The job numbers for May were bad; the economy created a mere
69,000 jobs. Even before the Great Recession, the American economy struggled to
create jobs. In the four decades from 1960 to 1999, it had created an average
of 2.5 million jobs per year. In the first decade of this century, it averaged
job losses of 100,000 per year.
Throughout the West, the policies of liberal and conservative
administrations are ineffectual. In the United Kingdom, Conservative Party PM
David Cameron made bold moves to reduce the deficit by simultaneously cutting
spending and raising taxes. In response, the UK’s recession has begun its
second dip. By contrast, Obama has managed to squeeze through a variety of
stimulus measures, cutting taxes and raising spending since he has taken office.
While the US economy has done better than the UK, it continues to falter between
full recovery and recession. France has just replaced one of its most
conservative presidents of recent times with a socialist and this month posted
its worst job numbers of the new century. With few exceptions, the West is doing
as poorly at job creation as it has during any time since the Great Depression.
While it seems absurd to claim that these economies would create
more jobs if only government spending were slashed, it is still true that
government spending and tax cuts have been more effective at creating debt than
jobs.
Jim Clifton, Gallup Poll CEO, in his new book The Coming Jobs War, claims that their
polls suggest “demand” for about 3 billion formal jobs around the globe but supply
of only 1.2 billion. That is, worldwide, we’re short jobs by about 1.8 billion.
During the last century, we changed our economy so that it began
to produce a quantity, quality, and variety of products that had scarcely been
imagined in the past. It is possible to again change our economy so that it is
able to do a similar thing with the creation of jobs, but this will require
different strategies.
What if we’re in a new economy, one as different from the
information economy in which we grew up as that was from the industrial economy
before it? What if central banks really are doing all they can – and still it
is not enough? What if governments are already teetering at the edge between
the need to limit debt and stimulate the economy? What if it is not the policy failure
of states or banks that has led to such anemic rates of job creation? What if
the problem is that a new economy is demanding a change of corporations that is
as significant as the change demanded of states during the transition into our
industrial economy, or of banks during our transition into the information
economy? What if communities have been holding governments accountable for
failures of corporate policy?
There are only four things that factor in the creation of
economic value: land (or natural resources), capital, labor, and
entrepreneurship. All economic value is created by some mix of those four and
it seems that our first three economies have been led by the first three
factors. Since the Dark Ages, the West has gone through three distinct
economies: the first, agricultural economy was led by land, the second,
industrial economy was led by capital, and the third, information economy was
led by knowledge workers, or labor. Communities that did the most to create
capital and get the most from it – whether from innovations in financial
markets or factories – led during the second, industrial economy. Communities
that did the most to create knowledge workers and make them productive – whether
from innovations in education and management or information technology – led during
the third, information economy.
Economy
|
First - Agricultural
|
Second – Industrial
|
Third - Information
|
Fourth - Entrepreneurial
|
Limit
|
Land
|
Capital
|
Knowledge Workers
|
Entrepreneurship
|
Period (roughly)
|
1300 – 1700
|
1700 – 1900
|
1900 – 2000
|
2000 - 2050
|
Institutional Revolution
|
Church
|
State
|
Bank
|
Corporation
|
Defined anew for the West
|
Religion
|
Politics
|
Finance
|
Business
|
Now, it seems, we have access to resources – or land - anywhere
on the globe, capital sums in the trillions, and a steady stream of university graduates.
And yet economic growth is slow and job creation rates are anemic. It might
just be that the good and bad news is that our economy has developed to the point
that its limit has once again shifted. It seems that our economy has developed
to the point that it is now limited by the most advanced of the four factors.
The limit to this fourth, entrepreneurial economy is entrepreneurship.
There are many implications to a new economy. For one thing,
these new economies have forced a transformation of the dominant institution.
The third, information economy, for instance, required a massive
change to the bank. Capital that was scarce during the second, industrial
economy was treated as plentiful rather than scarce during the third. Debt
everywhere – on corporate balance sheets, in credit card balances, for
mortgages, and for government spending – rose and brought the economy along with
it. After about 1900, what limited progress was knowledge workers and the trick
to prosperity was to create knowledge workers and keep them employed – even it
if doing that required creating debt. The bank that, in the 19th
century, reserved access to credit and investments for an elite few became a
retailer to the masses, offering mutual funds and credit cards to households
from every class.
