David Wessel writes in yesterday’s Wall Street Journal about tweeners – those individuals who are neither clear winners or clear losers in globalization.

They’re consumers, as all Americans are, so they enjoy the better quality, lower prices and great choice that imports offer. On the job, they aren’t squeezed hard by overseas competitors but neither do they see much direct benefit from trade. Yet they worry — with some justification — that the combination of globalization, technology and immigration makes their jobs and wages vulnerable. And they fear their children will have even more reason to worry.

He argues that tweeners can’t simply be compensated for their loses:

A smarter approach would be to make those tweeners more economically fit, to find ways to equip Americans to prosper in an economy in which there are more global competitors and more tasks that computers can do and to insure them against the greater volatility of today’s economy in which today’s winner job can be a loser job tomorrow.

I very much like the concept of tweeners as a way of better understanding the complexities of globalization. I am also a long standing proponent of the idea of creating winners (see my 1999 report, Making the Global Economy Work for Every Worker).
But Wessel implicitly accepts the argument that unrestricted global competition is good, even thought he states:

It’s time to stop thinking about globalization as good or bad. It’s both.

I say this because he repeats the following somewhat economic Darwinian idea:

In the quest for better metaphors, Mr. Richardson [J. David Richardson, an economist at Syracuse University’s Maxwell School who is writing a book on this subject for the Institute for International Economics] sees global markets “as a kind of fitness center” for firms, industries, workers and communities. “Those that are fittest grow prosperous and stably. But others, less fit, grow more sluggishly and fitfully. And still others, who consciously try to avoid global competition, face grave health risks.”

According to Wessel,

Mr. Richardson is still working on that chapter. It’ll surely emphasize the urgent need to do better, much better, at education and training and to expand successful experiments that give workers and companies the incentives to do what’s needed — not to pay off losers but to make more winners.

Like Wessel, I am also eagerly looking forward to the book Richardson’s last chapter where he tells us how to make the tweeners more “economically fit”. We will see if Mr. Richardson can come up with any new ideas – or simply recycle the same ones that we all (me included) continue to recite.
My question is how fit they can be to compete for jobs in a world were there are “more global competitors and more tasks that computers can do”. In order to understand how to be economically fit, we need to know, “fit for what.” Right now, I don’t know of anyone who can tell me what the “what” is.
What jobs can US workers compete for when there is a group of very smart, very skilled and very educated workers in other nations who will work at a quarter of your price? How does one get economically fit for that? It is like telling a 50 year man that he needs to start working out so that he can take on Michael Jordon in some one-on-one hoops. Simply put, it ain’t going to happen.
We need a much better set of solutions than the ones we have been talking about for years.

Getting information right in the information age

One of the premises of the information age is that the information actually tells you what it is supposed to tell you. For example, the unemployment rate tells policymakers how the economy is doing and, for those who worry about inflation, how tight the labor market is. Yet, as a story in The Economist points out, the current low US unemployment number doesn’t necessarily answer the question about the tightness of the labor market.

A new paper by Katharine Bradbury of the Federal Reserve Bank of Boston should keep the question open for a while longer. The unemployment rate, she suggests, may be a poor measure of slack in the labour market. By her yardstick, there may be as many as 5.1m Americans who do not appear in the unemployment rolls, but who might rejoin the job queue if work were more forthcoming. If so, the “true” unemployment rate could be over 8%, not 5%; the true number of jobless 12.6m, not 7.5m.

The reason for the discrepancy is the discouraged worker. People are only counted as unemployed if they are actively looking for a job. If they aren’t, they are considered as outside the labor force.
What to do with people who are not actively looking for a job presents a major question for future statistics. In the industrial economy, it was rather simply – you were either working (employed), looking for work (unemployed) or not in the labor force (students, retirees, housewives, disabled). In the I-Cubed Economy, we expect that people will drift in and out of the labor force, for various reasons. Some may be voluntary retirees who could easily be lured back into the labor force it the right situation. Some many be those who are taking time off to recharge or reskill. Some may be the discouraged workers who have just given up. We need to make sure our data can account better for all this churn.
In the meantime, don’t take the unemployment number as a sign of a healthy economy. As the song from Porky and Bess says, “it ain’t necessarily so.”

Downloading music in the UK

This report of the latest research on music downloading — this time in the UK as reported by BBC NEWS, “Downloading ‘myths’ challenged”:

People who illegally share music files online are also big spenders on legal music downloads, research suggests.
Digital music research firm The Leading Question found that they spent four and a half times more on paid-for music downloads than average fans.
Rather than taking legal action against downloaders, the music industry needs to entice them to use legal alternatives, the report said.
. . .
“The research clearly shows that music fans who break piracy laws are highly valuable customers,” said Paul Brindley, director of The Leading Question.

