Democracy and Prosperity (part 4)

July 22, 2019

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Previous posts on Iversen and Soskice’s Democracy and Prosperity have discussed the symbiotic relationship between democracy and capitalism, democratic support for capitalism during the revolution in information and communications technology, and variations among advanced capitalist democracies (ACDs) in their original path to democracy, electoral systems, economic inequality and educational opportunity.

This final post will discuss three challenges facing ACDs today: global financial instability, populism, and artificial intelligence/robotics. The focus will be on the United States as a country with a relatively weak and politically fragmented labor movement; a two-party, majority-rule electoral system; and a recent trend toward high inequality and low social mobility.

Global financial instability

The financial crisis of 2008 occurred around the time that “governments were implementing the broad set of reforms that we have argued created the foundation for the knowledge economy.” That raises the question, “If the reforms were intended to produce prosperity, how did the crisis happen?”

Iversen and Soskice focus on the fact that different democracies responded to the opportunities presented by technological change by promoting different segments of their economies. While Germany and Japan promoted their “high value-added export sectors,” the U.S. and U.K. promoted their “high-risk financial sectors.” In the U.S., loose financial regulations allowed highly leveraged financial institutions (HLFIs) to accumulate high-risk assets such as bundles of shaky mortgages. Americans became global debtors, consuming more than they produced, while exporting countries became global creditors. This could work because creditor nations were willing to accept payment for their goods in dollars and then lend those dollars back to us, often providing “short-term loans to the HLFIs to cover the acquisition of a large proportion of the risky assets–that is, securitized loans–that financed the consumption.” Government fiscal policy sustained the imbalance by running deficits–also partly financed by foreigners–spending more dollars than it took out in taxes. Government too thus enabled Americans to consume more than they produced.

The market value of risky financial assets collapsed once debtors became overextended and started to default, triggering the global financial crisis. Although the global economy has recovered–more or less–from the Great Recession that followed, the fundamental imbalance remains, portending additional instability in the future.

How could the U.S. economy be put on a more solid footing? If all that the government would do is balance the budget by cutting spending, the result might only be lower incomes and economic contraction, without a real increase in national production. Sustainable economic growth may require both more private investment in productivity-enhancing innovations and public investment in education and training. However, such changes may lack the support of capitalists who are already making money accumulating financial assets they think are sound, or those workers who already have good educations and incomes.

Populism

The authors define populism as:

…a set of preferences and beliefs that rejects established parties and elites, that sees established politicians as gaming the system to their own advantage, and that at the same time sees the poor as undeserving of government support. Above all it opposes immigrants, who are always counted among the undeserving…,and it rejects the cosmopolitan outlook associated with the rising cities in favor of the traditional family, conforming sexual orientations, and nationalism.

The authors see the re-emergence of populism as the most important shift in politics of the last forty years. They see growing economic inequality, falling social mobility, and the aftermath of a major economic crisis as especially conducive conditions. They find populist values especially widespread in democracies relatively low on educational opportunity, such as the United States, South Korea, Japan and Italy.

The adherents of populism are usually members of the “old middle classes,…those who have experienced stagnating wages because of skill-biased technological change, outsourcing, or import competition.” Although populism is not simply a backlash against cultural changes like racial integration, feminism, or gay rights, it does have a cultural dimension that is related to economic change. The urban “agglomerations of knowledge” that are at the center of the new economy encourage a “tolerance of diversity and cosmopolitan values.” The industrial work ethic that encouraged simple conformity and submission to authority has given way to a more flexible lifestyle, one that is open to new ideas wherever they come from. But workers who lack the education and income to live in the cities remain in–or move to–smaller towns containing old middle-class enclaves. There they practice “a nativist version of the old social contract, which is based on notions of working hard…, obeying the rules, observing traditional family values, and attachment to the nation.” They may become encapsulated, and feel both economically and culturally devalued outside of those enclaves.

