Escaping the whirlpool, part 2
In The Whirlpool Economy, published earlier this month as part of a series of articles on stagnation, Charles Leadbeater examined the current state of 'stagnovation': how people are subject to incessant change while their living standards are stubbornly stuck.
We asked a number of people to respond on how we might face a world of fast innovation, slow growth and rising inequality. Here, in the second instalment, Richard Florida, Liam Byrne and Paul Ormerod respond.
Read our first instalment of ideas here.
Richard Florida: Cities are our greatest asset
The key to recovery and a way out of stagnation lies in our cities. Talented and ambitious people and investment are already flowing back from the suburbs, a process Alan Ehrenhalt has dubbed the 'great inversion'.
A new urban growth model requires new infrastructure as well as incentives and policies that encourage density rather than sprawl; transit rather than highways; and high-speed rail that can connect struggling places to more vibrant cities, creating a larger template for growth and expansion. It requires a dedicated commitment to city-building.
For a long time, we associated technological innovation with suburban nerdistans. But over the past decade, downtown San Francisco has overtaken Silicon Valley as a destination for venture capital; New York, London, and Berlin have become tech centers. That makes sense, because cities are the ideal ecosystems for innovations of all kinds. They are where the greatest concentrations of funders and end-users live, and most of all, they are where the creative talent wants to be.
But, if cities enable and drive growth, they don't distribute it equitably; too many people and too many places are left behind. America's old industrial cities continue to languish and the pace of building in sprawling Sunbelt cities like Phoenix and Las Vegas has slowed to a standstill. Even the richest cities have their poverty districts.
Economic recovery may be full-blown for the high-skill creative workers who occupy the upper third of the income ladder, but for the other 66 per cent, things are getting worse. Needless to say, none of these trends are sustainable.
It's cities that provide the mechanism for rebuilding our middle class. We forget that the good, family-supporting factory jobs that we now mourn the loss of were not always so. We actively transformed them from dirty, dangerous, low-paid work in 'satanic mills' to safer, more stable middle class jobs via the social compact between industry, labour, and government.
For a long time, we associated technological innovation with suburban nerdistans. But over the past decade, downtown San Francisco has overtaken Silicon Valley as a destination for venture capital; New York, London, and Berlin have become tech centres. That makes sense, because cities are the ideal ecosystems for innovations of all kinds. They are where the greatest concentrations of funders and end-users live, and most of all, they are where the creative talent wants to be.
But, if cities enable and drive growth, they don't distribute it equitably; too many people and too many places are left behind. America's old industrial cities continue to languish and the pace of building in sprawling Sunbelt cities like Phoenix and Las Vegas has slowed to a standstill. Even the richest cities have their poverty districts.
Economic recovery may be full-blown for the high-skill creative workers who occupy the upper third of the income ladder, but for the other 66 per cent, things are getting worse. Needless to say, none of these trends are sustainable.
It's cities that provide the mechanism for rebuilding our middle class. We forget that the good, family-supporting factory jobs that we now mourn the loss of were not always so. We actively transformed them from dirty, dangerous, low-paid work in 'satanic mills' to safer, more stable middle class jobs via the social compact between industry, labour, and government.
Cities are the ideal ecosystems for innovations of all kinds. They are where the greatest concentrations of funders and end-users live. They are where the creative talent wants to be
Cities and mayors are already taking steps to upgrade low-skill, low-wage service work, and in some cases are establishing a wage floor by tying minimum wages to local costs of living. Most importantly, large, vital cities continue to attract immigrants and provide avenues for upward social mobility that are declining in too many other places across the nation and the world.
At the end of the day, I am an optimist. But the key to a better future – to reigniting innovation, spurring long-run propensity and rebuilding our sagging middle class – lies in the strengthening and empowerment our system of cities, our greatest asset of all.
Richard Florida is the Director of the Martin Prosperity Institute at the University of Toronto's Rotman School of Management, Global Research Professor at NYU, and the co-founder and editor-at-large of The Atlantic's CityLab. He is author of the bestselling The Rise of the Creative Class. This is an edited extract of a piece Richard originally wrote for CityLab
Liam Byrne: Policymakers must find a way out of the whirlpool
With typical prescience and clarity, Charles Leadbeater captures the defining paradox of today's economy where millions are cash-starved but spoilt for choice. Where wages are meagre but we live surrounded by a digital banquet of extraordinary variety.
In the years before the crash, economists were speculating whether the new inequality we saw in the world and the advent of what we now call 'the squeezed middle' owed more to trade or technology. The jury is perhaps now in. Tech-driven change, particularly the kind of recombinant innovation which Charles highlights is fostering the 'hour-glass' economy: we now know well that jobs at the top offer great prizes and jobs at the bottom proliferate while the middle 'rungs on the ladder' seem to disappear.
These changes have set politicians the task of our times: how, in this economy, we reconnect wealth-creation and social justice. We do not yet have the answer. But some things are becoming clear.
