Creative Class

I’ve had my share of tiffs with David Brooks, but he nails this one:

Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America. There already is a long line of lobbyists bidding for federal money. If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler? …

If ever the market has rendered a just verdict, it is the one rendered on G.M. and Chrysler. These companies are not innocent victims of this crisis. To read the expert literature on these companies is to read a long litany of miscalculation. Some experts mention the management blunders, some the union contracts and the legacy costs, some the years of poor car design and some the entrenched corporate cultures … A federal cash infusion will not infuse wisdom into management. It will not reduce labor costs. It will not attract talented new employees. As Megan McArdle of The Atlantic wittily put it, “Working for the Big Three magically combines vast corporate bureaucracy and job insecurity in one completely unattractive package.”

Michael Lind argues that the United States is embarking on its fourth great political (and economic) cycle (h/t Jerry Mayer).

The election of Barack Obama to the presidency may signal more than the end of an era of Republican presidential dominance and conservative ideology. It may mark the beginning of a Fourth Republic of the United States. In the past generation Bruce Ackerman, Theodore Lowi and I, in different ways, have used the idea of “republics” to understand American history… As I see it, to date there have been three American republics, each lasting 72 years (give or take a few years). The First Republic of the United States, assembled following the American Revolution, lasted from 1788 to 1860. The Second Republic, assembled following the Civil War and Reconstruction (that is, the Second American Revolution) lasted from 1860 to 1932. And the Third American Republic, assembled during the New Deal and the civil rights eras (the Third American Revolution), lasted from 1932 until 2004…

[W]hat causes these cycles of reform and backlash in American politics? I believe they are linked indirectly to stages of technological and economic development. Lincoln’s Second American Republic marked a transition from an agrarian economy to one based on the technologies of the first industrial revolution – coal-fired steam engines and railroads. Roosevelt’s Third American Republic was built with the tools of the second industrial revolution – electricity and internal combustion engines. It remains to be seen what energy sources – nuclear? Solar? Clean coal? – and what technologies – nanotechnology? Photonics? Biotech – will be the basis of the next American economy. (Note: I’m talking about the material, real-world manufacturing and utility economy, not the illusory “information economy” beloved of globalization enthusiasts in the 1990s, who pretended that deindustrialization by outsourcing was a higher state of industrialism.)

Naturally, the Americans alive during the founding of new American republics have other issues on their minds. The Civil War was fought over slavery, not steam engines, and the New Deal, for all of FDR’s commitment to nationwide electrical power fed by hydroelectric dam projects, was animated by a vision of social justice. The broad outlines of technological and economic change merely provide the frame for the picture; the details depend on the groups that emerge victorious in political battles.

That is why it is too early to predict the outline of the Fourth American Republic. Its shape depends on the outcomes of the debates and struggles of the next generation. But it is possible to speculate about its life span. If the pattern of history holds, the Fourth Republic of the United States will last for roughly 72 years, from 2004 (or, if you like, 2008) to 2076. And if the pattern of the past holds, we will see a period of Hamiltonian centralization and reform between now and 2040, followed by an approximately 36-year long Jeffersonian backlash motivated by ideals of libertarianism and decentralization.

And even if I am right that the new era began four years ago, historians are likely to identify the first president of the Fourth Republic of the United States as Barack Obama, not George W. Bush. Obama may join Washington, Lincoln and Franklin Delano Roosevelt on the short list of American presidents who, thanks both to their own leadership and the fortuitous timing of their elections, presided over the refounding of the United States. Yes, he can.

This is an intriguing formulation. But I think the breakpoints are confused and the time-lines or cycles longer. FDR’s time was one of a maturing and fairly well-understood period of industrial capitalism. While the Depression was deep and devastating, one could already see that demand stimulating via higher wages, infrastructure building, and home ownership were key building blocks for economic realignment and stimulation.

Today is much more like the mid-19th century and the time of Lincoln – the rise of a wholly new economic system and the large-scale class divides it produced. It is very difficult to even imagine the broad infrastructure or system architecture required to propel this emergent system of idea-driven, creative capitalism.

One thing is for certain: The old era will have to give way before the new era can take shape. The rise of industrial capitalism required a revolution in agricultural productivity and the mass shrinkage of farm-based employment. Remember Herbert Hoover’s mantra – “a chicken in every pot and a car in every garage.” Food had to become cheap to free up consumption and demand for cars and industrial products. The revolution in agriculture freed up capital and labor that could be redeployed in then expanding industrial economy.  The rise of single-family home ownership and the auto-oriented suburb then closed the consumption circuit of Fordism.

Building the next economy and a new republic will require a similarly fundamental transformation of the core sectors of Fordism. This is more than creating new technology and building a new green infrastructure. We will need to massively shrink the cost for consumption of houses and cars.