Universities, too, greatly expanded. In 1900, less than 5% of 14
to 17 year olds were enrolled in formal education; by 2000, less than 5% of 14
to 17 year olds were not enrolled in
formal education, this being one obvious key to creating knowledge workers.
Corporations and governments both grew spectacularly during the
third economy, for much the same reason. Knowledge workers are specialists and
rarely create value working alone. Corporations and bureaucracies are home to the
knowledge worker, letting the architect and computer programmer create value as
part of teams. The rise of the knowledge worker was coincident with the rise of
the corporation.
The model of the last century for economic progress and job creation
has been – in retrospect – fairly simple. Pump capital into the expansion of
organizations, creating larger government agencies and corporations, places
where knowledge workers work. Educate an increasing portion of the work force
to prepare them to become knowledge workers, with majors as varied as
engineering and advertising. Give these new knowledge workers increasingly
better information technology – from telegraph to typewriters to fax machines
to computers to smart phones. Once you’ve done all this, stand back and watch innovation
and growth follow.
But what happens when the next innovation in information technology
does as much to distract as inform knowledge workers? What happens when
corporate or government bureaucracy is no longer the best way to coordinate the
efforts of knowledge workers? What happens when debt in every sector –
households, corporations, and governments – becomes excessive? And what happens
when universities create more knowledge workers than companies can employ? What
if knowledge workers and the innovations they require no longer limit progress?
What if the new limit to progress is entrepreneurship?
Knowledge workers did not just suddenly appear in 1900. If we
define knowledge workers as people who manipulate symbols, like blue prints,
computer code, and accounting ledgers, rather than things, then we’d had
knowledge workers for centuries. But starting in about 1900, their portion of
the work force began to rapidly rise. Knowledge work was not created in the
third economy but it was popularized. The same will be true of entrepreneurship
in the fourth economy.
Entrepreneurs are not new to this emerging, fourth economy. What
will be new is the notion that more employees should be more entrepreneurial,
the notion that entrepreneurship should be popularized beyond an elite few. Knowledge
workers within corporate or government bureaucracies were given roles which
they have been expected to execute well. As communities make more employees
more entrepreneurial, knowledge workers will act a bit more like CEOs – working
with the primary aim of creating equity, secondarily involved in the creation
of new processes, systems, products, and jobs.
Entrepreneurs create wealth and jobs. Two of the biggest
problems we have in the West today are an excess of debt and a shortage of jobs.
More employees becoming more entrepreneurial will reverse both of those
problems.
The fourth economy will probably – but not necessarily – emerge in
three phases. In the first phase, companies will change their policies and
begin to use their hordes of cash to fund more entrepreneurial activities by
their employees, expecting employees to not just make products but to make
actual business units, to create equity. In the next phase, social
entrepreneurs who have created and transformed non-governmental organizations
and non-profits will begin to create and transform government agencies. In the
third phase, expertise and fluency gained by the popularization of entrepreneurship
will be extended into broader swaths of social invention, driving changes in
education, work, government and communities in ways that would be as hard for
us to imagine as it would have been for those in 1900, at the dawn of the
popularization of technological invention, to imagine the myriad products that
would be created in that century.
Communities that continue the extraordinary rise in incomes and
prosperity that we’ve experienced during the last few centuries will popularize
entrepreneurship in the same way that they popularized knowledge work in the
last century.
CEOs would leave a community that defined and regulated their
roles, possibilities, and income as much as they do for their employees. That
is, the community they’ve created within their corporations is typically vastly
different than the communities they choose to live in. It is less obviously government
policies that are stifling entrepreneurship, growth, and innovation than
corporate policies. And corporations are among the largest economies in the world,
making up between one third to two thirds of the 100 largest economies. (Wal-mart
sales are greater than the GDP of Sweden or the Philippine, for instance.) And
while millions of Americans make more than what we pay our president, not a
single employee within any Fortune 500 firm makes more their CEO. The
corporation has to create more opportunities for entrepreneurship for its
employees, institutionalizing entrepreneurship, or social invention, in this
century in the same way that it institutionalized technological invention in
the last century. And once more employees become more entrepreneurial, our
problem will not be that we’re not creating enough jobs; that may become the least
of our problems.
If it is true that we’ve entered a fourth, entrepreneurial
economy, it is worth remembering one of the lessons of history: the communities
that adapt to these new realities first will prosper the most. We have nothing
to lose but our unemployed.
Ron Davison lives near San Diego and is a business consultant who
has worked with some of the world’s largest corporations. He is the author of The Fourth Economy: Inventing
Western Civilization.