JOBS IN THE NEW ECONOMY
November 1994

by Daniel Yankelovich

To call attention to the benefits of a growing economy, Jack Kennedy liked to use the metaphor of a rising tide that raises all boats. Economic growth, he argued, automatically creates social equity. The rich do well, but so does everyone else.

Unfortunately, in today's new economy, Kennedy's metaphor no longer holds. These days, the rising tide raises the yachts and the bigger boats; the mass of small boats remain stuck in the mud. This is a drastic change in the structure of the American economy whose implications our policy makers have not yet fully grasped.

In recent years, several trends have converged to make the new economy more vigorous but also less equitable. Responding to the pressures of global competition and technological innovation, American industry has created a dynamic but lopsided economy. It offers plenty of good, full time, full benefit jobs to the 40 percent or so of the American work force who have a college education or special skills. But the majority of the work force face a bleak future: low and stagnant wages, erosion of benefits, job insecurity.

As these trends unfold, they build political pressure. An economy that closes off the American Dream for the majority of its citizens may be tolerable from an economic point of view, but not from a political one.

The key political question is whether this situation is temporary or permanent. In the past, economists have assured us that, left alone, the market eventually solves these kinds of problems. They are merely temporary dislocations, the workings of what economist Joseph Shumpeter aptly called the "creative destruction" of the market.

One option, therefore, is to be patient, avoid ill-conceived interventions and wait for the market to perform its magic. In the interim, the pain of innocent victims can be mitigated by unemployment insurance, retraining programs and other methods of softening the market's destructive side effects.

This option makes sense only if the faith of economists in the self-correcting powers of the market is well-founded. Today, however, there are grounds for doubting this faith. Growing numbers of analysts, including myself, believe that our new economy lacks the ability of the Kennedy-era economy to create good jobs for the vast majority of job seekers. In the 1960s, our economy was still an autonomous, self-enclosed system, its labor market confined within our own national borders. Today's American industry draws on a global labor market in an interdependent world economy.

The upside of this momentous shift is that it permits our industries to be competitive by keeping costs under control; the downside is that vast numbers of Americans are robbed of the opportunity to better themselves economically.

If passive waiting for the market to correct itself makes no sense, there is a second option.  It calls for some degree of intervention in the economy to correct a gross mismatch between societal needs and jobs. The new economy rewards only a limited number of skills: entrepreneurship, managerial ability, sales ability, show biz talent, professionalism, computer-literacy, certain technical skills, etc. The people who possess other gifts are left out in the cold, while simultaneously a vast range of human needs to which they could attend are neglected. These include childcare, eldercare, training, affordable housing and attention to a decaying infrastructure, to cite just a few.

In recent years, intervention in the economy has been given a bad name, partly because government officials with little understanding of how the economy works have done the intervening, and have botched it. We won't let doctors of theology or literature perform surgery on our bodies, but we permit bureaucrats and theoretical economists to perform surgery on our economic system -- with the results one might expect.

As a system, the human body is far more complex than the economy. And yet, we do not sit back passively when someone is sick. We intervene. But we intervene with great care, always mindful of the maxim of the medical profession: "Above all, do no harm." In most ways our economy is in robust health. But it is sick in one critical respect: in an increasingly pluralistic society it awards its good jobs to an ever narrower spectrum of human skills.

There are a handful of individuals who truly understand how today's world economy works. I think of them as virtuosi of the market. They include certain investors, industrialists, entrepreneurs, financiers, economists and management consultants. One such virtuoso, a banker, helped to create housing for moderate income people in the San Francisco area at rents that are two-thirds below market, while maintaining a nominally profitable operation. If intervention is called for, the people who appreciate the market and know how it works should do it.

There is a third option. It assumes that moderate intervention is not enough and that more radical action is needed. A number of Europeans hold this view. These thinkers are not radical in the traditional sense of proposing the overthrow of the market system. On the contrary, they recognize that the market serves an indispensable function. But they fear the market alone cannot deal with this problem.

They are searching for new ways to provide people with a living (perhaps at particular stages of their lives) outside of the normal market economy, in effect creating a second "economy." This second economy would coexist side by side with the primary economy but supply-and-demand imperatives would not drive it. It would follow different rules and its values would more closely approximate those of civil society where patterns of mutual obligations, community and concern for one another bind people together.

These particular ideas may not take hold in American society. But it would be prudent to consider the possibility that the new economy may be unable, by itself, even with intelligent interventions, to offer good jobs to the majority of our citizens and to match these jobs to our society's unmet needs. If this proves true, then radical thinking must be considered.

So grave is this problem that it threatens America's political stability. Unfortunately, there are few signs that our political leadership has a strategy for dealing with it, or for that matter is even aware of it. I propose, therefore, that we bring together some market virtuosi and other thinkers to deliberate on the problem, consider these three options and others, and arrive at suggestions that can help advance the national conversation on this issue.

Participants should share one value and one skill in common -- an appreciation of the great powers of the free market system and an ability, based on experience, to harness the "creative-destructive" energies of the market to serve America's needs.