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Monday, June 12, 2006

The 'Creative Economy' and the Future of the American Worker Continued...

Ed Leamer reacts pessimistically to Richard Florida's essay  on the future of the American worker and Florida's belief that developing the "Creative Class" is the key to success in the global economy (Frank Levy's response to Florida):

Wealth and Power in the 21st Century, by Edward E. Leamer, Cato Unbound: For one such as myself, with a critical bent, it is disappointing not to find more with which to disagree in Richard Florida’s essay. In particular, I agree with Professor Florida’s first three points, though not the fourth. Here are the points of agreement:

  1. Compensation for work in the US is having, and will continue to have, an increasingly large “creative” component.
  2. The creative/innovative/talent-based jobs have historically been highly clustered geographically, and that clustering is not likely to be materially affected by the communications technologies...: the cell phone, e-mail, and the Internet.
  3. Talent is far from equally distributed, and as talent becomes a larger component of compensation, inequality will inevitably rise, and with that comes deeper and different schisms in social relations, politics, and culture.

With all that agreement, I think I can still find something useful to say: The word “creative” as used by Florida is an ambiguous term that I think to some extent takes us in the wrong direction, since in some ways it overstates the break from the past, and in other ways it understates the seriousness of the problems that lie ahead.

I prefer the word “talent” to suggest abilities that some of us have, but others don’t, and can never acquire. ... But first, we should understand that, in some ways, this isn’t new. The transfer of tasks from humans to machines is the foundation of the productivity advances that have turned a subsistence pre-industrial world into the bountiful reality enjoyed by those lucky enough to live in the developed, industrialized world today.

In the 20th century, it was the mundane repetitive manual tasks that were transferred to machines. While that process continues today, something new is happening: mundane repetitive intellectual tasks are being transferred to personal computers. ... When the transfer of tasks to machines or to computers occurs, what’s left for humans to do? That’s the critical question. ...

The computerization of mundane intellectual work ... is different from the mechanization of mundane manual work. I pose the problem by asking the rhetorical question: Is a personal computer like a forklift or a microphone?

Both the forklift and the microphone require operators, which creates work. But the kinds of operators are very different. ... Think about the forklift first. You might be a lot stronger than I, but with a little bit of training, I can operate a forklift, and I can lift just as much as you. Thus the forklift is a force for income equality because it eliminates the strength advantages some have over others. That is decidedly not the case for a microphone. We cannot all operate a microphone with anywhere near the same level of proficiency no matter what is the amount of training. Indeed, I venture the guess that I would have to pay you to listen to me sing, not the other way round...

The effect of the microphone and mass media has been to allow a single talented entertainer to serve a huge customer base and ... command enormous earnings. Thus, as opposed to the forklift, the microphone creates a powerful force for inequality. ... What I mean is that the ... forklift attenuates genetic differences; the microphone amplifies them.

A personal computer is both a forklift and a microphone. Clerks in McDonald's no longer have to be able to read or compute—they only have to recognize the picture of a hamburger... That’s the forklift. ... your intelligence advantage over me is eliminated by the computer, just as your strength advantage was eliminated by the forklift. But for many other operations it matters enormously who types on the computer. One example is computer programming. The vast majority of people are incapable of producing commercially viable computer code. That’s the microphone. It amplifies your natural advantages.

Computer technology may be taking us into a future where there are a few very talented, very well-paid people, and the rest of us are doing the mundane computer-assisted tasks which don’t require us to read, write, or even think very much. Just push the right button now and then.

Thus the information revolution may be a powerful force for income inequality by raising the compensation for natural talents and also the interaction between talent and training. It is the interaction between talent and training that is particularly difficult to deal with. If talent and training had additive effects on earnings, then compensatory education for the disadvantaged could be a low-cost solution for income inequality problems. But if training is much more effective for the talented, the talented will naturally receive more of it, and the amount of compensatory training that is needed to equalize incomes may be enormous and a great social waste—think of me and Pavarotti.

Thus I disagree with the entirely optimistic tone of Professor Florida’s essay. I also disagree with his fourth point:

  1. The geography of wealth globally is being driven by the increasing role of talent in the production process.

Most of the growth in the developing countries, including China, comes from old-style manufacturing... The geographic concentration of growth along the coast of China is not something new at all. It parallels the geographic concentrations created in the Industrial Age in which a very large fraction of GDP originated within 100 miles or less of major waterways...

Better, I suggest, to think of there being two distinct forces that are changing the economic landscape. (1) The economic liberalizations in China, Mexico, Brazil, Indonesia, Russia, India, and so on have created huge arbitrage opportunities that allow the transfer of mundane manufacturing from the high-wage countries of North America and Europe. (2) The United States, Japan, and Northern Europe can no longer rely on growth in manufacturing and are stumbling into a post-industrial age. The nature of that age is being fundamentally altered by the personal computer and the Internet.

    Posted by on Monday, June 12, 2006 at 02:06 PM in Economics, Income Distribution, Unemployment | Permalink  TrackBack (0)  Comments (11)

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