In electoral systems with proportional representation, populists can achieve influence by forming a minority party, just as socialists often do. In a majoritarian system like the U.S., populists need the support of a major party, and they have currently found it in the Republican Party. Iversen and Soskice see populists as a minority even there, and they do not explain why so many Republicans would find common ground with Donald Trump. I think it’s because Republican economic policies are increasingly blamed for growing inequality–their previous presidential candidate ran on trickle-down economics and lost–and they have increasingly appealed to white nativists and Christian conservatives in the hope of saving their Reagan-Bush era majority.

The authors do not regard populism as a serious threat to the technologically advanced economy or the democratic state, for several reasons:

  1. Populist economic resentments are directed less at the advanced economy itself than at poor people and immigrants, who I would say get unfairly blamed for middle-class status anxiety;
  2. Too many people are benefiting from economic and cultural change to give the populists a sustained majority;
  3. “Populism can be readily undermined by public policies designed to open educational opportunities for more people.”

I suspect that mainstream political parties will need to address the legitimate opportunity concerns that are fueling populism, but also repudiate many of its reactionary and undemocratic sentiments. If a major party can remain popular while doing neither of those things, as the Republicans are attempting, then democracy is in more trouble than this book acknowledges.

Artificial intelligence and robotics

The revolution in information and communications technology is only in its early stages. Further transformations of work and economic organization are to be expected, especially in the areas of artificial intelligence and automated mechanical systems.

Many of those who try to anticipate further change are technological optimists but social pessimists. Writers such as Martin Ford (The Rise of the Robotshave a very expansive view of what AI can do, but are very worried about the prospects for human displacement and unemployment. On the other hand, Robert Gordon (The Rise and Fall of American Growth) sees information and communication technologies as only modest contributions to the history of economic change, not transformative enough to make huge difference to human work or productivity.

Iversen and Soskice take an intermediate position. They do think that new technologies can substantially change how work is done, but they stress their potential to complement human labor rather than substitute for it. As they pose the issue, “[I]f AI and robots can replicate the cospecificity of skill clusters by essentially generating de novo the knowledge that otherwise emerges from human inter-action and exchange of ideas, then educated workers and technology would no longer be necessary complements to technology.” What computers do best is implementing algorithms, that is, slavishly following a routine that humans have already come up with. But “a key function of decentralized production networks is to develop new solutions to complex problems in uncertain environments. The objective of innovation is to develop new algorithms, as opposed to merely optimizing old ones.”

Only when and if computers can be taught to think as creatively as humans can we speak of massive substitution rather than complementarity. The authors don’t even rule out a merger of humans and machines into a new species through bioengineering, but such dreams seem a long way off.

In the meantime, workers will increasingly need the education and skills to work with the machines. There will be winners and losers, but ultimately the results will depend on democratic politics, not just technology.

This points to an optimistic conjecture: even as new technology replaces more jobs, the advanced sectors are location-specific and can support policies that ensure broad sharing of the benefits of a more productive economy based on broad, although never all-encompassing, electoral coalitions.

What those coalitions can demand is public investments in human capital to make citizens productive contributors to the knowledge economy. The authors see that as the key to sustaining the mutually beneficial relationship between capitalism and democracy. “What ultimately makes democratic capitalism resilient in the face of technological change and the rise of the populist challenge is the continued expansion of education combined with opportunity in the advanced sectors.”

Even if the number of workers displaced by technology becomes very large, democratic politics could demand a new form of welfare state, not to pay people not to work, but to support them in meaningful forms of work that are not rewarded by the market. Maybe they could stay home and care for their children, and yet share the benefits of a high-productivity, automated society, because society agreed that they deserved to.


Democracy and Prosperity (part 2)

July 18, 2019

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In Democracy and Prosperity, Iversen and Soskice contrast the emerging knowledge economy with the system that preceded it in the mid-20th century.

