Hedge
Page 18
I believe that in truth the current techno-economic transition does not call for more or less state intervention. Rather it should lead us to redraw the map denoting the respective perimeters of the market and the state. There are areas in our economy, such as housing, where the rise of technology calls for more, not less state intervention. Conversely, there are other areas, such as urban transportation, where new technology-driven models end up correcting imperfections that long rigged the functioning of the market[408]; with those imperfections now gone, state intervention becomes a nuisance rather than a value-creating institution.
Redrawing the map must evaluate the areas where state intervention in a world of ubiquitous computing and networks will be beneficial and where it will be detrimental. In the next part, I want to take a look at what I believe to be the most pressing of those areas. I’ll also discuss how a more entrepreneurial approach, from both the state and the private sector, can lead to imagining and building the Great Safety Net 2.0.
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Key takeaways
● The idea that the state is best positioned to solve problems is hardly clear. However, that case was successfully made in the wake of the Great Depression and it led to the post-war boom.
● State intervention entered a period of crisis from the 1970s onward. Initiatives in reinventing government mostly failed and so today’s state is ill-fitted for the Entrepreneurial Age.
● Now we must revisit both the form and the missions of the state. If the state is to once again become a positive agent of change, it must seal an alliance with entrepreneurs.
Part 4
A Greater Safety Net
Chapter 10
Always Be Rebounding
“In The Persian Wars, Herodotus describes a feared people known as the Scythians, who maintained a horticultural-nomadic society unlike the sedentary empires in the “cradle of civilization.”...With no fixed cities or territories, this “wandering horde” could never really be located...The fear inspired by the Scythians was quite justified, since they were often on the military offensive, although no one knew where until the time of their instant appearance, or until traces of their power were discovered…They wandered, taking territory and tribute as needed, in whatever area they found themselves. In so doing, they constructed an invisible empire that dominated “Asia” for twenty-seven years, and extended as far south as Egypt.”
– Critical Art Ensemble[409]
Education is no longer the magic bullet
One of the first books that inspired my interest in technological change was Robert Reich’s The Work of Nations[410]. In this work first published in 1991, the future US Secretary of Labor envisioned the current polarization of the job market. Reich identified three groups of workers: “routine producers” (the predominant category of the old working class), “in-person servers” (what Richard Florida calls the “service class”), and “symbolic analysts”, who manipulate symbols for large profits (e.g. the “creative class”). Needless to say this book had an impact on my career. I remember that after reading it in 1993 (in French), I really wanted to become a symbolic analyst!
Obviously Reich’s influence went way beyond just me. Alongside other authors such as Anthony Giddens[411] and Jeremy Rifkin[412], he was instrumental in crafting the message of a new generation of progressive leaders that the era of the steady, lifelong job was over. In a more global and unstable world, lifelong education was the new key to providing workers with economic security. In the US, that vision was at the heart of Bill Clinton’s promoting a fundamental upheaval in the American economy. As written in 2001 in the Washington Post, “tuition tax credits to encourage lifelong learning [were] the entitlement of Clinton's era”[413]. In Europe, the “Lisbon Strategy” was adopted in 2000 with the aim of turning the European Union into “the most competitive knowledge-based economy in the world”.
Alas Western voters, both in Europe and the US, have never been convinced that the problems brought about by globalization and the techno-economic transition would be solved by education alone. In the absence of a suitable system of lifelong training with large-scale, proven results, disillusionment has taken hold among voters. Great declarations on education, career shifts, and equal opportunities end up inspiring indifference, even irritation. Elected officials themselves are unable to put their discourse into perspective and fail to explain the channels through which lifelong learning can deliver value. What they usually come up with are chosen statistics and international rankings, almost entirely unrelated to the personally lived experience of their constituents.
Some, like French president Emmanuel Macron, think that the good idea of lifelong education has failed only because it was implemented too pusillanimously. Others, including Paul Krugman[414] (and myself), think that the case for lifelong training has been blown out of proportion, overshadowing the many other problems that explain workers’ difficulties in rebounding in the Entrepreneurial Age.
The mark of the Entrepreneurial Age is greater instability at every level. It leads to permanent fluctuations in households’ sources of income. Today’s workers alternate overlapping periods of training, wage-earning, starting a business, looking for a job, working as a freelancer. With this intermittent working life, the income structure of households evolves at a much faster rate, not without transitional periods that present many challenges for individuals.
The impact of such instability is multiplied by the changing structure of working families. With the higher frequency of divorce and the fact that both parents working has become the new normal, the probability that a family is facing adverse economic events is now much higher than in the past. And so economic insecurity has been on the rise while lifelong education has been systematically touted as the magic bullet to counter it.
