Editor’s Note: The following text has been adapted from a conversation broadcast on the PBS series American Forum in May 2016. The series is sponsored by the Miller Center of Public Affairs at the University of Virginia.Douglas Blackmon: We live in a world in which new and changing technology seems to be transforming every dimension of our human society. The economic cogs and gears, and human work itself, are being replaced or affected by digital transfers of information, multi-dimensional printers, new intellectual skills, robotics, and new business models involving crowd-sourced task-sharing like Uber. Where is all this dramatic change taking us? What will the nature of work be for most Americans and other citizens of the world? And are we preparing adequately for the gigantic changes?U.S. Senator Mark Warner and Professor Philip Zelikow are two important voices who have been actively studying these changes and advocating for a thoughtful approach to managing the way work, and society along with it, are being revolutionized. Senator Mark Warner has served in the U.S. Senate since 2008, and prior to that was governor of Virginia for four years. Before entering the political sphere, he was an early and successful investor in the cellular phone industry.Philip Zelikow is a professor of history with a long record of service as a diplomat, scholar, and author. He served in the Bush Administration and was executive director of the 9/11 Commission. He is the author of many books; most recently he drafted America’s Moment: Creating Opportunity in the Connected Age (Norton, 2015), a compilation of contributions from a wide spectrum of American business leaders and thinkers about our dramatically changing economy.America’s Moment is really about these huge changes that are happening all around us and that sometimes seem to be so fast that we don’t understand where they may all be headed. One of the things that you two talk about is the gig economy. What exactly is that? What are we really talking about?Philip Zelikow: Imagine the industrial age: big business, big work places, big unions, and a big government to umpire it all. That was the product of the last great economic revolution, the one we went through about a hundred years ago.We’re going through another economic revolution today, but instead of it all being about big business, big unions, big work places, big government to umpire it all, it’s actually about a distributed economy, about piecemeal work being put together, about constantly changing jobs and life-time education—not just assembly line education in an industrial-style process.Health care is changing; education is changing; capitalism itself is changing, as of course it always has. (The idea that capitalism was ever just one more or less static set of relationships simply is not borne out by the historical evidence.) One hundred years ago, we had a huge agenda for how to rework the country to adapt. And America adapted and became the greatest nation on earth. So the question that my colleagues and I were all asking ourselves in this project, is “what’s the agenda this time?”It actually is not about a top-down agenda from the Federal government. Back then and now, it’s actually a grass-roots agenda driven more by private businesses and by state and local governments, with the federal government in support. Even though it’s not much in the national conversation today, stuff is actually happening all over America. We wanted to pull all that together and to get people talking about that agenda, because America can adapt, and this century could also be full of promise for the country.Blackmon: Well Senator, there’s an interesting…tension may not be exactly the word…but there are different things that different people are observing at the same time that all seem to be related. What I mean by that is even the current political atmosphere reflects a tremendous amount of anxiety on the parts of a large number of Americans. Some of them then turn politically to the Right with regards to the sort of security that they’re looking for; some are turning now far to the Left. Those are probably related to one another. So are things going in a great direction, or are they going south somehow?Mark Warner: I think what Phillip has pointed out in America’s Moment is that we’re going through a really dramatic transformation. There are good parts of it, and there are bad parts of it. My dad worked for the same firm for forty years. He never made a lot of money, but he was guaranteed that if he got hurt, he would get unemployment or disability at the end of the time he worked; if he got sick, there would be health care; and then, when he retired, there’d be a pension. In effect, it was almost the defined-benefits era. My era as a Baby Boomer was more the 401(k) generation. Technology was changing, globalization was evolving, but we still had some sense that a job was a set of responsibilities and that there was at some level a social contract.We’re seeing now in the 21st century—with Ubers, Airbnbs, Handies, and Lyfts—that people can monetize their own time, their apartment, their car, or their parking spot in ways that are transformative. On the good side, it creates enormous freedom and flexibility. Quite honestly, as a policymaker, I’m not sure I fully appreciate how much and how far people will go to have that freedom and flexibility over their lives in a very complicated time. On the other hand, it also creates the lack of any stable form of social insurance.All those things that came with my dad’s generation and that I partially had as well, the Millennials may or may not have as they go through this transformation. If we lean in to reimagine the social contract in a 21st-century way, however, there is a real chance that many of these companies will realize that it could be transformative to invest in their workers in a way that may be different from the 20th century.Zelikow: The institutions that Senator Warner is talking about weren’t handed