The “Fordist” political economy

What many economists call the “Fordist” system was dominated by giant manufacturing corporations such as the Ford Motor Company. They performed a range of functions from “production to logistics and sales and marketing,” and usually had a very hierarchical structure of decision-making.

Assembly-line technology featured “strong complementarities in production between skilled and semiskilled workers. The companies needed large numbers of both, and either of them could obstruct production if they were well organized but dissatisfied. By the 1970s, unionization was at a peak in the advanced capitalist democracies, and so was “wage coordination,” the cooperation of large numbers of workers and companies in setting wages and working conditions.

Economic inequality declined during this period, as even workers with limited educations could quickly acquire the skills needed for many industrial jobs. Poverty declined, even for segregated racial and ethnic groups. “The Fordist economy was…by and large a force of integration and equalization of incomes across industries, skill groups, and geographic space.” The most advanced companies were concentrated in big cities, but peripheral areas often supplied them with materials or components for their products.

National governments helped organize and maintain the system. They supported the collective bargaining rights of labor. They provided a safety net of unemployment and retirement benefits, which gave workers a source of security in addition to short-term wage demands. They invested in public goods like infrastructure and education. They often engaged in Keynesian economic policies, using government spending to stimulate the economy and maintain low unemployment. It was a period of rapid economic growth and relative harmony among business, labor and government.

The knowledge economy

Much of this has changed since around 1980. Information and communication technologies have not affected all jobs equally, but have most easily substituted for routine semiskilled tasks. In some ways, this is a blessing, as such work was often deadly dull and uncreative. But, “As less-skilled workers became increasingly segregated into a growing tier of low-productivity service sector occupations–especially in low-end personal and social services–the complementarities between high- and low-skilled workers unraveled.” Inequality generally increased in advanced capitalist democracies, although with important variations to be discussed later.

New technologies can put a lot of computational power into the hands of individual workers, if they have the analytic skills to use it. In organizations of knowledge workers, decision-making becomes less vertical (hierarchical) and more horizontal (network-based), and relational skills also become more important. Knowledge workers benefit by participating in skill clusters, in which they can play specialized roles, and yet find other work within the cluster when and if a particular role is no longer needed.

These skill clusters are also embedded in larger social networks in which educated workers participate. “Big-city agglomerations” of knowledge are the “dynamic drivers” of the knowledge economy. They are usually places that already had a range of professional services and a strong university or two. Fordist-era cities whose prosperity rested on a single manufacturing industry, such as steel, have had trouble adapting, and many smaller cities have been left behind altogether. (Rapid transit between thriving cities and peripheral areas would help, but people who are already doing fine in the city may not have much incentive to support it with their tax dollars.)

The fact that education, urbanization and high incomes tend to go together increases the inequality among both households and places. Educated people live and work with other educated people, and also socialize with them and marry them, often forming affluent, two-income households. By clustering together, affluent households drive up the cost of good schools and housing in the successful cities, creating barriers to entry for the less educated.

The dynamic cities in the advanced economies of America, Europe and Asia compete with one another to attract capital and market their innovations. “Multinationals play a central role in tapping into multiple skill clusters and tying together complementarities of knowledge. The result is a major increase in multinational investment, trade and competition.

The “embedded knowledge”-based political economy

A central point of Iversen and Soskice’s argument is that knowledge within the knowledge economy is geographically embedded in innovative urban centers within the advanced democratic countries. That gives governments some power over activities that cannot easily be moved from where they are. It also gives them an incentive to support the knowledge sectors of their economies, for the good of the nations where they reside.

The availability of information and communication technologies does not automatically transform an economy. The authors believe that the Soviet Union collapsed partly because it resisted the decentralizing power implied by the new technologies. “It was felt necessary to maintain prohibitions on personal computers until the late 1980s.” The lesson to be drawn: “Without politically initiated reforms economies stagnate, even when they possess the necessary technologies and know-how.”