Repeat after me “the music industry needs a new business model.”

That sinking feeling

From the Wall Street Journal’s The Evening Wrap, this story on the geopolitical ramifications of global warming:

Hans Island is a barren piece of Arctic rock less than a mile square, but it’s the subject of an ever-hotter dispute between the usually placid nations of Canada and Denmark. Both have laid claim to the island at various times, but recently Canada planted its flag and sent its defense minister on a visit there, sparking a protest from Denmark. A government official in Greenland, a Danish protectorate, called Canada’s action an “occupation.” There were news reports that the Danes would send a ship to assert their territorial rights. While the dispute might seem silly, there’s a lot at stake, including the rights to natural resources beneath the island and the ability to use the region for navigation if and when global warming raises sea levels, sinking Hans and other Arctic islands and opening shipping lanes.

The Creativity Economy

Business Week sounds the warning: Get Creative!:

Listen closely. There’s a new conversation under way across America that may well change your future. If you work for Procter & Gamble Co. (PG ) or General Electric Co. (GE ), you already know what’s going on. If you don’t, you might want to stop what you’re doing and consider this:
The Knowledge Economy as we know it is being eclipsed by something new — call it the Creativity Economy. Even as policymakers and pundits wring their hands over the outsourcing of engineering, software writing, accounting, and myriad other high-tech, high-end service jobs — not to mention the move of manufacturing to Asia — U.S. companies are evolving to the next level of economic activity.
What was once central to corporations — price, quality, and much of the left-brain, digitized analytical work associated with knowledge — is fast being shipped off to lower-paid, highly trained Chinese and Indians, as well as Hungarians, Czechs, and Russians. Increasingly, the new core competence is creativity — the right-brain stuff that smart companies are now harnessing to generate top-line growth. The game is changing. It isn’t just about math and science anymore. It’s about creativity, imagination, and, above all, innovation.
What is unfolding is the commoditization of knowledge. We have seen global forces undermine autos, electronics, and other manufacturing, but the Knowledge Economy was expected to last forever and play to America’s strengths: great universities, terrific labs, smart immigrants, an entrepreneurial business culture.
Oops. It turns out there are a growing number of really smart engineers and scientists “out there,” too. They’ve learned to make assembly lines run efficiently, whether they turn out cars or code, refrigerators or legal briefs. So U.S. companies are moving on to creating consumer experiences, not just products; reconceiving entire brand categories, not merely adding a few more colors; and, above all, innovating in new and surprising arenas.
The U.S. has a lead in this unfolding Creativity Economy — for the moment. The new forms of innovation driving it forward are based on an intimate understanding of consumer culture — the ability to determine what people want even before they can articulate it. Working in what is still the largest consumer market in the world gives U.S. companies a huge edge. So does being able to think outside the box — something Americans still do better than most. But Toyota Motor Corp. (TM ) has a feel for U.S. consumers, and Samsung Group can be pretty creative, too. Competition will surely be intense.

While many companies get it, Washington doesn’t. Unfortunately, our public policy has taken a step backwards – and our leaders are fighting a rear guard action to simply restore the gains that were made in the 1980s. Take, for example, the recent Wall Street Journal op-ed by Vinton Cerf (the man who really did invent the Internet) and Harris Miller, “America Gasps For Breath In the R&D Marathon”:

America will soon find its grip on the levers of international commerce slipping as we turn our backs on a proud tradition of technology innovation. The stewards of our national destiny are busily tightening the tap on the federal R&D budget, the most important source of funding for programs that seek to answer fundamental questions of science and technology.
. . .
In a very real sense, today’s R&D agenda determines where America will find itself in the future. The benefits of vigorous, federally funded academic R&D programs reaped by American society at large have been enormous. Our domestic and global economies thrive on the results of such work. Private sector programs alone cannot produce comparable results, in part owing to an ethical obligation to deliver bottom-line business results for their stockholders. The U.S. government needs a long-term strategy for continued economic growth. A strong and thriving academic R&D program is critical to that strategy. To choose otherwise is a recipe leading to irrelevance and decline.

No wonder we can’t move public policy to the Creativity Economy (as Business Week calls it) or the I-Cubed Economy (as we call it). We are too busy still trying to convince certain Washington policymakers that technology matters!