down in the Bible in the Ten Commandments; we built those institutions. We built them mainly in the first half of the 20th century. We built them to make industrial society work.So now, what are the institutions that we are going to build in the first half of the 21st century to make this new economic revolution work? The bad news is the national conversation isn’t talking about this at all. On the Left, America is going down the toilet. On the Right, America is going down the toilet. They both look backwards to various points in history to espy what they see as a golden age lost. You know what though? A lot of America isn’t going down the toilet, and it’s looking forward, not backward.You can read it in our book; you can read the marvelous cover story in the Atlantic by Jim Fallows. Americans don’t know that a whole part of Northern Mississippi is coming alive with opportunity, education, new jobs, and advanced manufacturing. They don’t know about the aerospace industry in Wichita, Kansas or the aerospace hub in Duluth, Minnesota. They don’t know about all these places in fly-over America that are innovating and creating new chances. The national conversation and the conversation on television about the Right and Left are actually missing the real conversation. Lonely leaders all over America need to know that this actually combines into a melody and a chorus that all Americans can share.Warner: The traditional left/right, red/blue, liberal/conservative continuum is really not how a lot of these issues ought to be addressed. It’s really future/past. A lot of the political dysfunction is because a lot of folks in our country, across all demographics, have become afraid about the future. The future is going to be transformatively different, and too often people are now retreating back to the traditional partisan corners of the 20th century. But if we can lay out a vision that says this movement is going to allow people to have freedom and flexibility in their workplace, yet there will still be some level of shared responsibility and shared social insurance, then we have an opportunity to really get this right.What we’ve got right now, where the political system is simply a binary choice, is not going to get it right. I am a supporter of the Affordable Care Act, but one of the challenges around the Affordable Care Act is that we have created a cliff at 29 hours: people never get thirty hours, because thirty hours means access to health care. The same algorithm that allows your Uber driver to show up at the corner when you want is being used—particularly for low-income workers—to set up their schedules so that they never get to thirty hours. It also makes it so that they never know when they’re going to work, because their schedules can be changed at twenty-minute notice. As a result, they can’t even get that second job if they want to.Blackmon: There is an historical precedent for this in the Social Security Act. Although passing the Social Security Act was mostly about providing for elderly people who didn’t have enough savings for their retirement, it also liberated millions and millions of the next generation—my parents, probably your parents—to actually leave the farm and pursue opportunity and entrepreneurialism without worrying that their parents were going to starve to death back home. Sometimes we lose track of that when the Affordable Care Act is discussed.Warner: In many ways you wouldn’t have had a lot of this onset of the gig economy if we had made health care widely available other than through the workplace. The ability to start that new business or be that IT consultant and also make some additional capital on the side is, in certain ways, made available because you can still access health care.Blackmon: You can make the case that it ought to be the folks who want the most entrepreneurialism— the most gig economy—who should be in favor of finding a way for government to provide these basic building blocks of security, like health care, in order to unleash all of this creativity.Zelikow: When we designed the current health care system, it helped put businesses in the business of being health care providers. That was actually meant to advantage large businesses that were employing huge numbers of people. In the politics of the 1950s when those reforms really came in, big business liked that, because they preferred to run the health care benefit programs rather than have the government do so. They used it as a way to attract and retain workers in, what was then in the 1950s and 1960s, a super-tight labor market. It actually advantaged them against their small business competitors. These days, a lot of people starting businesses feel a little differently. In some ways, the Affordable Care Act is almost a transitional program that is raising the question as to what the next stage is.The next stage may not be having the national government run it all, but it clearly needs to have some sort of flexibility and role for more localized, private organizations, or autonomous organizations that are closer to Americans that they can respect. Why, however, put the burden on every small businessman to run a health care insurance program?Employers are crying out for all kinds of people with skills that they can’t get. Hundreds of thousands of jobs are going begging in America because employers can’t find people with the right skills. For example, we think of running computer numerically controlled machinery as a “blue collar job,” but that is such a 1950s stereotype. Running these kinds of machines is actually a very high end, complex task that is just as advanced as anything anybody is doing in a marketing department of a company—in a so-called white-collar job. They’re looking for someone with these skills.But how do they ask for these skills? What do they look for? Right now, our whole system is set up so that you ask for credentials. You ask for a diploma. We have a credential-based labor market.Seventy percent of Americans will never earn