Section 5: Session Summary


New Entrepreneurial Growth Conference: Demographics and the changing demand for skills

The question of how to renew entrepreneurial growth is closely linked with issues of education, skills, and human capital. Entrepreneurial firms consistently report that their biggest challenge is talent recruitment. Concerns about automation and inequality usually lead to hand wringing about educational preparation. And nobody has quite figured out what the right educational content might be for preparing more people to be entrepreneurs. At the New Entrepreneurial Growth conference, a panel of participants was presented with a range of demographic “cases” that encapsulated such issues. Participants were asked to provide advice to, among others, a former professional athlete looking for a new career, an unemployed college graduate, and a professor facing the negative effects of online education on his university.

One participant framed the discussion by explaining that the basic dynamic in capitalism makes life easier for consumers and harder for producers, as producers need to continue to up their games to be competitive. This mechanism pushes firms to innovate, but it is a double-edged sword for employees or producers of labor. Our economy is no longer based on physical labor and clerical labor, and those who cannot up their game get left behind. Since 2008, one participant noted, we have seen depressed labor force participation and higher unemployment rates in eighteen- to twenty-five-year olds.

Participants questioned whether those at the bottom of the labor market lack the basic skills they need for socioeconomic success, including academic skills, social skills that allow people to develop large social networks and navigate bureaucratic institutions, and intra-personal skills such as motivation and deferred gratification. These basic skills are prerequisites for the development of the high-value skills that the market rewards, such as post-secondary education or other training and expertise. Indeed, participants noted that the long and steady increase in educational attainment rates we have seen is coming to an end.

The root causes of these underdeveloped basic skills in the bottom of the labor market, participants contended, are primarily related to changes in families and primary education, both of which have a huge impact on the capacity to develop basic skills. We are seeing an increase in single-parent families and higher growth in the number of children born outside of marriage. Furthermore, while there were no significant differences in parenting between different classes in the past, we now see completely dissimilar attitudes, with the upper middle class’s “concerted cultivation” standing in sharp contrast to the “accomplishment of natural growth” we see in lower-income communities. In the past, public schooling compensated for differences in family background, but education today seems to exacerbate class differences instead.

This skill deficit at the bottom of the labor market is compounded, participants said, by the lack of expectations in employer relationships. Neither employers nor employees invest in the relationship, as they see no long-term returns, leaving employees with fewer opportunities to specialize and develop skills.

There also was some discussion of the skills gap at the high end of the labor market, with one panelist emphasizing that a more critical look at statistics regarding this gap must include consideration of compensation. Vacancy rates, for example, indicate that there are many job openings that companies are unable to fill, but a lack of skilled workers is not the only potential explanation. It also may be possible that employers aren’t willing to pay to hire people with the necessary skills. Similarly, the reason that average vacancy duration is increasing could be simply that firms are becoming more patient and willing to wait longer before they raise compensation to compete for these skills.

One participant pointed out that part of our job problem comes from too little innovation. Technological innovation creates jobs, and there are an enormous number of jobs created in tech occupations for college-educated workers. In fact, he said, tech produces almost as many jobs as health care, but industry data is unreliable in identifying the true impact of technology on jobs because some of the jobs created by technology aren’t high-tech in themselves (e.g., an HR role at a tech company). As we have an economy that has fairly narrow innovation in the tech sector and energy production, we are not seeing enough new jobs for college-educated workers.

Psychological barriers to career switches also were suggested as contributing to the skill gap transition. One participant indicated that we are seeing a reduction in risk-taking in the U.S. economy—in both workers and firms. Workers are less willing to switch jobs or start new firms, which the participant suggested may be driven by a cultural change related to the increase in uncertainty in the economy and in the policy environment.

The larger discussion and the conversation regarding the specific cases touched on the importance of social networks, the opportunities offered by the free-agent economy, the perils of a poor early start in the labor market, the additional employment challenges faced by undocumented immigrants, and the geographic heterogeneity in employment opportunities. Broader themes and discussions are described below.

  • Importance of a bachelor’s degree. Several participants emphasized the value of an undergraduate degree and suggested that the completion rate for college is now lower than we want it to be for economic success. They indicated that a college degree will benefit many job seekers and is necessary for the vast majority of entrepreneurs, in particular. Furthermore, one participant emphasized that college is an important life experience. Participants noted that an undergraduate degree from a local college signals skills to a future employer in a way that a degree from a massive open online course does not.

