When it comes to building muscles of employability, government has another critical role to play. Each century, as we push out the frontiers of human knowledge, work at every level becomes more complex, requiring more pattern recognition and problem solving. In the preindustrial age, human strength really mattered. Strength was a real service that lots of people could sell on the farm or in the workshop. With the invention of the electric motor and steam engine, though, physical strength became less important. Small women could drive big trucks. There is little premium for strength anymore. But there is an increasing premium for pattern recognition and complex problem solving, even down on the farm. Farming became a more knowledge-intensive activity, with GPS satellites guiding tractors to make sure all the rows being planted were straight. That modernization, plus fertilizer, put a lot of people out of work at the previous wage they were earning in agriculture.
Society as a whole looked at this transition from traditional agriculture to industrialization and said, “This is great! We will have more food and better food at lower costs, plus more people to work in factories.” However, muscle-bound field hands and their families said, “This is a tragedy. How will I ever get a job in the industrial economy with only muscles and a sixth-grade education? I won’t be able to eat any of that better, cheaper, plentiful food coming off the farms. We need to stop this move to industrialization.”
Somehow we got through this transition from an agriculture-based sop. 289ciety one hundred years ago to an industrial-based one—and still ended up with a higher standard of living for the vast majority of Americans. How did we do it?
“We said everyone is going to have to have a secondary education,” said Stanford University economist Paul Romer. “That was what the high school movement in the early part of the twentieth century was all about.” As economic historians have demonstrated in a variety of research (see particularly the work of Harvard economists Claudia Goldin and Larry Katz), both technology and trade are making the pie bigger, but they are also shifting the shares of that pie away from low-skilled labor to high-skilled labor. As American society produced more higher-skilled people by making high school mandatory, it empowered more people to get a bigger slice of the bigger, more complex economic pie. As that century progressed, we added, on top of the high school movement, the GI Bill and the modern university system.
“These were big ideas,” noted Romer, “and what is missing at the moment is a political imagination of how do we do something just as big and just as important for the transition into the twenty-first century as we did for the nineteenth and twentieth.” The obvious challenge, Romer added, is to make tertiary education, if not compulsory, then government-subsidized for at least two years, whether it is at a state university, a community college, or a technical school. Tertiary education is more critical the flatter the world gets, because technology will be churning old jobs, and spawning new, more complex ones, much faster than during the transition from the agricultural economy to the industrial one.
Educating more people at the tertiary level has two effects. One is that it produces more people with the skills to claim higher-value-added work in the new niches. And two, it shrinks the pool of people able to do lower-skilled work, from road maintenance to home repair to Starbucks. By shrinking the pool of lower-skilled workers, we help to stabilize their wages (provided we control immigration), because there are fewer people available to do those jobs. It is not an accident that plumbers can charge $75 an hour in major urban areas or that good housekeepers or cooks are hard to find.
America’s ability from the mid-nineteenth century on into the mid-p. 290twentieth century to train people, limit immigration, and make low-skilled work scarce enough to win decent wages was how we created a middle class without too disparate an income gap. “Indeed,” noted Romer, “from the end of the nineteenth century to the middle of the twentieth, we had a narrowing of the income gap. Now we have seen an increase of that gap over the last twenty or thirty years. That is telling us that you have to run faster in order to stay in the same place.” With each advance in technology and increase in the complexity of services, you need an even higher level of skills to do the new jobs. Moving from being a farmhand to a phone operator who spoke proper English and could be polite was one thing. But moving from being a phone operator after the job got outsourced to India, to being able to install or repair phone-mail systems—or write their software—requires a whole new leap upward.
While expanding research universities on the high end of the spectrum is important, so is expanding the availability of technical schools and community colleges. Everyone should have a chance to be educated beyond high school. Otherwise upper-income kids will get those skills and their slice, and the lower-income kids will never get a chance. We have to increase the government subsidies that make it possible for more and more kids to attend community colleges and more and more low-skilled workers to get retrained.
JFK wanted to put a man on the moon. My vision is to put every American man or woman on a campus.
Employers have a critical contribution to make to lifetime learning and fostering employability, as opposed to guaranteed employment. Take, for instance, CapitalOne, the global credit card company, which began outsourcing elements of its backroom operations to Wipro and Infosys in India over the past few years. Competing in the global financial services market, the company felt it had to take advantage of all the cost-saving opportunities that its competitors were. CapitalOne began, though, by trying to educate its workers through workshops about the p. 291 company’s competitive predicament. It made clear that there is no safe haven where lifetime employment is possible anymore—inside CapitalOne or outside. Then it developed a whole program for cross-training of computer programmers, those most affected by outsourcing. The company would take a programmer who specialized in mainframes and teach him or her to be a distributed systems programmer as well. CapitalOne did similar cross-training on its business side, in everything from auto loans to risk management. As a result, the workers who were eventually let go in an outsourcing move were in a much better position to get new jobs, because they were cross-trained and therefore more employable. And those who were cross-trained but retained were more versatile and therefore more valuable to CapitalOne, because they could do multiple tasks.