The new system will be unable to emerge if people are spending the overwhelming amount of their incomes on housing (mortgages plus maintenance, utilities, taxes) and auto-expenses. To do so, we will need to make the housing system much more flexible, massively increase the productivity and efficiency of housing production (I’ll be writing more on this soon), and enable people to become far less dependent on cars. Only this kind of massive shift in the underlying architecture of society will free up sufficient income and demand for the next new things and enable us to begin to build the new infrastructure which can set innovation and economic growth on a new trajectory. Who in the Obama administration is even thinking along these lines?

The clock of history is always ticking. Eventually, the place or places that can set in motion this shift will accure first-mover advantages similar to those that the U.S. gained in the late 19th and 20th centuries. Can this happen in the U.S.? Can Obama help catalyze this broad shift, or are we still too early in the historical process? What about entrenched U.S. interests – the insitutional rigidities the late Mancur Olson wrote about – can they be overcome and recast? Washington remains locked in a conversation which entails propping up the Fordist economy – a housing finance bailout, an auto bailout, a homewner bailout – when instead what is needed is to free up capital from these sectors and massively redeploy it into others. And if not the U.S., where and when might this happen? How long will it take?

Civic Analytics ponders the questions and crunches the numbers.

Kevin Drum hits on a fundamental shift (via Andrew Sullivan):

Despite all the grief she’s gotten, I continue to think that the selection of Sarah Palin as John McCain’s running mate represents the breaking of a consensual cultural barrier far more fundamental than most people realize. … She was chosen purely at the level of celebrity, and an awful lot of people seemed to be just fine with that.

I fear he’s right.

Say it ain’t so… please ,someone. Bloomberg is reporting.

President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers and appoint a czar or board to oversee the companies, a move that would require President George W. Bush’s support, people familiar with the matter said. Obama’s economic advisers are now convinced that if General Motors Corp. doesn’t get a financial lifeline soon, it will have to file for bankruptcy by the end of January. And if the companies don’t get almost $50 billion, Obama will be dealing with the issue again by next summer. Any czar or board would be patterned after the bailout of Chrysler in 1979 and New York City in 1975. Advisers such as former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Lawrence Summers are said to be telling Obama that the cash is urgently needed now.

Congress would have to act in a lame-duck session that begins next week. Obama would need Bush’s backing to pass such a sweeping and costly measure in part because Democrats don’t have enough votes to force a floor vote or override a veto. Obama also would need strong support from auto-producing states such as Michigan, Ohio, Indiana, Illinois and Wisconsin to pass such a sweeping and costly measure. Yet to be determined is whether most of the money would be drawn from the $700 billion financial rescue package Congress passed last month or from newly allocated funds.

By injecting himself into the talks about how to save General Motors, Obama is making an exception to his decision to steer clear of policy-making until he takes office. The president-elect also wants the Federal Reserve to extend emergency loans to General Motors, Ford Motor Co. and Chrysler LLC, according to Obama aides who spoke on condition of anonymity. The failure of those companies would likely bring down parts-makers, dealerships and suppliers in addition to inflicting a deep psychological blow.

Is this really true? A multi-billion dollar bailout for the Big Three whose management has systematically squandered away a huge post-war economic and technological advantage, have misunderstood their markets, who have blamed workers every chance they get, and who failed to learn from their rivals and refuse to harness the creative capabilities of workers. An auto czar – huh? I thought Obama was elected by a combination of African-Americans and the creative class. How does this square with his electoral coalition or his vision of a better future? This will just forestall the inevitable. Why not just allow them to be taken over by Japanese car companies like Toyota and Honda who could truly restructure them? For the life of me and the good of the country, I hope this report is wrong.

Mark Cuban, over at the Huff Post, takes Obama to task on his old guard economic team:

It’s great to see President-elect Obama aggressively taking on the economy prior to his taking office. Unfortunately, the economic advisory team that he has put together looks more like a semester’s worth of great guest speakers for an MBA class than an economic advisory team that can truly help him… Notice anything missing?  Not a single entrepreneur.

Richard Florida was one of Donny Deutsch’s featured guests – aka big thinkers – on his CNBC Collaboration Now series which aired on November 9. Beginning with a brief definition of the Creative Class, they went on to discuss how collaborative tools, technologies, and approaches inspire economic growth into the future.

Watch the show here.

The Economist reports on new World Bank research on the economic power of urbanization and of cities:

[N]ew research published by the World Bank in its annual flagship World Development Report suggests that pessimism over the future of huge cities is wildly overdone. The bank argues that third-world cities grow so big and so fast precisely because they generate vast economic advantages, and that these gains may be increasing. Slowing urbanization down, or pushing it towards places not linked with world markets, is costly and futile, the bank says. At a time of contagion and bail-outs, the research also reaffirms the unfashionable view that the basic facts of geography – where people live and work, how they get around – matter as much as financial and fiscal policies…

So one answer to the question – why are third-world cities so big? – is that they are not in relative terms all that large. But another answer, suggests the World Bank, is that they are big because they do an economic job that is becoming more, not less, important…

Cheap transport in the past 25 years has produced a second sort of trade revolution. Countries now sell each other not final products like port but intermediate ones such as recording heads for hard drives. That has been made possible by an extraordinary fragmentation of production: every step in the production line is broken down. Parts are made separately, then shipped for assembly.