Beginning in the 1980s, advanced capitalist democracies made a number of “strategic choices” to promote the growth of their knowledge sectors. “Knowledge economies have been enabled by a different political economic framework from that which supported Fordism. We describe this framework as “embedded knowledge-based liberalism.” (In Britain and the United States, many of the leaders in this effort–Thatcher, Reagan–are known as conservatives, but they were working to liberate economic activity from what they saw as outdated restrictions. In that way, they were acting in the tradition of classical liberalism.)

Governments generally worked to reduce barriers to competition, free trade and international flows of capital. The authors measure this with an index of regulation covering eighteen regulatory domains, including such matters as trade barriers, differential treatment of foreign suppliers, and administrative burdens on creating new enterprises. The U.S. and Britain led the way toward competitiveness and away from protectionism, and the rest of Europe followed.

Governments also worked to transform the financial and insurance sectors, so that they went beyond their traditional financial products to provide more complex and customized services for knowledge workers and enterprises. Greater access to credit was important for new businesses, but also for workers following more complicated careers, with many changes in jobs, periods of schooling, and shifts in work/family arrangements.

Governments shifted their macroeconomic priorities from fighting unemployment to fighting inflation. One reason for this was the decline of unions and large-scale wage coordination, which had provided a degree of predictability and moderation to wage demands. A tight monetary policy was a more centralized way of curbing wage-price spirals. Another reason was to stabilize the exchange rates among national currencies for purposes of global trade and investment. Other countries would not be eager to invest in America if they couldn’t count on receiving their returns in dollars with a stable value.

And of course, governments continued to work for an educated workforce, again with important variations to be discussed later. Over the past twenty-five years, attainment of higher education has more than doubled in the ACDs.

Such policies have been most responsive to the needs of knowledge industries and knowledge workers, but less so to the needs of less-educated workers displaced or threatened by new technologies. “Unlike the Fordist economy, there is nothing that binds together the interest of the main social classes. A majority gains, and a small minority gains a great deal, but a large minority loses.” Whether that continues to be the case is an important question for the future.

Continued

 


Thank You for Being Late (part 2)

November 15, 2018

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Today I’ll discuss two chapters of Thomas Friedman’s Thank You for Being Late that I found especially insightful: Ch. 8 on the implications of new technologies for employment, and Ch. 9 on the problem of global order.

The future of work

Friedman begins his discussion of work with a bold pronouncement: “Let’s get one thing straight: The robots are not destined to take all the jobs. That happens only if we let them–if we don’t accelerate innovation in the labor/education/start-up realms, if we don’t reimagine the whole conveyer belt from primary education to work and lifelong learning.”

I was pleased to find that Friedman’s position is similar to the one I laid out in my critique of Martin Ford’s The Rise of the Robots Ford predicted a future of massive unemployment, with millions of displaced workers relying on government for a minimal income. We could get a taste of that during a transitional period, but I don’t think that’s a very good description of where we are ultimately headed.

Friedman doesn’t deny that smart machines can now perform many tasks currently or formerly performed by humans. But he makes a sharp distinction between automating tasks and automating whole jobs so as to eliminate the human contribution altogether. The upside of automation is increased productivity. Workers aided by new technologies can produce more per hour, reducing the unit cost of what they produce. That can create a larger market for the product, increasing the demand for labor in a given occupation. A car was an expensive luxury item before the assembly line cut costs to create a mass market and a booming industry. Friedman reports that “employment grows significantly faster in occupations that use computers more,” as in banking and paralegal work.

To give an example from my own experience, financial planning software has automated many of the most tedious tasks involved in preparing a retirement plan, such as mathematically projecting future income from savings rates and asset allocation choices. But that hasn’t resulted in a reduced need for financial planners. On the contrary, it has made the services of a planner affordable for more people. Planners can spend less time doing calculations but more time relating to their clients.

Friedman says, “Jobs are not going away, but the needed skills for good jobs are going up.” What are disappearing are well-paid jobs with only modest skill requirements, like twentieth-century manufacturing jobs.

