07 November 2011

The Simple, but Sweeping, Answer to the Question of How to Create More Jobs

We can continue to try repairing the old economy or we can create a new one.

Financial crises, stagnant wages, persistently high unemployment, protests, and growing government deficits coinciding with a loss of government jobs are all legitimate problems in their own right, but they are more likely symptoms of something deeper. We’re living into one of the four biggest economic transitions since the Dark Ages.

Since about 1300 CE. a pattern of social invention and revolution has created three economies:  an agricultural, an industrial, and an information economy. And that pattern is now repeating to create a fourth, entrepreneurial economy.

These changes we’re experiencing are different from normal business cycles. This is bigger.

The last shift in the West – beginning around 1900 - took us from an economy led by advances in capital to one led by advances in knowledge work, a transition from an industrial to an information economy.

Progress from about 1700 to 1900 came from dramatic increases in capital: steam engines, factories, stock and bond markets, and banks were invented or recreated and the communities that increased capital the most advanced the most.

Progress from about 1900 to the present followed from the rise of knowledge workers: inventions like the modern university and corporation, and radical advances in information technology helped to create an information economy in which companies making virtual products often became more valuable than those making “real stuff.” Communities that ignored the question of how to create more knowledge workers and make them more productive, and just focused instead on capital, were left behind. When the limit shifts so must the focus.

The emergence of each new economy has forced a revolution in the dominant institution. This is no small thing. The power of elites over the institution is dispersed outwards. People once used as tools by the institution begin to use the institution, instead, as a tool. “We are all priests!” Martin Luther declared, overturning the notion that religion was something to be defined by the pope. The first economy, from about 1300 to 1700, was catalyst to the Protestant Revolution. The second economy, from about 1700 to 1900, brought us democratic revolutions. The third economy, from about 1900 to 2000, democratized finance as knowledge workers’ pension funds and 401(k) funds came to define investment markets.

This new fourth economy will likely transform the corporation – today’s dominant institution - in similar ways. Most obviously, the role of the employee will become more like that of an entrepreneur.

The simple, but sweeping, answer to the question of how to create more jobs is that we need to become more entrepreneurial. The question of how we become more entrepreneurial will first be answered within the corporation. 

Depending on how one measures it, corporations make up between one third to two thirds of the 100 largest economies in the world, yet very few of them encourage entrepreneurship.

Developed countries are considered lands of opportunities where people can expect to make more than heads of state. (About 6 million Americans make more than Obama.) By contrast, corporate employees are about as likely to make more than the CEO as past citizens of Iraq, Libya, or 17th century France were to earn more than Saddam, Kaddafi, or Louis XIV. Such restraints to opportunity and autonomy suggest huge gains could follow from democratizing corporations and creating more entrepreneurial opportunities for the employees within them.

Our media and attention is fixated on political – and sometimes financial – changes we could make to create jobs, but it may turn out that such changes are merely incidental to the scope of the changes needed within corporations.

Despite initial appearances, we’re living in a time of incredible opportunity. Shifting our focus to overcoming the limit of entrepreneurship will mean advances as dramatic – and at times as disorienting – as those of the last three economies. (And if you’re a student of history, you realize how very dramatic that is.) An entrepreneurial economy is ready to emerge. Millions of new jobs depend on today’s communities redefining the corporation as dramatically as past communities redefined church, state, and bank. The fourth economy is ready to emerge but it’s not something we’ll see as long as we stay focused on trying to repair the third economy.

Ron Davison has consulted to some of the world’s largest corporations and is author of The Fourth Economy: Inventing Western Civilization, available on amazon.com. 


Dave said...


Great insights. I hate to be "that guy", but I've been thinking along these same lines in regards to the direction of the economy. I wonder if you agree that the emerging economy will see much more traditional entrepreneurship in addition to more entrepreneurial behavior within large corporations?

I view it as a virtual certainty, interested to hear what you think.

(Also my deepest apologies because I imagine the answer is in the book, but I requested it for Christmas and so haven't read it yet)

Ron Davison said...

Dave - I think that you're absolutely right that traditional forms of entrepreneurship need to be encouraged more. For instance, I've argued here in the blog for subsidizing the cost of compliance with Sarbannes Oxley (sp?) for IPOs. But I do think that the strategies that will differ the most from what we've already seen in successful communities will be the approach within corporations. And I think that any time you change the dominant institution, the changes are bound to ripple into every other sector of society - education, government, NGOs, etc.

Dave said...

Makes sense... Looking forward to the book!

Thomas Alice said...

The only thing I'd change is that I'd remove the phrase "If I'm right." Since it's clearly an opinion piece, it's extraneous.

I think it's ready to be shopped around for a publisher!

Lifehiker said...

As I loitered outside my motel room Tuesday night, I chatted up a guy in work clothes smoking a cigarette. "Why are you here", I asked, and a long conversation ensued. The synopsis is that his brother invented a plastic "paint", impervious and very smooth, which is perfect for coating the walls of clean rooms (e.g., those of food processing plants and pharmaceutical plants) which must be constantly disinfected. Business is booming! One more great example of Ron's contention that increasing entrepreneurship is the answer to our economic problems. You'd think that some big corporation would have thought of this, but now a big corporation will simply be a licencee.