It’s true that with such instability on the job market we need more lifelong education. But while the need for acquiring new skills is becoming more widespread, learning resources are also more and more commoditized. In the past, when most of the workers’ education happened early in life, not having the right skills to find a job was a critical risk. If a worker missed out on an education when they were young, there was little way to save them from long-term unemployment later in life. Today, however, not having the right skills for the economy of the day is a much more common situation. Know-how becomes obsolete faster with the ever-accelerating progress of technology. The decreased longevity of firms[415] pushes the workforce into more frequent professional switching[416]. These trends combine to make training more common all along one’s working life, including for Robert Reich’s “symbolic analysts”.
More lifelong education doesn’t mean that initial training has become useless. Quite the contrary actually: early education is becoming critical as we need to provide young workers with the tools, methods, and state of mind that they need to approach a life of constant occupational change. But that’s very different from the training provided by today’s education system. Most schools and universities tout the practicality of what they teach. Yet initial learning should in fact be less about practice and more about abstract frameworks. What matters when you’re young is fundamental, imperishable knowledge such as reading, writing, counting, reasoning, learning history, and practicing foreign languages. It’s also about the people you get to know. In an economy dominated by networks, the group formed by people you’re connected with early in your life becomes a key personal asset that creates value over the long term.
Technology only accelerates this redistribution of goals between initial training and lifelong training. For instance, the work environment is increasingly augmented by software that constantly adapts and informs workers about the quality of their work. Thus technology makes it easier to train workers on the spot and to adapt their workplace and assignments to their specific skills[417].
What’s more, the pool of trainers is broadening beyond the narrow segment of professional educators to all experts and practitioners who ha
ve something to share about their knowledge or their craft. With this ever larger pool, training resources have become commonplace. Most of them are even freely available on Wikipedia, Facebook, Medium, Quora, and YouTube—all platforms where networked learning communities are here to provide answers to any question regarding any skill. As a result, the approach to education during one’s career becomes more short-termist. Experienced workers invest less in general training with the expectation of a decades-long return than in practical training for immediate application. In the Entrepreneurial Age, learning new skills and embracing a new occupation is becoming cheaper and easier than ever.
The problem is that this changing landscape in skills and education is not translating into greater economic security or lower unemployment rates. And so if the ease of learning new skills is not enough to counter growing technology-driven unemployment, there must be other barriers to switching careers. And we need to lower these if we ever want to provide individuals with a greater ability to rebound.
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Occupational licensing for amateurs
One barrier against moving from one occupation to another is vestigial regulations from a previous age. In theory, technology contributes to better matching supply and demand on the job market. It provides workers with adequate training resources and helps beginners find work in their new chosen occupation. In particular, technology-driven platforms make it easier for unemployed people to embrace a new occupation, find their first gigs, and hone their skills through hands-on work with an early run of employers or customers. Thus far from creating more problems and destroying even more jobs, technology should lead to minimizing transitional unemployment as we go further in the current paradigm shift.
In practice, however, there are many jobs that could be created but simply aren’t because the law forbids it. And the main culprit is the constant rise of occupational licensing. As observed by The Economist, “in 1950 one in 20 employed Americans required a licence to work. By 2017 that had risen to more than one in five”. This includes most legal, medical, and financial professions, but also occupations such as hair stylists, bartenders, and makeup artists[418].
In most cases, the existence of occupational licensing reflects the government’s past willingness to guarantee consumers a certain level of quality. But today, its rise is also a reaction to the harshness of the Entrepreneurial Age. Technology augments less skilled workers and makes it possible for them to deliver higher quality services at a larger scale. Thus corporations now have an infinite pool of less educated job-seekers that they can tap into to fill positions in many occupations. Marx’s “reserve army of labor” being wider than ever leads to a vicious circle: because they can be replaced in an instant, workers don’t have bargaining power; and because the jobs remain lousy, they don’t attract the most demanding workers.
The traditional approach to improving workers’ bargaining power would be to impose the set of institutions that in the twentieth century became the Great Safety Net 1.0: social insurance, a financial system designed to boost working families, and collective bargaining. But those institutions are now in retreat—to say nothing of their never having existed for the new urban working class. This is why workers at many skill levels[419] have held onto occupational licensing as the last resort to maintain their standard of living[420]. Many professions have organized themselves not to enlarge their ranks or embrace radical innovation, but rather to defend the status quo, preserve supply scarcity, and live off their rent.
The problem is that legally imposed scarcity of supply is not sustainable in the Entrepreneurial Age. If there are not enough professionals to match the occasional (and predictable) peaks in demand at a reasonable price, there are two possible outcomes. Either the prices occasionally go way up dynamically, as with Uber’s surge pricing or, more likely, the prices are fixed at a high level by default, which leaves many consumers perpetually unserved (usually those with fewer means, as is the case on the US healthcare market). The taxi industry is a case in point; it constantly raises prices due to ever more expensive medallions[421]; at the same time it leaves entire neighborhoods unserved[422].
