A few years ago I participated in an MIT roundtable that explored where future jobs will likely come from, given our increasingly powerful, inexpensive and smart technologies. Despite the presence of top thinkers on the subject, the answer, in short, is that we truly don’t know. We are transitioning to a digital economy whose vast implications are not well understood. Perhaps, as has been the case in the past, we lack the imagination to properly perceive the future, and once more our technologies will give rise to new industries and jobs that we can barely anticipate today. On the other hand, there may truly not be enough good jobs to go around, a situation with serious economic and societal implications.
Along with its many benefits, the digital revolution is already leading to serious economic disruptions. As the July issue of Foreign Affairs reminds us with five articles on the subject, advances in AI and robotics “are causing us to take yet another world-historical leap into the unknown.” And this unknown era of ever more powerful and capable automation could work out quite differently.
Can we just rely on the invisible hand of the market to redeploy the work force to new industries and jobs? Or, do we also need social policies to promote job creation and assist workers who’ve lost their jobs? One of the Foreign Affairs articles, - The Next Safety Net: Social Policy for a Digital Age by Nicolas Colin and Bruno Palier, - offers some answers to these questions.
“As advanced economies become more automated and digitized, almost all workers will be affected, but some more than others.” notes the article in its opening paragraph. Many workers will face “low pay, short contracts, precarious employment, and outright job loss. Economic inequality across society as a whole is likely to grow, along with demands for increased state expenditures on social services of various kinds - just as the resources to cover such expenditures are dropping because of lower tax contributions from a smaller work force… These trends will create a crisis for modern welfare states, the finances of which will increasingly become unsustainable.”
What should we do? The article makes a strong case for flexicurity - shorthand for flexible security, - a social model from the Nordic countries which aims to achieve both flexibility in labor markets and security for workers. Flexicurity is neither liberal nor conservative, transcending these tired, old industrial age ideological labels that now have little relevance.
Its argument are based on three key premises:
- The changing nature of work in the digital economy;
- The resulting need for a reasonable social safety net; and
- The key role of government in fostering entrepreneurship while providing social benefits.
Work in the Digital Economy. During much of the 20th century, having a good job meant working for a large or mid-size company. I, for example, joined IBM in June of 1970 and retired in May of 2007 - 37 years later. Like me, many workers enjoyed relatively secure, stable jobs and a number of company benefits, including health care insurance, vacations and retirement pensions.
Those days are long gone. In the more recent past, many companies were not able to keep up with fast changing technologies and markets, nor could individuals assume that being loyal to a company would translate into a secure job with good benefits. IBM had to abandon its previous full employment practice in the early 1990s when it was facing a very serious near-death experience. And, like many other companies at the time, IBM’s employee benefits became less generous.
Few workers can now expect to be employed by one company for most of their careers. But as this recent Fast Company article points out, most younger workers don’t necessarily aspire to such careers anyway. “[T]he days when employees would get a gold watch or a bronze plaque for 20-plus years of service are mostly over. U.S. workers stayed in one job an average of 4.6 years in 2014, according to the Bureau of Labor Statistics. A recent PayScale survey found that only 13% of millennials believe workers should stay in a job for at least five years as opposed to 41% of boomers who favored hanging on.”
We are also seeing the rise of what The Economist called the On-Demand Economy in a recent article. “Freelance workers available at a moment’s notice will reshape the nature of companies and the structure of careers… Some 53 million American workers already work as freelances.” Ubiquitous communications and very low transaction costs are giving rise to a new class of firm, the on demand company, which aims to efficiently bring together consumers and suppliers of goods and services with their highly scalable platforms and innovative applications. They’re hoping to become the Uber- or Airbnb-of-X, where X is only limited by their founders’ imagination. While trying to become trusted brands in their chosen market segment, they’re relying on a large freelance workforce instead of on a classic company workforce.
Social Safey Nets. In such a 21st century digital economy, “employment is becoming less routine, less steady, and generally less well remunerated,” note Colin and Polier. “Social policy will therefore have to cover the needs of not just those outside the labor market but even many inside it. Just as technological development is restructuring the economy, in other words, so the welfare state will need to be restructured as well, to adapt itself to the conditions of the day.”
Many workers will switch jobs relatively often and may well face periods of temporary unemployment in between. Thus, the industrial age practice of linking benefits to jobs no longer makes sense. “In the twenty-first century, stable, long-term employment with a single employer will no longer be the norm, and unemployment or underemployment will no longer be a rare and exceptional situation. Intermittence will increasingly prevail, with individuals serving as wage earners, freelancers, entrepreneurs, and jobless at different stages of their working lives. The task of twenty-first-century social policy is to make a virtue of necessity, finding ways to enable workers to have rich, full, and successful lives even as their careers undergo great volatility.”
Can we just rely on government to provision an unconditional basic income and/or job for every citizen? The authors argue that neither option would amount to a comprehensive or effective social policy reform. A guaranteed income, “would be both extremely expensive and insufficient… It would ensure that everyone had some money in their pockets at the beginning of each month, but it wouldn’t ensure that they would choose or even be able to afford decent health care or housing…” And while government-provisioned jobs makes sense in a number of cases, “governments have neither the means nor the agility to supplant most entrepreneurial activity in the private sector, inventing and deploying new business models that can trigger significant job creation in the digital economy.”
Entrepreneurship and flexible security. What then is the proper role of government? The authors have a very clear answer to this question. “Instead of attempting to replace or compete with entrepreneurs, governments should try to support and help them - by eliminating the legal barriers that often stand in the way of creating and growing the businesses that can provide jobs.”
In 2012, The Economist wrote about Over-regulated America: “The home of laissez-faire is being suffocated by excessive and badly written regulation… America needs a smarter approach to regulation. First, all important rules should be subjected to cost-benefit analysis by an independent watchdog… More important, rules need to be much simpler.”
At a conference last year, I learned about a rather surprising paradox: Entrepreneurship has never been easier, but entrepreneurship is on the decline. Like many, I assumed that the startup world was booming based on the many articles I read on the so-called unicorn startups that have achieved billion-dollar valuations in a relatively short number of years. But in fact, there is a growing distinction in the startup world between these unicorns and everybody else. Less than 100 such startups have achieved a $1 billion valuation.
In fact, entrepreneurship is actually on the decline across the country, as a number of economists have shown in recent papers. Their analysis indicates that for the past few decades, the percentage of all firms 5 years or less has been steadily declining, along with their total share of share of employment and contributions to new job creation. This is a very serious problem, - startups and young firms are fundamental to job creation and productivity growth
This surprising decline in entrepreneurship is not well understood, and is undoubtedly the result of many complex factors. But, as this 2013 book uncovered after conducting roundtables with entrepreneurs across the country, “regulations are killing us” was one of the key messages that came across loud and clear.
Flexible security policies feel very sensible to me, because, as Colin and Palier write in their concluding paragraph, they embody the “social democratic notion that states and markets can and should work together to achieve a greater public good that marries a healthy economy with a healthy society. In this view, government social policy doesn’t just compensate for occasional market failures; it also works alongside markets to help sustain a flexible, well-trained, highly productive work force…”
“In the end, therefore, the best recipe for social policy in a fast-paced, highly competitive digital economy may ironically be one that involves more state activism than digital entrepreneurs themselves usually favor - but activism that is more sensitive to and supportive of market mechanisms than statists have often been in the past.”