a baccalaureate degree, although many of them will start college, try to get one, and then end up piling up debt. Actually, half the people who get the baccalaureate degree still don’t have the right skills to match up with what employers really need—as both they and the employers continuously discover. We need to move from a credential-based system to a skills-based system, where people can transparently learn the skills they need, be educated in those skills, and have it be widely knowable that they have those skills. There were some things not so great about old-fashioned apprenticeships and guilds, but there were some desirable aspects to both that we might learn something from today.Blackmon: What is this going to look like? What educational models would prepare workers for these sorts of roles? Is there actually a way or a political will for the government to be a part of that? If there’s any dimension of government activities these days about which the American people seem to be most broadly disaffected, it is public education. In my view, public education is probably not doing as bad a job as many people think, but we’ve lost confidence in the ability of the public education system to manage much simpler kinds of educational tasks than what you’re describing.Zelikow: The conversation around education reform right now is stuck in huge debates about the poor classroom teacher on whom tremendous burdens have been placed, because that was the system that was designed more than a hundred years ago. Now instead of imagining that it’s all about the classroom teacher and whether or not the teacher is good enough, think about the whole design of the system. Instead of having students march through the grades like units being assembled on different stations of an assembly line, what if we were to individualize education for every single student?Instead of a mass production model, it is an individualized model, and the students are taught by teams that apply different specialties to different students who need different things. Some people say, “Oh that’s utopian. That can’t be done.” But it is being done; it’s being done right now. The technology to do it already exists.It’s being done at Arizona State University, for example, which is a huge public school. Every single person who takes freshman math at Arizona State, thousands of them, now takes an individualized set of instructions that both leverages online capabilities and has human coaches intervening at different stages. It uses the power of technology but with a personal human touch. It’s not technology versus human beings in this game. It’s not online education versus personal education. The 2.0 way of thinking about this is: How do we blend them together? How do you empower humans with the machines to provide caring services even better than they do now?Warner: We do need to empower those people but we also need to recognize that there is an ability to individualize through the tools of technology that I don’t think we’ve fully understood. Let’s be candid: Education has not been disrupted by technology as much as it probably should have been by now. The promise of it has been around for a while, but we haven’t seen the actual disruption, other than some kind of one-off for-profit operations that have yielded very mixed results.We need to empower people, but we also need to have some level of shared responsibility during that working period: We don’t want an America—I don’t want an America, at least—where 70 percent of us have to fall back upon a social insurance that is government-funded—and that is underfunded at this point. We need to have some level of shared responsibility during that working period, and many of these new companies are willing to do their part, if we can break out some new models.Let me give you two examples. If you choose when you work and where you work, the notion of unemployment insurance may not be as relevant. The notion of income insurance might be a relevant tool, however, if you get disrupted because of something beyond your control. Many people in this gig or on-demand economy have very erratic income streams, and I think one of the challenges in our process right now is as much income insecurity as it is income inequality. Sixty percent of Americans couldn’t absorb a $400 unexpected bill without going to a family member or without filing for bankruptcy.Blackmon: We have this picture of when the American Dream was being fulfilled, when there were lots of manufacturing jobs and every family seemed to be in terrific shape, certainly relative to recent past expectations. The problem was that it didn’t include a whole lot of American families—like most African American families and other categories of people.Warner: We also had an American system there where capital didn’t move as quickly and where companies could often not make long-term pro-growth investments. The notion of fiduciary duty in many ways went beyond just short-term quarterly based returns into long-term value creation that was as much about the employees, the community, and the greater constituencies as it was about the shareholders. There are many people within business who say that this kind of goal will go to the bottom line better in the long term and also make us a more productive society in the long term.Zelikow: The national conversation about how we help American business is mainly the pro and anti-government conversation—Blackmon: Or the more taxes or less taxes—Zelikow: Right, and then the conversation about the need to invest in human capital is often phrased as, “evil businesses don’t care enough about human beings.”The way our argument works is you can make the business case for this, and actually you should make the case for America’s business future in terms that put aside the big/small government conversation for a moment, except for the incentives that government is creating that distort free markets. For instance, we have a country that is flush with private capital. There