Retooling education

In general, today’s good jobs require more education; yet it does not follow that a college education necessarily qualifies a person for a good job. That’s not because a liberal education is a waste of time, but because it is only a foundation that must be built upon with lifelong job-relevant learning.

Friedman quotes MIT economist David Autor, who stresses the need for more than one kind of learning: “If it’s just technical skill, there’s a reasonable chance it can be automated, and if it’s just being empathetic or flexible, there’s an infinite supply of people, so a job won’t be well paid. It’s the interaction of both that is virtuous.”

Friedman is a strong believer in a broad, basic education that includes “strong fundamentals in writing, reading, coding, and math; creativity, critical thinking, communication, and collaboration; grit, self-motivation, and lifelong learning habits; and entrepreneurship and improvisation….” Even a robotics enthusiast like Martin Ford acknowledges that humans surpass robots in general intelligence, as opposed to specialized task capabilities.

However, recipients of this basic education will also have to cope with rapidly changing workplace requirements. Technology will play a central role here, both in creating the automated systems with which workers interact, and in enhancing learning processes themselves. Friedman wants to “turn AI into IA,” by which he means turning artificial intelligence into intelligent assistance to support lifelong learning. “Intelligent assistance involves leveraging artificial intelligence to enable the government, individual companies, and the nonprofit social sector to develop more sophisticated online and mobile platforms that can empower every worker to engage in lifelong learning on their own time, and to have their learning recognized and rewarded with advancement.” When the time comes to pick up a new skill, you can probably find an app to help you learn it.

Friedman describes AT&T as one company that is demanding more lifelong learning of its employees, but supporting it with measures like tuition reimbursements, online courses developed in collaboration with online providers, and promotions for those who acquire new skills. This represents a new social contract between employer and employee–“You can be a lifelong employee if you are ready to be a lifelong learner.”

Every major economic shift has involved the rise of a new asset class, such as land in the agrarian economy and physical capital in the industrial economy. The rising asset class today is human capital, and that is where society’s investments must be increasingly concentrated.

The threat of global disorder

In the immediate aftermath of the Cold War, after the collapse of the Soviet Union, The U.S. remained the only superpower and the most obvious model for other countries to emulate. Many thinkers expressed the hope that the world could move faster in the direction of American-style democracy and capitalism. But then the interventions in such places as Iraq and Afghanistan failed to produce stable democracies, the Great Recession called into question capitalist progress, and Americans lowered their expectations for world leadership.

What Friedman calls the post-post-Cold War world is characterized by shrinking American power, especially in the Middle East, and new challenges arising from the accelerations in technological change, globalization and environmental degradation.  In large areas of the less developed world, the danger is that states will fail and societies will sink into disorder, dragging the global political order and economy down. Environmental disasters like deforestation in Central America or drought and desertification in sub-Sahara Africa are uprooting people from their traditional relationship to the land. And while some poorer countries are advancing by providing cheap labor to the global economy, the future may belong to those who can provide smarter labor, and that requires greater investments in human capital.

Friedman says that during the Cold War, superpower competition gave America a reason to assist developing countries, in order to keep them in our camp. The mid-twentieth century economic boom also gave us the means to do so. While many Americans are now inclined to turn their back on the rest of the world, Friedman makes a case for renewed global involvement: “While we cannot repair the wide World of Disorder on our own, we also cannot just ignore it. It metastasizes in an interdependent world. If we don’t visit the World of Disorder in the age of accelerations, it will visit us.” The dislocated people in failed states can become refugees or terrorists. The same technologies that can empower people to learn and produce more can empower them to build improvised explosive devices triggered by cell phones, or perhaps a weapon of mass destruction.

