Monday, November 07, 2011

A Kling-free future prosperity?

I sure hope Arnold Kling is wrong about the future of employment and wealth distribution in the U.S. --  and I suspect that he does too, as he seems gloomy about his own prognosis. Overviewing a long-range and recently accelerated squeeze on mid-level jobs,, he envisions an American society rather like that portrayed in Kurt Vonnegut's first novel, Player Piano (1952), in which a small uber-class of engineers rules a society in which the masses are consigned to "reeks and recs," a kind of permanent WPA for the superannuated.

Kling suggests that increases in productivity may no longer generate new kinds of jobs in sufficient numbers:

There are two challenges. One is the sheer speed of adjustment. In a hyper-Schumpeterian economy, the main work consists of destroying someone else's job. Garett Jones has pointed out that the typical worker today does not produce widgets but instead builds organizational capital. The problem is that building organizational capital in one company serves to depreciate the organizational capital somewhere else. Blockbuster video adversely affected the capital of movie theaters, Netflix adversely affected the capital of Blockbuster, and the combination of faster Internet speeds and tablet devices may depreciate the organizational capital of Netflix.

The second challenge is the nature of the emerging skills mismatch. People who are self-directed and cognitively capable can keep adding to their advantages. People who lack those traits cannot simply be exhorted into obtaining them. The new jobs that emerge may not produce a middle class. Instead, if the trend documented by Autor for the period 1999-2007 were to continue, most of the new jobs would be low-end service jobs, for which competition will tend to keep wages low.

Kling is not optimistic that we can bridge "the emerging skills mismatch."  He doubts that we will find ways to educate larger proportions of the population to the high skill levels that technological advances will require:
The most optimistic scenario is the one I consider least likely. Under this scenario, the supply of workers adapts to changes in technology. In particular, this means a future with relatively fewer workers whose skills are limited to following directions in well-defined jobs. Instead, more workers will have the cognitive ability, initiative, and self-discipline to constantly update their skills, adapt to new technology, and to participate in the creative part of creative destruction. Under this scenario, economic growth will be very high, and median earnings will also be high.

I do not believe that this optimistic scenario will emerge through more spending on education or even with education reform. My reading of the research is that variations in education techniques lead to differences in outcomes that tend to be small and transitory.6

If the optimistic scenario does arise, I suspect it will be the result of discoveries in biology. Perhaps pharmacology will succeed where pedagogy fails.

Uggh.  To give optimism its due: Kling's dim view of our capacity to adjust to galloping productivity improvement suggests a break with the broad trends of the past 150 years, in which the creative destruction wrought by technological change has resulted in new forms of work, more lucrative if not always more challenging than those they replace, and in which educational advances have, over time, supplied workers with necessary skills.

Stephen J. Rose points out in Rebound: Why America Will Emerge Stronger from the Financial Crisis that in 1960, only half of workers had a high school diploma, almost 30% had some college, and 10% had a college degree.  Today, those proportions are reversed: 10% lack a high school diploma, 60%  have some postsecondary education, and 30% have at least a 4-year college degree. It's true that progress on this front has slowed, that the U.S. has fallen behind many other developed countries in providing postsecondary degrees, and that the rewards of postsecondary education may at the moment be subject to diminishing returns. But to imply that humanity has reached some kind of natural limit in educability seems to me a stretch, as IQ continues to rise in every generation, and as global competition will doubtless propel educational technique as surely as it does other technologies and forms of social organization.

Kling is voicing a loss of  the conventional American faith, widely held in more prosperous times (say, 1999),  that more and more people will be better and better educated and find conventional employment with large companies and organizations in higher and higher-end analytical or creative work. In support of that faith -- or, more broadly, the potential in the United States to rediscover the path of broadly shared increasing prosperity -- two ideas I've encountered recently seem compelling to me.

The first is Richard Florida's insistence that we upgrade what are now lower-end service jobs -- both intrinsically, with regard to how the jobs are structured, and by paying more for them.  In a Financial Times article published in July 2010, Florida cited Labor Dept. projections to the effect that, of 15 million jobs to be created over the next decade, about 6.8 million will be "high skill, high wage work in the knowledge, professional and technical sectors" and some 7.1 million "will be much lower-paying, low-skill work in the routine service sector."  Those projections perhaps reflect the mid-level squeeze Kling takes as his starting point. What to do?
The problem is that on average, service workers earn only half of what factory workers make – and only a third of what professional, technical and knowledge workers are paid. The key is to upgrade these jobs and turn them into adequate replacements for the higher-paying blue-collar jobs that have been destroyed.