is plenty of private-sector money. Corporations and banks are sitting on huge capital reserves. Yet small and medium-sized enterprises in America are starving for venture capital.To come back to some of the points that Senator Warner was talking about, we’ve set up an incentive structure in which we privilege capital gains versus corporate profits. We tell investors to prefer the former to the latter. In tax laws and accounting standards, investing in capital equipment is an investment in an asset, but investing in your people is a dead cost. We’ll offer asset depreciation in the first case and not in the other.Warner: Or even accelerated depreciation.Zelikow: Yes, and of course this makes little to no sense. If you adopt those policies for a generation, you’re going to see under-investment in the core production and service innovation in the American economy as well as an increasing sense that we’re just going to eat our seed corn, because that’s going to make our quarterly returns look better now. We can have a conversation about how the government incentivizes business behavior, including need for a reform of the corporate tax code, and I don’t think there is a clear partisan divide here that need hamper our efforts. I think there is broader agreement among people who watch this that the government could offer different set of incentives to create a rejuvenation of capitalism and not one where businesses pour their profits into buying their own stock to juice up capital gains, and sell off or use up their company’s “seed corn” in order to boost their quarterly harvest.Warner: That reinvention, however, must include investment across the human spectrum, not just in the most talented. This is where we’re talking a bit about education 2.0.We live in a society that believes everybody needs a four-year degree. Yet career and technical education, now thought of as a community college education, may be a brighter path. We’ve got 200,000 unfilled cyber security jobs in America right now. That’s just one of many mismatches. Not all of those need to be college or masters level.Capitalism 2.0, which is investment in human capital—and particularly investment in human capital that may be undereducated and underemployed at this point—may need a little more incentive. Wouldn’t it be cool if we could get ahead of these kinds of issues before they are converted into Democrat/Republican or liberal/conservative clichés? I don’t think Americans, regardless of their current political spite, are nearly as polarized as most of these candidates who spend much of their time simply running down our country. The American people just want us to have a view that actually makes sense—and that leans forward.Blackmon: I think back on the 1980s and the 1990s when so many particular state candidates, say Governors in the country, particularly in the South, were running on education reform plans, and those were really vital. Those were politically vibrant platforms for people to run on.Meanwhile it is in the private sector, and it’s for very high-value workers that the system is evolving. If you can afford to invest in your own education, and you’re someone who is going after very high level skills, there are new and creative ways for you to get some of that training. But for those who maybe don’t need a four-year degree, the system is not really evolving. So what is the next step and how can we end up in a constructive dialogue?Zelikow: Yes, don’t think that this is about Silicon Valley. If you train to become an advanced machinist, you’ll probably make more money than at least half the Ph.Ds out there. This is actually people understanding what skills meet what payoff, and that this is a really great opportunity.We need to embrace the fact that this is going to be a very broad agenda with a lot of different ideas. Our book is an example of some of this.Embrace, as well, the fact that this agenda—to emphasize a point we made earlier—isn’t going to be driven top-down by the Federal government. A hundred years ago, it wasn’t either. One hundred years ago, this was a grassroots movement on a dozen different fronts. Let’s build public schools all over America. Let’s electrify America with utilities everywhere to transform factories and farms with electric power. Let’s build roads and highways all over America. Let’s create a whole set of R&D networks, especially in American corporations. And those generations of Americans did it. It was mostly done not by just the private sector or by state and local governments. Almost invariably, it was done in private-public partnerships, because that’s been the American way, and it can be the American way again.Warner: This is so much more than about Uber or Airbnb and the few buzz companies that we hear about now. This process is going to transform from low-skill jobs to jobs all across the spectrum.The opportunity we have—if we get it right—is to transform the workplace. Recognize that this innovation is going to come. Flexibility is going to come. However, we do need some social safety net as well, and that can be—must be—reimagined. We need to try some experiments in communities before we pass national top-down legislation. Government has been a very productive force in many of these things, but I don’t want to live in an America where 60 or 70 percent of Americans are so economically vulnerable that they don’t feel invested in the system.Part of that will come from a government role, but part of it will also come from realigning the incentives in our markets so that investing in a piece of equipment is it not treated as exponentially better than investing in a human being. Capitalism 2.0, which may realign some of these incentives, is something that is possible and practical, and there are businesses around the country doing it today.
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Published on: June 27, 2016
The New EconomyCapitalism 2.0
A conversation about the economic transformations sweeping across the United States.