In Friedman’s view, the best thing the U.S. could do to “help stabilize the World of Disorder and widen the islands of decency” would be to help fund schools and universities. He would also like to see us help the poorest people make a living in their own villages by assisting them with their environmental problems. He points out that it costs only 100-300 dollars to restore a hectare of degraded land.

In a world of enhanced interdependence, the haves would do well to invest in the development of the have-nots, domestically and globally. If we do not rise together, we will very likely fall together.

Continued


Thank You for Being Late

November 13, 2018

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Thomas L. Friedman. Thank You for Being Late: An Optimist’s Guide to Thriving in the Age of Accelerations. New York: Farrar, Straus and Giroux, 2016.

This book is New York Times columnist Thomas Friedman’s latest reflection on social change–technological, global and environmental. The title refers to his experience of having someone show up late for an appointment, and then realizing that the extra few minutes provide a time for reflection in an otherwise busy day.

Friedman’s basic premise is that “the three largest forces on the planet–technology, globalization, and climate change–are all accelerating at once. As a result, so many aspects of our societies, workplaces, and geopolitics are being reshaped and need to be reimagined….In such a time, opting to pause and reflect, rather than panic and withdraw, is a necessity.”

Technological acceleration

In chapters 2 through 4, Friedman pulls together a wealth of examples to provide a fine overview of developments in digital technology. I can’t do justice to all the detail, but here are a few highlights.

Remarkable breakthroughs have affected all five of the basic components of computing:

(1) the integrated circuits that do the computing; (2) the memory units that store and retrieve information; (3) the networking systems that enable communications within and across computers; (4) the software applications that enable different computers to perform myriad tasks individually and collectively; and (5) the sensors—cameras and other miniature devices that can detect movement, language, light, heat, moisture, and sound and transform any of them into digitized data that can be mined for insights.

The result is “one of the greatest leaps forward in history.”

All this computing power is not just on a desktop or a laptop, but in the “cloud”, or what Friedman calls the computing “supernova”. The ability to tap into this universal information-processing capacity is deeply empowering to individuals, groups and organizations. The challenge is to use that power constructively and not destructively, for collective liberation and not just for domination or other selfish purposes. One downside is that technological innovation is occurring faster than “the average rate at which most people can absorb all these changes.” For example, we are not yet accustomed to the kind of lifelong learning that the information age will require.

Friedman also asks why it’s taking so long for technological change to raise economic productivity. In The Rise and Fall of American Growth, Robert Gordon argued that the extraordinary productivity gains of the “special century” from 1870 to 1970 are unlikely to be repeated. Friedman is more optimistic, pointing out that productivity gains from electrification took several decades to materialize. New factories and business processes had to be designed, and a new generation of managers and workers had to emerge. Many technological breakthroughs are far too new–a number of them emerged in 2007–to assess their effects on social institutions. I find it exciting to imagine a new era of rising productivity and wage gains, which might go a long way to alleviate class, race and gender tensions.

Global acceleration

Electronic connectivity is one of the main factors accelerating human interactions across vast distances. The total value of global flows of goods, services, and finance increased from 24 percent to 39 percent of world GDP between 1990 and 2014.

William H. McNeill, the historian noted for The Rise of the West, argues that “the principal factor promoting historically significant social change is contact with strangers possessing new and unfamiliar skills.” People may perceive such contacts as either a threat or an opportunity, but in the long run they provide societies with more solutions to human problems. Friedman believes that “those societies that are most open to flows of trade, information, finance, culture, or education, and those most willing to learn from them and contribute to them, are the ones most likely to thrive in the age of accelerations.” Although Friedman has little to say about the Trump presidency in this book, we know from his columns that he has little use for nationalism or isolationism.