Charles is right to argue that the inequalities of this new age are vast. Digitisation creates a winner-takes-all economics for thousands of new product markets; when you can sell at next to zero marginal cost in a global market, the profits are gigantic. And for the lucky few, monopolising new utilities like Facebook can be as lucrative as controlling traditional assets like oil.
But as the OECD's Secretary General Angel Gurria and others have argued, our task is not simply to tackle inequality, but inequalities. A wise approach to social policy therefore will be to focus harder on creating better equality in what the economist and philosopher Amartya Sen called the 'capabilities' each of us possess. The question is: what are the 'capabilities' or 'powers' each of us need today in order to thrive in the society in which we live? And how do we ensure we all have them? The 21st century rewards great health, great education and the ability to think: in many of our societies those assets are controlled by those already rich. So how can new technology like digital medicine, crowdfunding or MOOCs radically democratise access to health, enterprise and education for millions? If we get this right, innovation can help us fight not fuel inequality; but only if public services change. I think Charles could be more optimistic about this.
Charles's argument has profound implications for national strategy. Two contrasting trends are now emerging. Globally, the commanding heights of the innovation economy are radically consolidating; 1,400 firms now control perhaps half the world's R&D budgets. But locally, these firms are reconfiguring their 'hubs' from the 'cathedral' to the 'campus'. Once they put lots of clever people in a building and prayed for the best. Now they're building business parks of small, fast-moving firms. In the future, countries will battle for the privilege of hosting these hubs on their shores, safe in the knowledge that they are critical in fostering bigger knowledge economies that create more better-paid jobs.
How can new technology like digital medicine, crowdfunding or MOOCs radically democratise access to health, enterprise and education? If we get this right, innovation can help us fight, not fuel, inequality
Third, Charles is right to say that "cities will spawn the best solutions". But at the heart of these cities will be great shared science, research and innovation platforms called universities. But they will be different to the past. They will support not simply academic, but vocational, professional and technical paths to degree-level skills. Because nations will need everyone – not just some – to be able to rise to the top. They will be centres of citizen science. They will help fuse theory and policy. They will be incubators to new firms: helping new firms start; and crucially, stopping more of them failing. And of course, they will be both physical and virtual.
Charles has done us a great service in defining the challenge and pointing to some answers. Policymakers need to pick up the baton.
Liam Byrne is the MP for Birmingham Hodge Hill and Labour's Shadow Minister for Universities, Science and Skills
Paul Ormerod: Things have changed
There is a lot of doom and gloom around at the moment, and Charles Leadbeater articulates the worries about long-term growth and inequality very clearly.
However, a key determinant of the general mood is economic events over the previous five to 10 years. A year ago, I published a paper in the leading scientific journal PLOS ONE with anthropologists and computer scientists.* We showed from extensive searches of the Google book archive that literary mood in the US, UK and Germany was strongly influenced in this way. The same factors affect long-term projections about the economy and society. When things have been bad, it is hard to imagine them becoming good.
There have only been two global financial crises in the past 150 years: in the 1930s and the current one. Not surprisingly, recovery has been much more hesitant than it is after the more usual type of recession, which is not driven explicitly by financial factors. So it becomes difficult to appreciate that even the effects of financial crises gradually fade.
The argument that the sustainable, long-term rate of growth in the West has fallen is fashionable. According to this idea, there are fewer inventions taking place, and much of the potential of the revolution in information and communications technologies (ICT) has already been exploited. Leadbeater gives this an interesting twist by arguing that despite innovation, growth is low.
I regard this argument as being completely wrong. There is a whole range of areas in which recent scientific advances have created the potential for major advances in growth, such as genomics and energy storage. Further, the ICT revolution is what is known as a General Purpose Technology (GPT). GPTs are truly revolutionary advances which not only alter the whole way in which economies operate, but whose exploitation takes many decades to achieve fully. In the modern era, the first GPT was the steam engine in the late 19th century, and electricity in the second half of the 19th was the second. The internet and its associated developments is the third.
There is a whole range of areas in which recent scientific advances have created the potential for major advances in growth, such as genomics and energy storage
America was the most advanced nation in terms of technology and the ability to innovate throughout the 20th century. The companies which built the internet economy are almost exclusively American, and the United States continues to be at the frontier of technological advance. Europe as a whole lags behind. There is reason to be gloomy about the EU, with the exception of the UK, but not the world as a whole.
Finally, predicting the evolution of inequality is a very difficult challenge. Over time, it has the characteristics of a random walk, which can drift for long periods above or below its very long-term average. From around 1920 to 1970, inequality fell markedly. Since then, it has risen. It is always easy to project the established trend into the future. But at some unpredictable point, the experience of the past few decades will be reversed.
Paul Ormerod is a partner of Volterra Partners LLP, London; and a Visiting Professor in the Study for the Centre of Decision Making Uncertainty, University College London. He is the author of the Death of Economics, Butterfly Economics, Why Most Things Fail: Evolution, Extinction and Economics and Positive Linking: How Networks Can Revolutionise the World
* RA Bentley, A Acerbi, P Ormerod and V Lampos (2014), Books average previous decade of economic misery, PLOS ONE 9(1): e83147