May 2 (Bloomberg) -- Last week I argued that accelerating economic change driven by globalization and information technology ought to make conservatives in the U.S. and Europe rethink some of their ideas. The same goes for liberals.
This economic transformation has two important features. One is faster obsolescence of many job-specific skills. In the future, fewer careers will be lifelong. People will need to be more adaptable and protect themselves better against economic risk. The other is widening income inequality, a trend that’s already apparent. Globalization and IT are amping up the winner-takes-all aspect of the modern economy. Those who do well will do very well; many of the rest, if they prosper at all, will see that they’re falling further behind.
Risk and inequality are themes, of course, that liberals already emphasize. The Great Recession has pushed the left’s favorite topics up the political agenda. The point is, this shift isn’t temporary. These issues won’t subside even as the industrial economies start to grow faster, because faster growth will go hand in hand with greater risk and further widening of the gap between rich and poor.
So liberals have the right concerns. It’s their prescriptions that need work.
Effective safety nets will be more, not less, important. They also need to be affordable, something that many on the left prefer not to think about. In the U.S., ignorance of that challenge is a little easier to defend than in Europe. Taxes are low by international standards. The country can still talk about how much more tax the winners should pay. In most of Europe, much as the left may wish to deny it, there’s less scope for debate. In some countries, the various tiers of government already consume roughly half of national income. Europe is testing the limits of the tax power.
Meanwhile, again in Europe more than in the U.S., demographic change is raising the ratio of retirees to workers and will put heavy new burdens on taxpayers. As these pressures mount, ignoring affordability is the surest way to jeopardize state-funded pensions and other safety-net programs.
There are good and bad ways to shore up the programs’ finances. Overall caps on benefits so that they grow at less than the rate of inflation are a bad way. That merely rolls the programs back by stealth, without regard to need. Raising the retirement age in line with improvements in life expectancy is a good way. Instead of resisting this, the left should advocate it as a way of advancing the program’s core purpose: supporting the incomes of those who most need help.
Means-testing should be on the left’s agenda as well. Safety nets are too important to be regarded as untouchable. They can either be reformed cautiously, with the needs of the unlucky uppermost, or one day they will be overwhelmed and demolished regardless.
One of the hardest things the left must do is reconsider its traditional alliance with labor unions. In making government more effective and affordable -- for the purpose of preserving its services, not eliminating them -- liberals need to see unions for what they often are: the enemies of reform.
In the U.S., education is the clearest instance. Control of costs is not the main issue. The challenge is to repurpose education so that it can meet the new economic demands. The premium is on supply-side flexibility, which unions instinctively despise. Teachers’ unions are powerful enough to block change -- both at the micro level in the running of individual schools and at the macro level in the design of the system. America’s failing schools may be its biggest economic problem.
Bidding Unions Farewell
In the U.S. and U.K., unions are no longer a significant force outside the public sector. In other countries, they still are. Where they follow a tradition of cooperation rather than confrontation with company bosses (as in much of northern Europe), the results can be good. At the other extreme is Spain, whose fascist-era pact between owners and unions has created a two-tier labor market of protected insiders and disposable outsiders, pushed the unemployment rate to 24 percent and rising, and helped bring the country to the brink of ruin. A fair deal for labor-market outsiders is one more reason the left needs to be more discriminating in its alliance with organized labor.
That should be part of a larger shift in thinking. Instead of resisting and demonizing the forces that are reshaping economies -- a futile posture favored by the old left and its friends -- liberals should think harder about how to exploit them. Richer countries can afford better public services. They can do more to furnish opportunities for the disadvantaged to move up. They can help more people share in the benefits of economic growth. Here is where the left should focus its attention.
Instead it gets distracted. It’s quick to see evil conspiracy behind faster job turnover and the surging success of the richest sliver of the 1 percent -- as though you can only win by stealing from the losers. The whole system, in this view, is a semi-criminal enterprise. Well, the pay of some CEOs is outrageous and can only be explained as a failure of corporate governance. And parts of the economy, notably banking, have used their political clout to benefit from implicit public subsidy. Those real systemic defects need to be confronted. But they aren’t the core of what’s happening.
Suppose bad men weren’t gaming the system. Globalization and IT would still be sufficient to polarize the jobs market, skew the demand for skills, destroy careers-for-life and channel a bigger share of income to the successful. But globalization and IT are not threats to be resisted, much less crimes to be punished. Like earlier industrial revolutions, this one will have bad consequences that need to be addressed. But overwhelmingly, this transformation is a force for progress. That is something the left should not set its face against.
(Clive Crook is a Bloomberg View columnist. The opinions expressed are his own.)
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