What CapitalOne was doing, out of both its own self-interest and a feeling of obligation to workers it was letting go, was trying to make more and more of its workers into versatilists. The word “versatilist” was coined by Gartner Inc., the technology consultants, to describe the trend in the information technology world away from specialization and toward employees who are more adaptable and versatile. Building employee versatility and finding employees who already are or are willing to become versatilists “will be the new watchword for career planning,” according to a Gartner study quoted by TechRepublic.com. “Enterprises that focus on technical aptitude alone will fail to align workforce performance with business value,” the Gartner study said. “Instead, they need to build a team of versatilists who build a rich portfolio of knowledge and competencies to fuel [multiple] business objectives.” The Gartner study noted that “specialists generally have deep skills and narrow scope, giving them expertise that is recognized by peers but seldom valued outside their immediate domain. Generalists have broad scope and shallow skills, enabling them to respond or act reasonably quickly but often without gaining or demonstrating the confidence of their partners or customers. Versatilists, in contrast, apply depth of skill to a progressively widening scope of situations and experiences, gaining new competencies, building relationships, and assuming new roles.” TechRepublic quoted Joe Santana, p. 292 director of training at Siemens Business Services: “With flat or even smaller budgets and fewer people, managers need to make the most of the people they have . . . They can no longer see people as specialty tools. And their people need to become less like specialty tools and more like Swiss Army knives. Those ‘Swiss Army knives’
are the versatilists.”
In addition to their own self-interest in making more of their own employees into human Swiss Army knives, companies should be encouraged, with government subsidies or tax incentives, to offer as wide an array as possible of in-house learning opportunities. The menu of Internet-based worker-training programs today is enormous—from online degree programs to in-house guided training for different specializations. Not only is the menu enormous, but the cost to the company for offering these educational options is very low. The more lifetime learning opportunities that companies provide, the more they are both widening the skill base of their own workforce and fulfilling a moral obligation to workers whose jobs are outsourced to see to it that they leave more employable than they came. If there is a new social contract implicit between employers and employees today, it should be this: You give me your labor, and I will guarantee that as long as you work here, I will give you every opportunity—through either career advancement or training—to become more employable, more versatile.
While we need to redouble our efforts to build the muscles of each individual American, we have to continue to import muscles from abroad as well. Most of the Indian, Chinese, Russian, Japanese, Korean, Iranian, Arab, and Israeli engineers, physicists, and scientists who come to work or study in the United States make great citizens. They are family-oriented, educated, and hardworking, and most would jump at the chance to become an American. They are exactly the type of people this country needs, and we cannot let the FBI, CIA, and Homeland Security, in their zeal to keep out the next Mohammed Atta, also keep out the next Sergey Brin, one of the cofounders of Google, who was born in Russia. As a computer architect friend of mine says, “If a foreign-born person is one day going to take my job, I’d prefer they be American citizens helping pay for my retirement benefits.”
I would favor an immigration policy that gives a five-year work visa to p. 293 any foreign student who completes a Ph.D. at an accredited American university in any subject. I don’t care if it is Greek mythology or mathematics. If we can cream off the first-round intellectual draft choices from around the world, it will always end up a net plus for America. If the flat world is about connecting all the knowledge pools together, we want our knowledge pool to be the biggest. Said Bill Brody, the president of Johns Hopkins, “We are in a global talent search, so anything we can do in America to get those top draft choices we should do, because one of them is going to be Babe Ruth, and why should we let him or her go somewhere else?”
Good Fat
Cushions Worth Keeping
While many of the old corporate and government safety nets will vanish under global competition in the flat world, some fat still needs to be maintained, and even added. As everyone who worries about his or her health knows, there is “good fat” and “bad fat”—but everybody needs some fat. That is also true of every country in the flat world. Social Security is good fat. We need to keep it. A welfare system that discourages people from working is bad fat. The sort of good fat that actually needs to be added for a flat world is wage insurance.
According to a study by Lori Kletzer, an economist at the University of California, Santa Cruz, in the 1980s and ’90s, two-thirds of workers who lost jobs in manufacturing industries hit by overseas competition earned less on their next job. A quarter of workers who lost their jobs and were reemployed saw their income fall 30 percent or more. Losing a job for any reason is a trauma—for the worker and his or her family—but particularly for older workers who are less able to adapt to new production techniques or lack the education to move up into more skilled service jobs.
This idea of wage insurance was first proposed in 1986 by Harvard’s Robert Lawrence and Robert E. Litan of the Brookings Institution, in a p. 294 book called Saving Free Trade. The idea languished for a while until it started to catch fire again with an updated analysis by Kletzer and Litan in 2001. It got further political clout from the bipartisan U.S. Trade Deficit Commission in 2001. This commission couldn’t agree on anything—including the causes of or what to do about the trade deficit—other than the wisdom of wage insurance.
