With the rise of technology, the economy of today is different from what it was 5-10 years ago.
It’s easier to connect with others, establish a brand, and try new things. And all this is difficult for established brands to control.
Given this, why is it that people in charge of the economy don’t understand it? Jonathan Cowan, Jim Kesslerr, Gabe Horwitz, and Joon Suh at Third Way authored a study looking at that question as well as what can be done.
Why the changing world isn’t reflected in politics
One of the main reasons that politics doesn’t reflect how people view technology is that the main pitch politicians give mainly revolves around economic fairness. This is most evident in left-leaning political movements which argue that equality is important in maintaining a successful society. However, this approach might not be the best:
[The] challenge facing the middle class is less about fundamental economic unfairness—but fundamental change due to globalization and technology coupled with a country, a workforce, and a set of institutions that are simply not ready for this new economy. Moreover, we show that the narrative of fairness has demonstrably failed to excite voters, with three consecutive losing performances with the middle class—leaving Democrats with the fewest number of officeholders since 1928.
So what’s the solution? According to the authors, it lies with a new approach that takes in what they call radical dynamism: the fact that in this new age, technology has made the need for creativity and ability to learn new skills a basic requirement. And unfortunately, no amount of income redistribution or progressive policies will work unless they enable people to adapt their skillsets.
With a singular focus on income inequality, the left’s main solutions are greater re-distribution and a re-writing of the rules to “un-rig” the system. But, however well motivated, some of the biggest ideas into which they are directing their energy do not remotely address the underlying “Kodak” conundrum—how do Americans find their place in a rapidly changing world?
To bring about lasting change, the authors of the study suggest a three pronged approach:
1) Reform the education system so that more people can have access to higher levels of education.
Without higher levels of education, people will continue to struggle in their jobs and find themselves gradually phased out. This will require a wholesale reform of the education.
The changing nature of work, rapid development of technology, and inescapable global currents have fundamentally altered the set of skills necessary to sustain the standard of living we once knew. Yet our K-12 system is mired in mediocrity, higher education costs too much and delivers too little, and there are no easy avenues to keep skills sharp over decades.
To fix the education system, the authors recommend several approaches that include:
- create more opportunities for veterans to enter the workforce
- have higher requirements for teachers and treat them with more status
- ensure colleges can handle non-payment of student loans, and create “a Right-to-Know Law for college consumers”
2) Rethink how jobs are create (it’s not what you think)
Job creation has radically changed. For starters, most firms are employing less people, not more. “According to the Bureau of Labor Statistics, an average new business hired 4.4 people in 2011, compared to 7.3 in the 1990s.” In addition, the emergence of new markets across the globe means that it’s no longer sufficient to center business around American firms.
Foreign markets are creating vast and unprecedented opportunities abroad. Other countries are racing to reform their tax policies to better attract business investment, location and hiring. And the emerging market governments are increasing their investments in innovation, physical infrastructure, and human capital as the U.S. pulls back on investments.
In many cases, these emerging countries are growing at a faster rate than the US; in fact, the term “emerging markets” doesn’t do these newbies justice. “The market size of the 15 leading East Asian economies [had a growth rate] over 10% in the pre-global financial crisis era, and since then has maintained strong growth at around 7.5% in 2014…Over the same time period, the U.S. economy grew at an average annual rate of 1.9%”
3) Increase the amount of benefits and savings to employees
Given that the jobs of today are more in the mold of startup founders or freelancers, there is a greater need to shift the way we compensate employees. Currently, we offload a lot of responsibility of taking care of health-care and various other needs to the employee. However, this approach is dependent on stability in ones job, which, thanks to technology, no longer exists.
If policymakers are to effectively address the third pillar of long-term shared prosperity—increasing savings—they need to fully embrace the reality that we are no longer in a stable career era. In the past, an entry level job in the mailroom could lead to a gradual climb to management. Today, there is no mailroom. Instead, people hopscotch from job to job because the ladder up often means moving out of one job and into a new one…
As a result, there needs to be a formation of laws that provide more benefits and higher wages to employees. For example:
- “a minimum pension employer contribution of 50¢ an hour on top of wages into an individually-owned, private-sector managed, fully portable, low-fee IRA.”
- “[P]olicies that reverse the incentives in health care away from quantity and toward value.”
- [G]radually raising [the minimum wage] to between $10 and $12 by 2020 based on average hourly wages and regional cost variations, with automatic readjustments every 3 years.
You can read the full study on Third Way.