One of the things they teach you in survivor school is that the wilderness is often full of food that city dwellers either don’t recognize or are culturally conditioned to ignore. Seeing a box turtle plodding through a forest glade, a fallen log teeming with termite grubs or a field of dandelions, the average city dweller doesn’t instantly think “Lunch!”
America doesn’t need to start eating turtles and bugs, but we do need a quick course in survival school. We have wandered into new and uncharted economic territory. Manufacturing jobs, once the mainstay of the American middle class, are hard to find — the foods we know best and like most aren’t around. Many people think that there are no more good jobs to be had and that in the absence of mass manufacturing employment we are doomed.
Some very troubling statistics give weight to these fears. The Wall Street Journal reports that the total number of private sector jobs in the country fell by almost two million in the last ten years. Citing a McKinsey survey that predicts — in its best case scenario — a net growth of zero jobs in US manufacturing through 2020, the Financial Times‘ John Gapper warns that labor market unhappiness could be here to stay.
The case for doom gets even stronger. As Nobel prize-winning economist Michael Spence points out in the current issue of Foreign Affairs (paywall alert), a substantial share of American job growth in recent years has come from government and healthcare. That can’t last; government at all levels is cutting back, and the escalating costs of healthcare will force basic change in that system sooner rather than later.
It looks as if we are trapped: globalization is killing job growth in the tradable sector and we can’t all work for the government or in healthcare. Burger flipping, many conclude, is the wave of the future; the middle class is doomed, and American standards of living are bound to decline.
That could not be more wrong. We haven’t strayed into an economic Death Valley where only vulture funds and poisonous reptiles (like lawyers and hedge fund operators?) can thrive; we have entered a land of milk and honey — if we can only recognize the opportunities on every side.
There is much more room for growth in non-traded services than people think. Last spring Matt Yglesias had an important post that offered a glimpse of the promised land.
In “The Yoga Instructor Economy” Yglesias pointed out that there will be a rising demand for personal services that can’t be outsourced. Dinners in fancy restaurants are more labor-intensive than burgers at McDonald’s. Yglesias continues:
Artisanal cheese is more labor-intensive to produce than industrial cheese. More people will hire interior designers and people will get their kitchens redone more often. There will be more personal shoppers and more policemen. People will get fancier haircuts.
That makes it sound like the new economy will be all about frills, but in reality much more serious forces are at work. Three in particular need to be taken into account: we are developing a surplus of both educated and uneducated labor, making workers relatively cheap; the drastic decline in the prices of computing power and bandwidth has changed our relationship to the world of information; the rise of the two-career family and the growing demands of the professional workplace have created a substantial group of families who are, comparatively speaking, money rich and time poor.
The internet made its appearance as a job-destroying engine of disintermediation. America used to be full of travel agents. Today many of them have closed their doors; with the internet, passengers could learn about potential destinations and book flights on their own. But travelers did not want to be left on their own with the web. Services like Orbitz and Priceline grew up, and we are now seeing the rise of ‘vacation counselors‘ who help travelers plan richer and more rewarding vacations than they could have done on their own.
The explosion of data that is now available on the internet is not the same thing as an explosion of knowledge. I can now access all kinds of information about any conceivable travel destination in the world, but much of this information is useless; I want someone to help me make sense of it all and to do it fast because I have no time to waste.
In the travel business, the internet first killed off many of the old style travel agents but ultimately created a demand for value-added intermediation: someone who can distill the fire hose of information coming at you into something you can use.
Something similar is happening in the world of college admissions. The internet has made it much easier to learn about and apply to colleges all over the country; it has also made it harder to choose the right one — and, thanks to the increased competition, the internet has made it harder for many students to get into the college of their choice. First among the very rich and now spreading into the upper middle class, we are seeing the rise of a new profession of private college counselors who help steer families through this difficult process.
Value added intermediation is the rationale for a whole range of services that entrepreneurs will be building in coming years. You might have a family tech agent that for some reasonable fee reviews and manages your communications life: helping you select the right phone package for your family’s patterns and needs, advising you about major electronic purchases, making sure you get the most out of your equipment and software, serving as your tech back up and troubleshooting. When something goes wrong you don’t call New Delhi; you call the people down the street.