Unions in the I-Cubed Economy

In the wake of the union breakup, the Wall Street Journal asks the key question: Can the new economy be organized? This is at the heart of the split between the new Change to Win Coalition and the AFL-CIO. In a story today, “Reinventing the Union”, the Journal talks about ways that the break away unions, headed by Andy Stern of the Service Employees International Union (SEIU), are seeking to become more relevant:

In an interview, Mr. Stern said he realizes the difficulties of organizing workers from disparate industries and says one of his goals is to create different kinds of unions. “First of all, we have to be sophisticated: The 1930s adversarial type unionism isn’t going to apply to nurses and reporters and child-care workers,” he said. “We need to create a lot of different models of unions.”
For example, white-collar contract employees who move from job to job are concerned with how to get and keep benefits. Nurses are worried about staffing and quality of care. Building security guards are more interested in wages.

Another idea is having the unions provide relevant services to members, such as “401(k)-type retirement plans that wouldn’t be tied to a particular employer and job-education programs, both of which could help employees as they move from job to job in an increasingly flexible economy.”
No doubt about it, the unions will be facing an uphill fight. According to a Business Week survey about the union split, the majority voted for “Who needs unions? In the global economy, they’re dinosaurs.”
My view is that unions are not dinosaurs, yet. They can play an important role in the information economy. Six years ago, the New Democrat’s (DLC) magazine Blueprint ran a special issue on the new unions. In their lead editorial, “Why America Needs a New Labor”, talked about a new role for unions:

Some union visionaries foresee the next generation of unions organizing across company lines — an Information Age version of the hiring hall — and serving as the foundation upon which members build economic security. Under this intriguing scenario, one can begin to see the union of the future taking shape. It not only bargains with employers over wage and workplace issues and serves as a guarantor of high-quality workmanship, it also functions as an employment agency, benefit provider, and life-long learning coordinator.
Ultimately, the only way organized labor can reverse its decline is to carve out a new and valued role for itself in the private-sector economy.

Maybe that is what is happening now.

CRS report on pending patent bill

For those of you how are interested in following up on the pending patent legislation (as discussed in last month’s AthenaCELI briefing on patents and innovation), here is a good resource. Patently-O: Patent Law Blog has posted a new Congressional Research Service (part of the Library of Congress) report. The report covers the major elements of the proposed patent reform bill, reviews major changes, and analyzes how the specific change would affect particular groups and industries (individual inventors; universities; technology companies; biotech; etc.). The summary of the report follows:

Congressional interest in patent policy and possible patent reform has expanded as the importance of intellectual property to innovation has increased. Patent ownership is perceived as an incentive to the technological advancement that leads to economic growth. However, growing interest in patents has been accompanied by persistent concerns about the fairness and effectiveness of the current system. Several recent studies, including those by the National Academy of Sciences and the Federal Trade Commission, have recommended patent reform to address perceived deficiencies in the operation of the patent regime. Other experts maintain that major alterations in existing law are unnecessary and that the patent process can, and is, adapting to technological progress.
The Patent Act of 2005, H.R. 2795, introduced in June 2005, would work significant legal reforms to the patent system. Among the more notable of these changes are a shift to a first-inventor-to-file priority system; substantive and procedural modifications to the patent law doctrines of willful infringement and inequitable conduct; and adoption of post-issuance opposition proceedings, prior user rights, and pre-issuance publication of all pending applications. Several of these proposals have been the subject of discussion within the patent community for many years, but others are more novel propositions.
Pending legislation attempts to address several issues of concern including the quality of issued patents, the expense and complexity of patent litigation, harmonization of U.S. patent law with the laws of our leading trading partners, potential abuses committed by patent speculators, and the special needs of individual inventors, universities, and small firms with respect to the patent system. In addition, although the existing patent statute in large measure applies the same basic rules to different sorts of inventions, regardless of the technological field of that invention, the patent system is widely believed to impact different industries in varying ways.
The provisions of H.R. 2795 would arguably work the most sweeping reforms to the U.S. patent system since the nineteenth century. However, many of these proposals, such as pre-issuance publication, prior user rights, and oppositions, have already been implemented in U.S. law to a more limited extent. These and other reforms, such as the first-inventor-to-file priority system and elimination of the best mode requirement, also reflect the decades-old patent practices of Europe, Japan, and our other leading trading partners.
Other knowledgeable observers are nonetheless concerned that certain of these proposals would weaken the patent right, thereby diminishing needed incentives for innovation. Some also believe that changes of this magnitude, occurring at the same time, do not present the most prudent course for the patent system. Patent reform therefore confronts Congress with difficult legal, practical, and policy issues, but also with apparent possibilities for altering and possibly improving the legal regime that has long been recognized as an engine of innovation within the U.S. economy.

