Dani Rodrik on Building a Good Jobs economy
Conventional models are failing throughout the world. In the developed world, the welfare state compensation model has been in retrenchment for some time, and the drawbacks of the neoliberal conception that has superseded it are increasingly evident. Yet there is no compelling alternative on offer. In the developing world, the conventional, tried-and-tested model of industrialization has run out of steam. In both sets of societies a combination of technological and economic forces (in particular, globalization) is creating or exacerbating productive/technological dualism, with a segment of advanced production in metropolitan areas that thrives on the uncertainty generated by the knowledge economy co-existing with a mass of relatively less productive activities and communities that neither contributes to nor benefits from innovation. The sizes of these two sectors and the trajectories leading into them may vary, but otherwise the nature of the underlying problem seems to have converged in the developed and developing worlds.
This productive/technological dualism is in turn responsible for many of the ills these societies face: inequality, exclusion, spatial/social segmentation, loss of trust in elites/governments/experts, the populist backlash, and authoritarian politics. Left to their own, globalization and new technologies look likely to aggravate these divisions and the pathologies that flow from them.
Much of our policy conversation today focuses on solutions that elide the true source of the problem. Ex post redistribution through taxes and transfers accepts the productive structure as given, and merely ameliorates the results through handouts. Investments in education, universal basic income (UBI), and social wealth funds seek to enhance the endowments of the workforce, without ensuring productive integration. The same broadly speaking can be said about the Keynesian approach to job creation, through aggregate demand management. Keynesianism aims at static efficiency — closing the gap between actual and potential output where the potential output is fixed enough to be precisely calculable. Dualism entrenched enough to shape long-term growth expectations — just the kind of structural deformation of the economy that most concerns us — cannot be addressed by demand management, short, perhaps, of mobilization for war. Though lax enforcement of anti-trust laws may have contributed to the concentration of industry in recent decades, and exacerbated inequality by allowing oligopolists to increase their markups or use monopsony power in labor markets to drive down wages, redress through a new round of trust busting is at best a very partial solution to the larger problem, and then only in the long term.
What we seek to explore here is a set of interventions by the public sector — or its delegated agencies — directly in the productive sphere, and in direct collaboration with the most productive segments of the private sector. These interventions are targeted at expanding productive employment opportunities by supporting firms and workers in their efforts to acquire and extend the capacities needed to participate in the dynamic sector of the economy. We call it a strategy of “building a good jobs economy.” Publicprivate collaborations are at the heart of this strategy. Our focus is on the design principles needed to govern these collaborations. Such principles do not need to be invented from scratch. We argue that they can be borrowed from existing innovative governance arrangements firms, regulators and other public agencies have already developed in response to the market and technological uncertainties they face. These arrangements have not been typically deployed in pursuit of good jobs, but they can be adapted to that end.
We proceed as follows. First, we argue that the shortfall in “good jobs” can be viewed as a massive market failure — a kind of gross economic malfunction, and not just a source of inequality and economic exclusion. Next, we make the case that this problem cannot be dealt with standard regulatory instruments such as Pigovian subsidies. Pervasive uncertainty, dependence on differentiated local conditions, and the evolving nature of the goals call for a high-dimensional policy space and an iterative model of strategic collaboration between private actors and the state. We illustrate the organizational framework we have in mind using examples from two analogous policy domains where the principles are already in application: fostering of advanced technologies (DARPA and ARPA-E) and environmental regulation of (dairy farming in Ireland). We then sketch out how these ideas can be applied to the specific domain of good jobs.
The question now is: Where exactly should we invest our public dollars, with a view to generating new technologies that will create good jobs? The United States is a big country, and there is an argument for supporting as much science as possible — with a large, diversified portfolio, we are more likely to generate a larger number of winners. Still, the available dollars will never be unlimited — and choices need to be made.