Similarly, many people would benefit from someone to help them navigate the healthcare system; somebody who understood your insurance, knew their way around the local medical system and was committed to helping you get the best treatment at the best price. Many parents would like professional help at navigating the local school system: matching students with the right schools, navigating the intricacies of getting in, finding the right teachers, monitoring progress, troubleshooting, and otherwise helping their kids get the most out of their years in school.
Many people would like a much richer world of advice than they now get when they move to a new city or state. Like a buyer’s agent only more so, a relocation consultant would give you the advantage of a local’s knowledge of your new home, and help you zero in on possible purchases that matched your criteria whatever those might be (potential for appreciation, protection from development, commuting time, good schools, proximity to recreation services and so on). They would connect you with well regarded help ranging from painters to plumbers, provide support during the move — and perhaps give your kids some tips about how to fit in in a new environment.
It’s also likely that many people will want to find fee-for-service financial help — people who do more than manage portfolios. A full service financial person would advise you about everything from banking and credit cards to identity protection to insurance: Do you save more with Geico, Allstate or Progressive? Many people simply don’t have the time to handle all this. Somebody else might provide objective recommendations about major purchases like cars and appliances tailored to your specific circumstances and priorities — and make sure you get the best model at the best price.
There are other niches where businesses of this kind could flourish. Older people could have increasing support in their efforts to stay in their homes. Governments might contract small firms to provide assistance to the disabled or to those with special needs.
Value added intermediation in all these cases has the potential to make life easier and smoother for clients — while creating new categories of professional employment for the self-employed entrepreneur. Whether you are a children’s birthday party planner, a personal infotech manager with a string of clients or a family office providing a range of financial, notarial and legal services to middle and upper middle class families, you are earning an independent living by building, marketing and using your skills.
The internet and the knowledge revolution allows these new professionals to acquire knowledge cheaply on the net, add that to their knowledge of their clients’ needs and their experience with similar problems and then go on to produce information of a quality and usefulness that clients could only duplicate by investing a lot of effort and time.
In past years, this kind of personal help was available to the super rich, many of whom maintain family offices. Historically progress comes as goods and services once reserved to the wealthy become available to broader segments of the population. The industrialization of knowledge on the internet now makes it possible for middle income families to get far more help far more cheaply than ever before.
These jobs will be in non-traded services and they will often be locally based. The neighbor who perhaps runs one of these businesses as a family enterprise out of their home gets and keeps clients based on personality, familiarity with local conditions and the ability to provide a good product at a fair cost. There will be different skill levels involved; it’s likely that a healthy small business in one of these fields would have several employees at various skill levels and different levels of seniority.
Thanks to the steady declines in computing and bandwidth prices, these businesses do not need to be highly capitalized. With a computer, a good internet connection, and a home office, you are well on your way. The low capital cost plus the importance of local knowledge and deep familiarity with the needs of your customers makes this field a natural one for entrepreneurial start ups.
Families will not be the only customers for small, locally-oriented knowledge-based companies. Small business consultants can do everything from helping small businesses get the most out of technology to helping them source purchases or market to specific local communities. More and more sophisticated and useful accounting, marketing, planning and management techniques can be made available to smaller businesses at less cost as time goes by. The key once again is value added intermediation. The intermediary specializes in recognizing, evaluating and acting on information and so is able to find useful information for the client faster and more cheaply than the client can do on his own; that difference in costs makes profitable B2B web based services practical.
It is likely over time that many of these businesses will become very sophisticated — and that their proprietors will be well compensated for their expertise. Medical service groups in particular have the ability to grow into very successful practices while improving patient lives and medical outcomes. In some cases this business model might become the kernel of a new kind of medical practice, with licensed medical practitioners at various levels helping clients review their options and cope with what is certain to become a much more complicated and expensive medical process as time moves on.
The model of value added intermediation may also provide a business model for small law practices looking for new ways to thrive in a changing profession. Putting legal advice into a package with other kinds of advice and information would help firms attract a larger customer base than the law alone.
Yglesias’ yoga instructors, chefs and artisanal cheese makers will be part of the growth in the new service sector, but they won’t be alone. The internet has destroyed a whole series of professions and profoundly transformed others. It is also creating opportunities for new and unfamiliar business models and professional practices that the next American generation will need to explore.
These may not look much like the jobs we are used to, but if we learn to recognize and exploit the opportunities around us, we will soon become much more comfortable in this strange new land we’ve reached.
(This post is the first in a series looking at the future of the American middle class. As always, the responses of readers to this blog will help me think through and review these ideas.)