Ideas for re-inventing high school

In a number of my previous postings, I have argued for a re-invention of our educational system – especially the high schools. There are a lot of ideas about how to accomplish that task. A few are listed in recent article in the Christian Science Monitor “High school could be … better. But how?”:

Challenging curricula. In an attempt to undo tracking, many districts and states are implementing college-preparatory curricula for all their students. The Los Angeles Unified School District recently decided to make college-prep standard, and similar moves are afoot in Oklahoma, Indiana, Mississippi, and Delaware. But critics wonder if imposing a one-size-fits-all approach is the best solution.
Small schools. The idea of splintering large high schools into smaller learning communities has been evolving since the 1970s. However, it remained a fringe effort until it was championed by the Bill and Melinda Gates Foundation; its grants have been awarded to more than 1,500 schools in 42 states.
Early college. Some schools, like Bard High School Early College in New York, enable students to graduate with both a high school diploma and an associate of arts degree. In 2002, 57 percent of colleges and universities enrolled high school students, according to the National Center for Education Statistics. College-level courses, like Advanced Placement and International Baccalaureate, are also becoming more popular; 1.1 million students took AP exams last year.
Eliminating grade levels. Rather than having students earn credits to advance to the next grade level, under this system there would be no 9th, 10th, 11th, or 12th grades. Mastery of a subject would determine whether a student moved on to the next level. And students would retake only classes they failed, rather than repeat a grade. Boston Public Schools have explored this system.

The last of these really intrigues me. It is essentially a variation of the college system that focuses more on courses than grades. Grades may have been a good system for the mass-production industrial age. But a course-focus strikes me as much more appropriate for the information-age I-Cubed Economy.

Jobs moving – to Canada

As Paul Krugman reported yesterday in this New York Times column “Toyota, Moving Northward”:

There has been fierce competition among states hoping to attract a new Toyota assembly plant. Several Southern states reportedly offered financial incentives worth hundreds of millions of dollars.
But last month Toyota decided to put the new plant, which will produce RAV4 mini-S.U.V.’s, in Ontario. Explaining why it passed up financial incentives to choose a U.S. location, the company cited the quality of Ontario’s work force.
What made Toyota so sensitive to labor quality issues? Maybe we should discount remarks from the president of the Toronto-based Automotive Parts Manufacturers’ Association, who claimed that the educational level in the Southern United States was so low that trainers for Japanese plants in Alabama had to use “pictorials” to teach some illiterate workers how to use high-tech equipment.
But there are other reports, some coming from state officials, that confirm his basic point: Japanese auto companies opening plants in the Southern U.S. have been unfavorably surprised by the work force’s poor level of training.
There’s some bitter irony here for Alabama’s governor. Just two years ago voters overwhelmingly rejected his plea for an increase in the state’s rock-bottom taxes on the affluent, so that he could afford to improve the state’s low-quality education system. Opponents of the tax hike convinced voters that it would cost the state jobs.
But education is only one reason Toyota chose Ontario. Canada’s other big selling point is its national health insurance system, which saves auto manufacturers large sums in benefit payments compared with their costs in the United States.

Funny, isn’t it? Pundits tell us that the welfare state is doomed by globalization, that programs like national health insurance have become unsustainable. But Canada’s universal health insurance system is handling international competition just fine. It’s our own system, which penalizes companies that treat their workers well, that’s in trouble.

Amen to that! We make much of the cliche “our employees are our greatest asset” – but we have a system that doesn’t allow us to practice what we preach. From outmoded regulations and accounting standards to outmoded management models, the system is lurching, not rolling, into the information age.

Multiculturalism, innovation and the fear factor

In the wake of the continued terrorism attacks and quagmire [oops – not supposed to use that word] in Iraqi, I am picking up an increasing backlash against multiculturalism due to the fear factor. The most recent example showed up in a subtle way in Joel Kotkin’s comment on the London attacks in Sunday’s Washington Post “City Of the Future”.
Last Tuesday, we had an interesting event with Richard Florida, who argues that multiculturalism and the openness of American society is our greatest economic advantage and one of the drivers of our innovation and creative economy. Besides including a gratuitous slap at Florida’s idea of the creative class, Kotkin’s piece takes direct aim at multiculturalism:

Now, cities may have to face a different menace. Sadly, many metropolitan leaders seem less than prepared to meet today’s current terrorist threat head-on, in part due to the trendy multiculturalism that now characterizes so many Western cities. Consider London’s multiculturalist Mayor Ken Livingstone, who last year actually welcomed a radical jihadist, Egyptian cleric Sheik Yusuf Qaradawi, to his city.
Multiculturalism and overly permissive immigration policies have also played a role here in North America. Unfettered in their own enclave, Muslim extremists in Brooklyn helped organize the first attack on the World Trade Center in the early 1990s. Lax Canadian refugee policies have allowed radical Islamists to find homes in places like Montreal and Toronto, where some might have planned attacks on this country, like the alleged 2000 plot to blow up Los Angeles International Airport.
In continental Europe, multiculturalism has been elevated to a kind of social dogma, exacerbating the separation between Muslim immigrants and the host society. For decades, immigrants have not been encouraged or expected to accept German, Dutch or British norms, nor have those societies made efforts to integrate the newcomers. Not surprisingly, jihadist agitation has flourished in Hamburg, Amsterdam, Madrid, Berlin and Paris as well as London.
If cities are to survive in Europe or elsewhere, they will need to face this latest threat to urban survival with something more than liberal platitudes, displays of pluck and willful determination. They will have to face up to the need for sometimes harsh measures, such as tighter immigration laws, preventive detention and widespread surveillance of suspected terrorists, to protect the urban future.

In other words, multiculturalism and openness (and the implied permissiveness of “others”) is one of the roots of our lack of security.
This is disturbing, especially coming from someone who years ago argued in The Third Century “that our entrepreneurial ‘open system’ and the human diversity of America as a unique ‘world nation’ ensures the long-term strength of our economy” and in 2000 in The New Geography, “midopolitan [older suburban areas] communities increasingly must draw their strength, as the great cities before them did, from the energies, skills, and cultural offerings of their increasingly diverse populations.”
I agree with Kotkin’s statement in the Post piece:

Militant anti-Western Islamist agitation — actively supportive of al Qaeda, for example — also must be rooted out; it can be no more tolerated in Western cities today than overt support for Nazism should have been during World War II.

But, at what point does this crackdown on overt support (which I agree we must do) spill over into a general roundup of “dangerous types”? I’m not suggesting that the backlash is approaching anything like what resulted in the Japanese internment camps of World War II. I am suggesting that we must be careful not to go over the cliff.
This is the other side of the danger that the terrorist poise – undermining our strength by installing a climate of fear and distrust. After all, isn’t that what “terror”-ism is all about. It is not about the number of people killed but the effect on the morale and psychology of the targets. Kotkin some what recognizes this when he says:

The kinds of policies needed to secure their safety may pose a serious dilemma for great cities that have been built upon the values of openness, freedom of movement, privacy, tolerance and due process. Yet to survive, these same cities may now need to shift their primary focus to protecting their people, their commerce and their future against those who seek to undermine and even, ultimately, destroy them.

Unfortunately, this sounds too much like the old story of “we had to destroy the village in order to save it.” Kotkin is arguing that we must shift away from all the things that have made great cities great in order to protect them. This is a lose-lose situation. Surely we can do better.
I would also take issue with Kotkin’s argument that the gospel of “multiculturalism” promotes isolation and separation.
One of the reasons why immigrants in many European countries have not accepted local Europeans norms is that they have been constantly reminded that they are not Europeans, that they are “immigrants.” For all the protestations of tolerance, there is still a gap between the locals (Europeans) and immigrants (non-Europeans). As Kotkin’s colleague at the New America Foundation, Peter Bergen points out, “many British Muslims are young and poorly integrated into society and therefore vulnerable to extremism.” Tolerance is not the same as welcoming and mixing. Done right, multiculturalism results in a shared community – not isolated enclaves.
On this subject, my hope stems from another story in Sunday’s Post (in fact, a front page story – “Finding the World in Loudoun County”) about how regular pick-up soccer game is uniting a diverse community in Northern Virginia:

The matches had been going on for a few years now. Self-conscious jokes about couscous, or gringos, or the Somali army had been told, beers shared, hellos exchanged in the aisles of the Food Lion. Mustafa had become Moose. The novelty of differences had largely worn off, in other words, leaving something more ordinary, perhaps, and yet no less significant to the people who live there.

Here seems to be an example of true multiculturalism at work. Someone should write another piece. Rather than “City of Fear” that is the true title of Kotkin’s piece, I would like to see more on the “City of Hope.” That would be the true “City of the Future.”

By the way, Kotkin – who is a respected commentator on urban affairs (see his new book, The City: A Global History) seems to have set himself up as the anti-Richard Florida. For an interesting background on the argument – see Christopher DeWolf’s excellent essay Creative Class War: The Debate over Richard Florida’s Ideas.
I must confess that I share some of Kotkin’s critique of Florida’s ideas — but had the same critique of Kotkin’s similar arguments when he made them in his 2000 book The New Geography.