Friedman does recognize that people whose lives are vulnerable to disruption by globalization will need help coping with this new world. “If a society doesn’t build floors under people, many will reach for a wall–no matter how self-defeating that would be.” Nevertheless, his chapter on globalization contains his most optimistic statement:

[I]f there is one overarching reason to be optimistic about the future, and to keep trying to get the best out of digital globalization and cushion the worst, it is surely the fact that this mobile-broadband-supernova is creating so many flows and thus enabling so many more people to lift themselves out of poverty and participate in solving the world’s biggest problems. We are tapping into many more brains, and bringing them into the global neural network to become “makers.” This is surely the most positive—but least discussed or appreciated—trend in the world today, when “globalization” is becoming a dirty word because it is entirely associated in the West with dislocations from trade.

Environmental/demographic acceleration

The human impact on the planet is increasing, as a result of both our dramatic population growth and our intensive use of the Earth’s resources.

Here Friedman is most concerned with global climate change, and he does not explain demographic trends as much as I would like. Human population growth accelerated especially in the twentieth century because of progress in reducing mortality rates, especially for infants and children. Just between 1900 and 2000, world population increased from 1.65 billion to 6 billion. Smaller families and declining birth rates have reduced the rate of growth somewhat, but the world population is now 7.7 billion and expected to add a couple billion more before leveling off.

A team of scientists specializing in Earth systems identified “nine key planetary boundaries we humans must make sure we do not breach.” Unfortunately, we have already breached four of them. We have put more carbon dioxide into the atmosphere than we should, if we want to hold average global temperature rise since the Industrial Revolution to 2 degrees Celsius. In some places, biodiversity is already below 90 percent of preindustrial levels. The portion of the earth’s original forests that remain has fallen below 75%. And we have been poisoning the earth by adding far too much phosphorus, nitrogen and other elements.

Other boundaries that we are currently staying within, but not by much, involve how much we are acidifying oceans, using freshwater, loading the atmosphere with microscopic particles, and introducing other novel entities into nature, like plastics and nuclear wastes.  One area where we are moving in the right direction is in restoring the thickness of the ozone layer that protects us against dangerous radiation.

Technological breakthroughs–especially in clean energy–are helping. But we also need to change our behavior more rapidly, in order to apply known solutions on a large enough scale.

Continued


Viking Economics (part 3)

June 28, 2017

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Even the wealthiest, most economically developed countries in the world face serious challenges in the years ahead. An important question for the future is whether a more egalitarian social system is an advantage in dealing with these challenges. If so, that makes the Nordic model even more relevant to current policy discussions.

Globalization

In much of the developed world, globalization has benefited capital more than labor, as global corporations profit by offshoring work to cheaper sources of labor. Nordic countries have a long history of global trade. Countries like Norway “lacked the extensive land, abundant resources, and large population that enabled countries like the United States and Germany to generate robust, internally driven economies.” But Nordic countries also have a strong commitment to high employment and good wages. Can they sustain that in the global economy?

One way of reconciling an openness to foreign trade with a desire to protect domestic workers is a policy of “flexicurity,” a Dutch concept that has become central to economic policy in Denmark. “The Danes changed the social contract between the state and the workforce. Instead of guaranteeing workers their existing jobs, the government would guarantee workers ongoing support and retraining so they could get new jobs.” By providing the universal services of education, training and a strong social safety net, Nordic countries help their workers cope with a world of enhanced foreign competition.

Although immigration is a controversial issue almost everywhere, Nordic countries have also had the confidence to extend economic assistance to newcomers. Both Norway and Sweden have about a 14 percent foreign-born population, even a little higher than the US’s 13 percent. Norway will support immigrants for a year while they learn the language and culture and receive job training. “Norway is ranked number one among the twenty-seven richest countries for its policies on migration: acceptance of asylum-seekers and refugees, open borders to immigrants and students from developing countries, and friendly integration practices.”