It has happened before. Yet the blue-collar jobs we pine for were not always good jobs: we made them good jobs. When my father came back from the second world war, his poorly paid factory job had been transformed. He was able to buy a house, put his two sons through college and participate fully in the American dream. Some of this was due to the power of unions. Most of it was because of the enormous improvements in productivity wrought by improved technologies and management techniques....

The same thing can and must happen in the service sector. It is starting already. Companies such as Wegmans, Whole Foods, the Container Store, Best Buy and Zappos already account for a fifth of the top 100 best places to work in America.. ervice jobs are the last frontier of inefficiency, providing abundant low-hanging fruit for the innovation and productivity improvements that can undergird higher wages.
In his book, The Great Reset: How the Post-Crash Economy Will Change the Way We Live and Work, published this July, Florida fleshes out with examples real and hypothetical how those productivity increases might be stimulated:
Take janitorial work, for example...[it] can be broadened and the necessary skill level raised so that it becomes a source of important innovations. Why not supplement sweeping floors and washing windows with charging custodial staff to bring about process improvements that make buildings more energy-efficient or most cost-effective to run? Surely the people who maintain a building's furnace or air conditioning equipment can work on a team that investigates alternatives for systems modernization. Once we recognize service work as a source of innovation and productivity improvement, we can begin to raise wages in sync with the productivity gains these workers generate (p. 123).
It might be argued that there will be limited wealth to pay well for better service unless the country can improve its trade balance. What about that imperative to maintain or at least sustain the country's relative wealth by selling goods and services to the rest of the world?  Since Kling drew on evidence in Erik Brynjolfsson and Andrew McAfee's n Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy to make the case for current and imminent structural unemployment, he might have paid more attention to a remedy they put forward: the rise of so-called "micro-multinationals":
Fortunately, digital technologies create enormous opportunities for individuals to use their unique and dispersed knowledge for the benefit of the whole economy. As a result, technology enables more and more opportunities for what Google chief economist Hal Varian calls "micromultinationals"--businesses with less than a dozen employees that sell to customers worldwide and often draw on worldwide supplier and partner networks. While the archetypal 20th-century multinational was one of a small number of megafirms with huge fixed costs and thousands of employees, the coming century will give birth to thousands of small multinationals with low fixed costs and a small numbers of employees each. Both models can conceivably employ similar numbers of people overall, but the latter one is likely to be more flexible (loc. 854).
An example:
...a student in one of our classes at MIT created a simple Facebook application for sharing photos. Although he had little formal training in programming, he created a robust and professional-looking app in a few days using standard tools. Within a year he had over 1 million users. This was possible because his innovation leveraged the Facebook user base, which in turn leveraged the broader World Wide Web, which in turn leveraged the Internet protocols, which in turn leveraged the cheap computers and many other innovations . He could not have created value for his million user without the existence of these prior inventions (loc 866).
It will be argued that MIT graduate students are not exactly representative -- and also that there's no mention of monetizing that app, or suggestion that its invention might provide employment for others. But the potentialities of microenterprises, multinational or not, extend much more broadly than the highest-end examples might suggest.  Microenterprises are of course nothing new -- they are as old as humanity, and in fact it's been argued that in the developing world, where meager self-employment is often the only means of subsistence for majorities, they are more a symptom of failed development than a cure for it.  The freelance fragmentation of the U.S. job market could be a sign of devolution, not sustainable development.

Yet microenterprises are a-changin', in the developing world as well as in the U.S. Two articles appearing in the last couple of days reflect interesting developments. One,by Robert Neuwirth in Foreign Policy, adapted from his new book Stealth of Nations: The Global Rise of the Informal Economy, suggests what you might call a punctuated upgrade in the vast informal economy in developing countries, for which Neuwirth adopts the Francophone slang "systeme d":
With only a mobile phone and a promise of money from his uncle, David Obi did something the Nigerian government has been trying to do for decades: He figured out how to bring electricity to the masses in Africa's most populous country.