    Some participants, however, were less focused on the undergraduate degree and more concerned with skills training and apprenticeships. One contributor challenged the college graduate wage premium, suggesting that the people we expect to succeed when they are eighteen years old are those who are successful four years later. And, other participants pointed out that there is significant demand for skills that only require an associate’s degree and that community colleges play an important role in increasing skills. People, they said, need skills they can use in their jobs and an ability to adapt to new technology. Participants pointed out that 40 percent or more of students with college degrees can’t find jobs that require their degree, and many millennials cannot find jobs because they don’t have the skills they need. Furthermore, high administrative costs and inefficiency have led to huge increases in the cost of a college education, and student debt is staggeringly high. One participant suggested that we have a student loan debt crisis because people are purchasing education but aren’t increasing their potential. Someone considering college, then, needs to evaluate the costs, the length of the degree, their income goals, their chance of graduation, and potential changes in market demand.
  • Value of a liberal arts education. A description of liberal arts education being introduced in Hong Kong served as an interesting backdrop to the discussion of humanities studies in the United States. As Hong Kong moved from a manufacturing economy to a service economy, it faced a skills gap and needed to change its educational system from rote learning and narrow career foci to a liberal arts curriculum that would develop the habits of mind, critical thinking skills, creativity, and willingness to question authority that business leaders needed. Several participants spoke to the ongoing need for liberal arts education in the United States and the importance of being able to think and write and work in teams. Others, however, emphasized the need for coding and other technical skills development, as well. Participants highlighted the need for a combination of hard and soft skills and the need to leverage soft skills. Universities, they said, need to encourage cross-fertilization among undergraduates.
  • Appeal of fast-growing fields. One participant suggested that those comfortable with risk may get ahead of the curve by getting in early in a growing, innovative field. Jobs in these emerging sectors do not have straight career paths because they are so new and, therefore, they favor people who deal well with ambiguity. Others suggested, however, that it is impossible to predict the job market of the future and that students should focus on developing good skills rather than picking majors by betting on the future. Some majors are always less likely to have significant returns, they said, but there are significant differences in the payoffs for different majors each year. A computer science degree in the early 1990s, for example, was not initially very lucrative, but it later became the foundation for a well-paying career.

The two essays in this section consider efforts to maximize the value of people. The first, “Liberal arts education and human capital” by Ben Wildavsky, examines Hong Kong’s efforts to overhaul its education system to create a liberal arts curriculum that will encourage greater innovation, creativity, and economic productivity. While this approach to education has been losing favor recently in the United States, the author outlines research indicating that there can be significant economic and social benefits to a widespread liberal arts education.

David Nordfors, in his essay, “The People-Centered Economy: An ‘Innovation for Jobs’ Ecosystem, Disrupting Unemployment,” considers a shift in our approach to jobs in which companies would focus on how individuals can create more value. Pointing to elevated levels of unemployment among specific groups of people, underemployment, and lack of employee engagement, Nordfors calls for entrepreneurship and innovation that will disrupt unemployment and stimulate economic growth. Companies that focus on maximizing the value of their people, rather than minimizing the cost of the tasks, he suggests, will see higher productivity and greater value creation.

Developing Human Capital Through the Liberal Arts in Hong Kong

By Ben Wildavsky Director of Higher Education Studies Rockefeller Institute of Government, State University of New York
Ben Wildavsky
Ben Wildavsky

Hong Kong businessman Po Chung might seem to be an unlikely advocate for the virtues of a U.S.-style liberal education. Co-founder of the Asia Pacific branch of shipping giant DHL, he’s a rags-to-riches entrepreneur whose success is emblematic of the former colony’s hard-driving capitalist culture. But he’s also one of the leading business community advocates for adding a big dose of humanities and social sciences to the curriculum of Hong Kong’s universities.

Chung and other backers of the unprecedented three-year-old reform effort are determined to move the city’s eight universities away from the rote learning, test-obsession, and narrow career focus that still characterize much of the Asian education system. They believe it’s past time for colleges to introduce a broader range of subjects, to promote greater intellectual curiosity, and to foster creative thinking. And they’re convinced that these changes will, in turn, build a workforce of rigorous, creative thinkers – just what is needed to meet the fast-changing needs of a transforming economy.

To one degree or another, this kind of liberal arts approach has long been a distinctive feature of American colleges and universities. Indeed, U.S. undergraduate education is the explicit model for Hong Kong’s liberal education campaign. A cadre of U.S. Fulbright scholars was even imported to implement the plan.

