. As market-based solutions and even small-scale mutualist schemes fell short, only the state could deploy adequate programs and fulfill the needs of a complex and diverse society.
As governments experimented with a more interventionist approach worldwide, an intellectual and practical framework was provided and consolidated by figures as diverse as Teddy Roosevelt and Louis Brandeis (the father figures of the Progressive Era[377]), Woodrow Wilson (the founder of administration as a science[378]), John Maynard Keynes (who made the scientific case for public spending as a preferred way to sustain the economy), and the military (where advanced progress in operations research and large-scale management served as models for large government organizations).
For a time, there was no agreement regarding the need for state intervention to overcome large-scale problems. Consensus was only built over time and reinforced by rallying the reluctant majority to the principle of the government’s taking over. It was not Franklin D. Roosevelt, the popular wartime president, who inspired that consensus, but the equally popular post-war Dwight Eisenhower who, despite belonging to the opposite party, decided against dismantling Roosevelt’s legacy[379]. Likewise, in the workplace it wasn’t the victory of state-assisted unions over industrial employers that clinched victory, but rather the employers’ reluctant (and temporary) discovery that submitting to the rule of the Great Safety Net was in fact good for business since it led to stabler consumer demand, better morale, improved quality, and higher productivity[380].
In sum, consensus emerged as the state succeeded in implementing the policies needed in the new age. All over the world, a call for radical imagination led to governments laying out a new social contract more in line with the age of the automobile and mass production. In some countries such as France and Germany, success was facilitated by the pre-existence of an effective command-and-control bureaucracy. In other countries such as the US, deep-rooted skepticism toward the state forced liberals such as Roosevelt’s men to demonstrate the value added by delivering results.
But opponents of state intervention didn’t lay down their arms. Fueled by ideological fervor, the fear of communism, and in-depth works by prominent economists, the ideological warfare against state intervention began again right after World War II in the form of neoliberalism[381]. It gained steam because of major societal changes. The rising aspiration for individual emancipation culminated in 1968, when counterculture activists denounced bureaucratic authority as an enemy of imagination. The shift in favor of a more individualistic perspective—as was also seen with the birth of personal computing—eventually muddied the view of the state as a provider of economic opportunity and an agent of social justice and led to discrediting state intervention.
The fact is that public policy is complex, even frustrating. In most fields where state intervention is needed, it is not enough to levy taxes on some and pay a monetary benefit to others. In many cases, the state also has to supplement the market with government-sponsored entities such as hospitals, job agencies, child care facilities, retirement homes, social centers, utilities, independent authorities. And all those must be overseen by a gigantic, centralized bureaucracy—at least so far.
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How bureaucracy reached the point of irrelevance
For a time, I enjoyed working for the government. It provided unrivaled proximity to power and I was confronted with intricate, stimulating policy problems. But in the end, like many of my peers, I felt a sense of disappointment. You have to believe in grand possibilities to endure the pain and difficulty of the selection process to join the French civil service at a senior level. Only once inside do people open their eyes and realize it’s more complicated than expected: the state’s bureaucratic structure, the lack of imagination, the obsession with the short term, the resistance to change, the scarcity of resources, the frightening pusillanimity of politicians.
This explains why many young people, after having worked for the French government for the inaugural years of their careers, leave to join the private sector. For them, something has been lost along the way. There was a time when you could make a difference by working for the government. Now it appears the action is taking place elsewhere, far from the stuffy spheres of government. And the agony of an exhausted state bureaucracy explains a lot of that feeling.
The quintessential state bureaucracy is the British National Health Service (NHS), which operates both the single-payer insurance system and most hospitals and medical practices in the UK. The advantage of such a system is fairness: it guarantees everyone access to affordable and professional care no matter their location or income level. The problem is that in today’s context characterized by tax revolt, hatred of government, and fiscal austerity, the quality of the experience provided by the NHS has declined, with longer waiting lines and less customized care. Ultimately it has fallen into a vicious circle in which everybody loses, patients as well as professionals.
For a long time, the problems associated with bureaucracies such as the NHS were tolerated for the sake of operational effectiveness at a large scale. While it was far from perfect, the state was able to act at a larger scale than non-governmental entities. Hence quality could be sacrificed for the benefit of scale and affordability. In healthcare systems, waiting lines and one-size-fits-all were accepted as the only way to access and afford competent doctors and expensive treatments. In postal services, the mother of all public services, the rigidity of the postman’s daily rounds was traded against the service’s availability all the way out into the country’s remotest areas.
But the economic crisis that started creeping forward in the 1970s affected the strength of state intervention. The Bretton-Woods monetary system went down in flames; the consecutive oil shocks broke the balance of many markets; the unprecedented phenomenon of stagflation led to higher unemployment and skyrocketing interest rates. This period also marked the time when many developed countries caught up to the US. Under increased competitive pressure, corporations started working on their strategic positioning[382], cutting costs, and pushing in favor of a more globalized economy.
As a larger version of the big corporations of the time, the state experienced its own setbacks during that period: fiscal revenue went down; new policy challenges erupted; individuals demanded support in a time of crisis. But the responses in the public and private sectors were different. Corporations were aided by a new breed of consultants who helped them level up their operations for the Dark Ages of financialization[383]. Meanwhile, the state was ultimately seized by neoliberal politicians who saw the government merely as a problem and had no interest in improving its performance. As a result, that performance kept on going down. Neither quality nor affordability could be achieved anymore, at least in the eyes of ever more demanding citizens. The consensus was finally broken.
Thus state intervention came to be discredited by a value proposition that was no longer aligned with individual aspirations. The laissez-faire approach was never attractive: it deprived the poor and even the middle class of access to affordable essential services. But the interventionist counter-offer ended up looking not that attractive, either: with heavy bureaucracy, quality was now bound to go down, prompting the rich to escape the system altogether while everyone else had to deal with a frustrating, one-size-fits-all, paperwork-ridden experience (leaving aside the pain of the occasional incompetencies, inefficiencies, and even corruption that can develop in large bureaucracies).
It took a new generation of li
beral politicians to try and rehabilitate state intervention. US Democrats had been the first struck by the conservative revolution, losing badly against Republicans from 1968 onwards. In reaction, some among them decided to strike back with the goal of reaching out to middle class voters and making the case for a new kind of state intervention.
The federal nature of the US made things easier there. Following the shock of the Watergate scandal in 1974, many young Democrats, among them Michael Dukakis (the Democratic presidential candidate in 1988) and Bill Clinton, launched political careers at the state level. As young governors, they seized the opportunity to use their states as “laboratories of democracy”[384], exploring new ways to design and implement state-led public policies. The whole idea was to restore the fairness and effectiveness of state intervention, all while falling in line with the more demanding requests of middle class voters.
The race to reinvent government accelerated in the 1990s. Several trends were at play. Transformative leaders, such as Bill Clinton in the US and Tony Blair in the UK, won national elections at about the same time. Austerity in the face of rising interest rates forced every government to reduce public spending and reform interventionist policies. Above all, a progressive intellectual framework finally emerged to support the idea of reinventing the government and restoring the power of state intervention. It went under the name of new public management[385], and it was all about improving the way government was organized and functioned[386].
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