“Trade creates winners and losers, and what we were thinking about were mechanisms by which the winners could compensate the losers, and particularly losers who were enjoying high wages in a particular job and suddenly found their new employment at much lower wages,” said Lawrence. The way to think about this, he explained, is that every worker has “general skills and specific skills” for which they are paid, and when you switch jobs you quickly discover which is which. So you might have a college and CPA degree, or you might have a high school degree and the ability to operate a lathe. Both skills were reflected in your wages. But suppose one day your lathe job gets moved to China or your basic accounting work is outsourced to India and you have to go out and find a new job. Your new employer will not likely compensate you much for your specific skills, because your knowledge as a machine tool operator or a general accountant is probably of less use to him or her. You will be paid largely for your general skills, your high school education or college degree. Wage insurance would compensate you for your old specific skills, for a set period of time, while you take a new job and learn new specific skills.
The standard state-run unemployment insurance program eases some of this pain for workers, but it does not address their bigger concerns of declining wages in a new job and the inability to pay for health insurance while they are unemployed and searching. To qualify for wage insurance, workers seeking compensation for job loss would have to meet three criteria. First, they would have to have lost their job through some form of displacement—offshoring, outsourcing, downsizing, or factory closure. Second, they would have to have held the job for at least two years. And third, the wage insurance would not be paid until the workers found new jobs, which would provide a strong incentive to look p. 295 for work quickly and increase the chances that they would get on-the-job retraining. On-the-job training is always the best way to learn new skills—instead of having to sign up for some general government training program, with no promise of a job at the other end, and go through that while remaining unemployed.
Workers who met those three conditions would then receive payments for two years, covering half the drop in their income from their previous job (capped at $10,000 a year). Kletzer and Litan also proposed that the government pay half the health insurance premiums for all “displaced” workers for up to six months. Wage insurance seems to me a much better idea than relying only on the traditional unemployment insurance offered by states, which usually covers only about 50 percent of most workers’ previous wages, is limited to six months, and does not help workers who suffer a loss of earnings after they take a new job.
Moreover, as Kletzer and Litan noted, although all laid-off workers now have the right to purchase unsubsidized health insurance from their former employer if health coverage was offered when they were employed, many jobless workers do not have the money to take advantage of this guarantee. Also, while unemployed workers can earn an additional fifty-two weeks of unemployment insurance if they enroll in an approved retraining program, workers have no guarantee that when they finish such a program they will have a job.
For all these reasons, the Kletzer-Litan proposal makes a lot of sense to me as the right benefit for cushioning workers in a flat world. Moreover, such a program would be eminently affordable. Litan estimated that at an unemployment rate of 5 percent, the wage insurance and health-care subsidy today would cost around $8 billion a year, which is peanuts compared to the positive impact it could have on workers. This program would not replace classic state-run unemployment insurance for workers who opt for that, but if it worked as projected, it could actually reduce the cost of such programs by moving people back to work quicker.
Some might ask, Why be compassionate at all? Why keep any fat, friction, or barriers? Let me put it as bluntly as I can: If you are not a comp. 296passionate flatist—if you are just a let ’er rip free-market
flatist—you are not only cruel, you are a fool. You are courting a political backlash by those who can and will get churned up by this flattening process, and that backlash could become ferocious if we hit any kind of prolonged recession.
The transition to a flat world is going to stress many people. As Joshua S. Levine, E*Trade’s chief technology officer, put it to me, “You know how sometimes you go through a harrowing experience and you need a respite, but the respite never seems to come. Look at the airline workers. They go through this [terrible] event like 9/11, and management and the airline unions all negotiate for four months and management says, ‘If the unions don’t cut $2 billion in salary and benefits they will have to shut the airline down.’ And after these wrenching negotiations the unions agree. I just have to laugh, because you know that in a few months management is going to come right back . . . There is no end. No one has to ask me to cut my budget each year. We all just know that each year we will be expected to do more with less. If you are a revenue producer, you are expected to come up with more revenue every year, and if you are an expense saver, you are expected to come up with more savings every year. You never get a break from it.”
If societies are unable to manage the strains that are produced by this flattening, there will be a backlash, and political forces will attempt to reinsert some of the frictions and protectionist barriers that the flattening forces have eliminated, but they will do it in a crude way that will, in the name of protecting the weak, end up lowering everyone’s standard of living. Former Mexican president Ernesto Zedillo is very sensitive to this problem, having had to manage Mexico’s transition into NAFTA, with all of the strains that put on Mexican society. Speaking of the flattening process, he said to me, “It would be very hard to stop, but it can be stopped for a time. Maybe you can’t stop it totally, but you can slow it down. And it makes a difference whether you get there in twenty-five years or fifty years. In between, two or three generations—who could have benefited a lot from more trade and globalization—will end up with crumbs.”
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