That is not to say that conflict between immigrants and natives is nonexistent. Sweden has experienced youth riots in immigrant neighborhoods, especially during the period after the mid-1980s, when it was cutting public spending and allowing inequality to grow. In general, however, Lakey believes the Nordic model goes a long way to reduce social conflict. While American-style inequality “institutionalizes scarcity,” making people of different races and ethnicities compete for too few opportunities, the Nordic model:

generously funds agencies and programs that assist people who otherwise might lack opportunity. It seeks out barriers to advancement, such as burdens of childcare and dependent elders, and tries to alleviate those to free everyone to move ahead. By universalizing such programs, as well as health care, vacations, access to public transportation, and other enhancements that otherwise can become racialized for disadvantaged populations, the model carefully avoids setting categories of people against each other.

Of course, doing all these things is costly. But who can calculate the social and personal costs of our failure to do them?

Climate change

As I have argued elsewhere, environmental issues highlight the tension between private gain and public cost. Fossil fuels provide profits for producers and cheap energy for consumers, but their market success depends on not factoring in the social and environmental costs of climate change and other environmental damage. Renewable energy will become cheaper and more profitable over time, but the government may need to put a big thumb on the scale to discourage what is publicly dangerous and encourage what is publicly good as quickly as possible.

Because Nordic countries are more receptive to market interventions for the public good, they have generally been leaders in national and international action on climate change. Sweden, Denmark and Norway were among the first to impose taxes on carbon emissions, back in 1991. Denmark has been a world leader in wind power, because of national policies like incentives to form local wind energy co-ops. In 2013, Sweden was already getting over half of its energy from renewable sources, compared to an average of 15% in the European Union and even less in the U.S.

Norway is in an awkward position on climate change, because oil accounts for almost half of its exports. How much of the Arctic oil reserves it can actually develop without unacceptable environmental damage is a vital but unresolved question. On the other hand, Norway’s large public pension fund has divested from coal, as well as from Canadian tar sands oil. Norway also doubled its carbon tax in 2012 because the government wasn’t satisfied with the country’s rate of emission reductions.

Automation

Lakey does not discuss the potential impact of automation on employment, but it is a challenge that is receiving more and more attention. I recently reviewed Martin Ford’s Rise of the Robots, which warns of a “jobless future” for millions of workers whose jobs are vulnerable to automation. Ford and others envision an expansion of public welfare programs to support the jobless multitudes.

Lakey has described Nordic countries not as welfare states, but as “universal service states.” They place a strong emphasis on helping people to become productive citizens with good jobs. Does that make them more or less prepared to cope with a more automated economy?

In Parts 2 and 3 of my discussion of Ford’s book, I described my somewhat different vision of the future, emphasizing the transformation of work rather than just the elimination of jobs. I have no doubt that robots will take over many tasks that they can do more efficiently than humans. But as in the transition from farming to manufacturing in an earlier time, I would hope to see human labor shifted to new frontiers of economic activity, especially in the area of skilled personalized services. I would also like to see the extension of the twentieth-century trend of shortening the typical work week, which would have the effect of spreading the available work to more people. As the twentieth-century experience showed, fewer hours is compatible with high pay as long as workers have the skills and the technological support to achieve high productivity. That in turn depends on the development of human capital, which requires broad access to education, health care and other human services, industries that both create jobs and equip people to get jobs. Since the development of human potential is a public good that not every family is able to pay for, a strong public role in such areas as health insurance is called for. There is also a role for non-market work–labors of love if you like–which can flourish when people have the leisure to balance their work and family responsibilities and participate in volunteer work.

Although I hadn’t read Viking Economics when I developed these ideas, the Nordic model seems relevant to everything on my list. The same “flexicurity” policies that reduce fears of globalization can also reduce fears of automation. If you lose a job, you can expect help in finding and qualifying for a new one. The Nordic work week is already shorter than ours. The universal services model is more conducive to the development of human capital, and citizens are already accustomed to paying high taxes to support it. Finally, “Thanks to an economic model that fosters work/life balance, people have abundant time to volunteer in the community.” It’s a way of life that compares favorably to the American system, where workers cling to technologically and environmentally obsolete jobs like coal mining because they expect little help to become something new. We can do better.