It wasn't a matter of technology. David is not an inventor or an engineer, and his insights into his country's electrical problems had nothing to do with fancy photovoltaics or turbines to harness the harmattan or any other alternative sources of energy. Instead, 7,000 miles from home, using a language he could hardly speak, he did what traders have always done: made a deal. He contracted with a Chinese firm near Guangzhou to produce small diesel-powered generators under his uncle's brand name, Aakoo, and shipped them home to Nigeria, where power is often scarce. David's deal, struck four years ago, was not massive -- but it made a solid profit and put him on a strong footing for success as a transnational merchant. Like almost all the transactions between Nigerian traders and Chinese manufacturers, it was also sub rosa: under the radar, outside of the view or control of government, part of the unheralded alternative economic universe of System D.
System D is "unheralded" because, again, it's as much a product of governmental failure as of human entrepreneurial energy.  But the broader point is that technology is providing means to bypass governmental and other social obstacles, just as cell phone technology has bypassed the absence of a landline grid in many countries. And these bypasses are sometimes enabled by overseas connections. In a column published yesterday, Thomas Friedman (ever receptive to the point of credulity when speaking to entrepreneurs and business execs) provides (seemingly...) striking examples of Indian "micro-multinationals" leveraging technology to compensate for Indian limitations of infrastructure and human capital:
Meet K. Chandrasekhar, the C.E.O. of Forus Health, whose focus is “avoidable blindness” among India’s rural poor. A quarter of the world’s blind people, some 12 million, are in India, Chandrasekhar explains, and more than 80 percent of those are blind as a result of a lack of screening and a lack of ophthalmologists in rural areas. In the past, comprehensive screening required multiple expensive diagnostic devices to check for diabetic retinas, cataracts, glaucoma, cornea and refraction problems, all of which cause 90 percent of the avoidable blindness in India. So Forus invented “a single, portable, intelligent, noninvasive, eye prescreening device” that can identify all five of these major ailments and also provide an automated “Normal or Needs to See a Doctor” report; it can be run by a trained technician, who through telemedicine connects patients to a doctor.

“We work with a Dutch company on optics, and the University of Texas supports us in business development,” Chandrasekhar adds. “We are talking to a Brazilian company that is interested in manufacturing our technology and selling in Latin America.” Outsourcees are becoming outsourcers.
Back to the United States: the concept of "freelance nation" is not new, and is no panacea. And yet, the power of technology to keep generating new entrepreneurial opportunities and new ways for individuals and organizations to combine resources continues apace. In today's Times, Quentin Hardy profiles one entrepreneur seeking to move the ball:
Mr. Rosedale, 43, is back with a new business called Coffee and Power, where people buy and sell most any kind of task, like making Halloween costumes or writing sophisticated software.

To prove his point that a work exchange could function, Mr. Rosedale built the software for his new company by hiring programmers from around the world and dividing up the work into about 1,600 individual tasks, from setting up databases to fixing bugs.

“We think it’s the new model for how software will be written,” he said. “It worked so well that we decided to extend it to all sorts of work.”

Similar sites have been around for years. I had a client that ten years ago built a game-changing investment information site mainly by means of freelancers from eastern Europe and Latin America hired via elance. On the down side for Americans, when it comes to technological services like programming they are competing in a global market with, say, Brazilians and Belorussians willing to work for a fraction of U.S. rates.  Yet for those buying rather than selling services, the ability to tap both free technology and cheap labor keeps growing.  And many technologically savvy people will probably act as both sellers and buyers of labor at different times in their lives.

Closer to home, my nephew, a freelance graphic designer, is creating the physical appearance for some apps in a gig for a large ad agency, and for another app on behalf of a solo entrepreneur.  Will he take a job with an established agency, or segue from freelancing into building his own agency, or perhaps join a startup team as the one providing the visual face of a product or products?  Come to think of it, my son, who works for a small consultancy of about a half-dozen people, doing project management and design for municipal governments, has also sold his labor on rather flexible terms, as he's moved in-out-in from salaried to free-lance and back to salaried work for the same firm.

My nephew and son, like the MIT student, are at the higher end of the skills-and-training spectrum. But as Google economist Hal Varian suggests in the article cited above by Brynjolfsson and McAfee: "a simple way to forecast the future is to look at what rich people have today; middle-income people will have something equivalent in 10 years, and poor people will have it in an additional decade."  "What they have" in terms of work opportunities might not be entirely good, if more and more people are more or less selling their labor or its products on an open market. But it won't be all bad, either. And it won't all occur in the upper reaches of pay and skills scales.

Related posts:
We may be half drowning, but we're not stagnating
Food for thought, and occasional light rations, in Richard Florida's The Great Reset
Slo-mo grow on the plateau: Tyler Cowen's general theory of American malaise
Our future is not in manufacturing
Stephen J. Rose foresees America unbound

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