In some ways, this specialization and concentration of manufacturing seems strange: if parts can be made anywhere, it might appear more efficient to make them in the middle of nowhere, where land is cheapest. Yet factory owners like to cluster together because of the concentration of skills, as well as infrastructure, that cities offer. Workers with particular competences migrate to places where those skills are in demand – and all the businesses that need those skills benefit. Consumers, naturally, appreciate cities because it is easier to shop where goods are available in one place. And business services (banking, insurance, consultancy) cluster round the honeypot…

For poor countries, the key to development is to link up flagging and fast-growing regions. To do that, governments often overemphasize policies targeted on particular places. In practice, there are more powerful instruments of integration than “spatially targeted” efforts – e.g., land markets that unify all places, or infrastructure that connects some places to others. Growth, says the bank, is inevitably lumpy. Governments must learn to like it.

The full report is here.

BusinessWeek’s Michael Mandel writes:

[W]hat if the Bernanke-Paulson view is wrong? What if financial stress is a symptom, not a cause? What if we face a wrenching readjustment of the global real economy rather than a crisis of confidence rooted in the financial system? What if Bernanke and Paulson are treating the wrong problem? What if investors, realizing that their long held assumptions about the global economy are wrong, are rationally bailing out of stock markets in almost every country, at least for now?

In fact, there’s good reason to believe that the current crisis reflects a growing realization: Long accepted patterns of cross-border technological transfer, foreign trade, and global finance are simply not sustainable… You can’t pay back rising debt with falling wages; something had to give. The first thing that broke were subprime mortgages, given to less creditworthy borrowers. But once investors started to look, they realized that the entire global edifice was built on an impossibility… That’s why the financial crisis has spread across the globe. Investors are peering at every country, from Kuwait to Korea, asking the question: Is it sound enough to survive if American demand for imports falls? The problem is in the structure of the global real economy, not the financial system.

He’s got a point.

Ottawa’s 2009 municipal budget was just released, and the arts, culture, and heritage community is reeling. After realizing that the city would require an either $59 million decrease in spending or increase in revenue, Mayor O’Brien brought out the axe. It is not surprising that in a budget where the words ‘arts’ and ‘culture’ can be found less than 10 times respectively, buried on page 52 is a 42 percent cut to all arts, culture, and heritage investments as well as a complete retraction of festival and event investments.

A close inspection of the budget reveals that the “adjustment to cultural services” is the most expansive, and highest impact (in terms of dollars) single-cut of anything offered in the 5-part Options for Reduction or Revenues package, other than adjusting underperforming bus routes. Yet while the rationale concerning the transit cuts enjoys a 5-page deliberation, the rationale for “Adjustment to existing services” – the category under which the arts, culture, and heritage cuts are relegated – is breezed through in less than a page, the final paragraph of which is:

All of the services identified for adjustments may be considered essential to individuals or specific groups in the city. However, compared to the multitude of services and programs the City provides, these proposed adjustments do not seriously impact the functioning of the city, nor do they compromise general public safety.

As a member of the Arts and Culture community in Ottawa, and author on this website, my opinion on the cuts won’t shock you. For all of the reasons that thinkers like Richard, Charles Landry, and Glen Murray have espoused, these cuts are a bad idea. The budget-in-question never once profiles the region’s rich cultural economy, nor does it consider expansion of its cultural industries in any of its economic forecasting, or leveraging the momentum that it’s been building within the global festival community. For having such an uninhibited willingness to cut arts, culture, and heritage investments, there doesn’t seem to be as great an effort from the city to understand arts, culture, and heritage contributions in any nuanced kind of way. One page certainly doesn’t do them justice. This kind of cut may save in the short term, but if money is the only currency being considered then the city is doomed to waste a lot of it.

To workers in the affected areas within the cultural industries: how can these challenges be overcome with a positive net impact on the arts, culture, and heritage sectors? Another sector that is getting hit hard by cuts is housing – they are facing similar questions. Feeling the pinch of restricted access to debt markets more than most, social enterprise models are becoming increasingly employed to generate capital in the housing world. Can the city and these arts, culture, and heritage bodies work together to leverage the currency and momentum that they already have into shared and re-invested profit? How do we encourage a modicum of cultural planning in our municipal budgets? Could budgets like these bring about a shift in the way that the arts, culture, and heritage are financed in general?

And now, as always, some music.