By Paolo von Schirach
April 26, 2013
WASHINGTON – The globalized knowledge economy truly benefits only the highly educated, cosmopolitan elites. The interesting jobs are ultra competitive, and there are not that many new openings. Which is to say that even in the developed world only some will prosper; while most of the others, because of outsourcing and the impact of automation, will either stagnate or they will be pushed down the socio-economic ladder –unless they are able to substantially “retrofit” themselves this way upgrading their skills.
Yes, “The Great Stagnation”, characterized by little innovation that will create new sectors and thus opportunities, in a context of fierce global competition, is unfortunately the “New Normal”. As this epochal shift of diminished possibilities unfolds, the mostly myopic Western political elites are caught in the web they created (in better times) made out of horrendously expensive welfare states and overly generous (and thus unaffordable) pension systems. The truth is that the modern welfare state was built on the implicit assumption of never ending growth (fueled by constant innovation) that would generate the large funds necessary to provide free services to millions of citizens.
Well, now we have the promise of free services, plus pledges to pay pensions and more, without the funds to pay for them on account of economic stagnation. Hence lower revenue, higher costs and unprecedented levels of debt. The only way to cut debt is to cut welfare. But these cuts are naturally unpopular, especially since they have to take place at a time of economic decline.
The New Normal
How bad is the “new normal” of low to zero growth and high debt? It is so bad that Spain’s latest unemployment numbers –27.2%– are no longer news. Can you imagine? Almost one third of the able bodied population in a developed European country is out of work; and this tragedy barely gets a short mention in the business press. And Britain’s 0.3% GDP growth for the first quarter of 2013 is hailed as a major step forward. No kidding.
America in comparison, with a growth rate of around 2%, looks like Paradise, even though this rate is well below the historic post war average of 3%. And of course America at this time has no policy agreement whatsoever to even begin to tackle its now astronomic 16 trillion plus national debt. But, hey, compared to Europe, we are doing great.
Race to the bottom
Unfortunately, if we try and look below the horizon, the picture still looks grim. Globalization, combined with automation made possible by the ongoing IT revolution, is indeed a race to the bottom, simply because low skills jobs will continue to migrate to low cost (mostly Asian) countries, while many clerical and support positions will just disappear, eaten up by computers and robots. True enough, globalized, complex industries and/or services will need first class technicians and managers. But there is not that much room at the top. All the others will have to fight for fewer, low pay jobs.
Last but not least I see no public policy panacea for any of this. If anything there will be major frictions due to the need to cut benefits to millions who now morethan ever really need them. Sure enough we need more money for high quality public education. But, while necessary, this investment will help only a few. Even assuming a much more educated work force, there will be only so many top management jobs. And all the others? What will they do?
How do we get out of this? The Holy Grail is “Innovation”. Yes, through innovation we shall open up new vistas, create new economic sectors that will create millions of new jobs. For example, in his first term President Obama embraced renewable energy and the avalanche of new industries it would have created. Well, it did not happen. The green economy is less than what we thought. At least for now. Besides, sophisticated new technologies will employ only highly educated professionals with multiple advanced degrees. The problem in most developed societies is that the middle is composed of people who perform jobs that will soon disappear because of outsourcing to cheaper countries and/or automation that will simply kill those positions.
Not much room at the top
The most energetic members of the old middle classes may try to “re-engineer” themselves by going back to school, this way learning new marketable skills. But most of them will not; and so they will be pushed down. If they are lucky, they will find lower paid jobs, in most cases part time positions with no benefits. Many among them will hope to rely on welfare that governments can no longer afford. Sadly, that’s the way it is.