In the Entrepreneurial Age, that kind of suboptimal imposed scarcity is ill-advised. Most licensing mechanisms were imagined long before the emergence of new business models made possible by technology. As they don’t account for the new possibility of higher quality at a larger scale, they end up pitting workers against the more powerful consumers. And in an age in which the multitude is the most potent party in the economy, pitting workers against consumers tends to end badly for the former[423].
It’s no wonder why Uber and Lyft had such a rapid rise in competing against the taxi industry[424]. They opened a breach through which amateur workers could burst onto the market and contribute to providing higher quality at a larger scale. Thanks to those companies, being driven around by a chauffeur suddenly ceased to be the privilege of rich tourists or businesspeople. Now it was made affordable for a larger segment of the market, solving real problems in many people’s daily lives. And the same conflict between legacy regulations and the rising multitude exists in many other sectors, albeit to a lesser magnitude.
Amateurs are frightening competition for professionals[425]. They have lower capital costs because there are certain assets that they don’t need to invest in to do a good job (like an office or...an occupational license). They also have other sources of revenue, so they’re willing to cut the prices down since it isn’t like their entire income depends on that activity. By the way, amateurs also voluntarily lower prices precisely because they see themselves as amateurs and they don’t feel legitimate enough to command higher prices. Finally, some (not all) amateurs actually do a better job than professionals because they do it with heart and a spirit of craftsmanship. These many competitive advantages all lead to a common response, with licensed professionals often deeming amateurs “unfair competition”.
Yet supporting amateurs trying to embrace a new occupation should be the norm in an economy where the ability to rebound is the worker’s most critical need. In the past, we had to switch from one occupation to another with a clean cut between the two. In the Entrepreneurial Age, the norm should be that we go on with our current job while giving a new occupation a try. It should be a smooth transition between two overlapping experiences rather than an abrupt switch from one job to another.
To encourage this new approach we should explore the idea of how amateurs could become allies of licensed professionals instead of foes. In my view, technology is showing us ways in which it will be possible to put a ceiling on the number of workers while satisfying consumer demand even in the most extreme circumstances. The stake is to prevent rent-seeking and ensure that demand is always served at the highest quality and the largest scale. The goal should be to impose occupational licensing to professionals in exchange for certain benefits...while simultaneously using amateurs as a backup.
In this approach, professionals would reach out to the consumers to better understand their needs and make sure that these are met within a legal framework that satisfies everyone’s interests. If an additional workforce is needed to match certain peaks in demand or serve particular segments of the market, the solution is there: inviting amateurs so that they focus on those slots and segments where demand cannot be met by the professionals alone[426]. If contained on this part of the market, amateur supply can reinforce the professional workforce instead of weakening its bargaining power. The reserve army of labor that is normally such a threat can thus become the workers’ most potent asset.
Indeed in this framework, instead of being the enemy, amateurs could serve many goals matching the professionals’ interests. First, they would backup the professionals to help keep the consumers happy, actually increasing these consumers’ propensity to pay a higher price. Second, by sharing data they would help professional workers gain better, real-time knowledge of the market, making it possible to build a strong alliance between
workers and consumers over the long term. Third, amateurs would form a pool from which new professionals could be hired, based on their record as amateur workers, their appetite for becoming professionals, and their support of the values underlying the profession’s social contract. In an even more sophisticated version, professional unions could form cooperatives, like a farmers’ co-op, to invest in supplementing sharing economy platforms, thus grabbing a share of the value added on the amateur segment of the market.
Many industries have become battlefields because the transition to the Entrepreneurial Age has pitted licensed professionals against startups allied with the multitude and harnessing the power of amateurs workers. But professionals shouldn’t be waging a war against such a coalition[427]. Winning it would come with too high a cost for society in the form of destroyed value, unserved needs, and ultimately a rebellion by the multitude.
Instead, licensed workers should forge an alliance with amateurs participating in the market through platforms. This is the way in which we should imagine a new kind of occupational licensing for the Entrepreneurial Age: not one that empowers occupied workers at the expense of consumers and outsiders seeking to give their profession a try, but one that fits an economy in which career shifts are the new normal and satisfying the mighty customer is the one nonnegotiable rule.
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Affordable housing for hunters and settlers
One of my most rewarding intellectual experiences in recent years has been reading a 2014 article by then-TechCrunch journalist Kim-Mai Cutler on the housing crisis in San Francisco—an article with a particularly entertaining title: “How Burrowing Owls Led to Vomiting Anarchists”[428]. Cutler’s piece narrated the origins and implications of the housing crisis in the Bay Area. It demonstrated in the most convincing way how housing is both a factor in rising inequalities and a contributor to many jobs not being created.