Paradoxically, though, even as Hong Kong and some other Asian countries are embracing everything from art history to sociology as necessary components of undergraduate coursework, the United States is moving in the opposite direction.

This may be no surprise. With tuition high and student debt mounting, American students and parents are increasingly worried about the prospect of post-graduation unemployment or underemployment. This mixture of anxieties is leading many Americans to think of higher education in increasingly utilitarian terms. By this measure, Near Eastern Studies inevitably falls short when compared to practical coursework in computer science.

But Hong Kongers certainly care about commercial imperatives, too. So why the disconnect between liberal-arts-hungry East and liberal-arts-wary West? For Chung, who spent part of his undergraduate career at Whittier College, a liberal arts college in Southern California, producing the responsible, economically productive citizens Hong Kong needs goes hand in hand with the habits of mind inculcated by the liberal arts.

General education, one of the terms Hong Kong uses for its new offerings, produces graduates “who are critical and creative thinkers, problem solvers, gifted communicators, team managers and ethical leaders,” Chung wrote in a 2012 South China Morning Post op-ed as the initiative was getting off the ground. Throw in the “creative communities of innovation” built by liberal arts, he argued, and the end result is decidedly pragmatic: skills “for which employers are willing to pay the highest salaries.”

Beyond such economically driven reasoning, there are more subtle, but potentially far-reaching motivations for the liberal arts reform, when seen through the lens of Hong Kong’s battles with the central government in Beijing. In the wake of passionate pro-democracy student protests, Hong Kong residents feel deep and, unfortunately, well-founded anxiety about preserving academic freedom in the city’s universities, together with gloomy skepticism about whether the mainland government will hold to its promise of “one country, two systems.” Against this backdrop, in addition to helping economic growth, spreading liberal arts education holds at least a modest promise of bolstering the forces of liberal democracy.

How it works

When Hong Kong’s education reforms went into effect in the fall of 2012, the immediate practical changes were significant. They altered both the form and content of secondary and university education in the city of seven million. Secondary school students, who for several years had begun taking a new liberal studies requirement, now graduated one year earlier. At universities, a full year was added to the three-year undergraduate degree sequence. Much of undergraduates’ additional time on campus was filled with new courses designed to broaden their academic experience.

Referred to variously as common core, general education, or liberal education, the new curriculum was a major shift from the British model, in which undergraduates usually study one subject exclusively. Universities were given considerable autonomy over how they put the changes into action, and exactly how much of the total undergraduate curriculum the new general education classes would make up.

Most institutions opted for pick-and-choose distribution requirements across four or so categories, such as humanities, social sciences, natural sciences, China studies, and “global issues,” an arrangement that one professor likened to the Harvard model of many course options within a loose disciplinary framework. The Chinese University of Hong Kong, however, required some specific classes - a modest core curriculum requirement akin to the University of Chicago’s Great Books sequence. The common core, comprising both existing and brand-new classes, became a significant portion of the curriculum at some universities. It makes up close to one-third of undergraduate coursework at the Hong Kong University of Science and Technology, for example.

The chance to take classes in a wide range of fields holds enormous appeal for students like Sivaraam “Shiv” Muthukumar, a third-year HKUST undergraduate studying mechanical engineering and business management. In an interview on campus, he sounds like a poster child for the new approach. “I do not know what I’m going to do after university, but I do know what I want to become,” he says. “I’ve always had in mind that I wanted to be a Renaissance man.”

But implementing an educational approach that departed so much from the status quo, both in terms of curriculum and pedagogy, was a complicated endeavor. Chung himself put up a matching donation of $1 million—supplemented by government and university funds—to bring in a group of twenty-four American Fulbright scholars in 2008 to help with the transition. The rationale was that the Fulbrights, many of them faculty members at U.S universities, who came to Hong Kong for one-year stints, had the on-the-ground skills needed to consult with traditional research universities and help them make the transition to a more liberal arts-oriented model. They also were charged with a crucial part of the plan: working with their Hong Kong colleagues not just on curriculum but on pedagogy.

A pragmatic rationale

Few in Hong Kong justified their efforts to import liberal arts on the basis of sheer love of learning. Instead, as in other Asian countries that have taken interest in the U.S. approach, the instrumental rationale is widespread, according to others who have participated in Hong Kong’s general education reform. “Hong Kong only has human resources,” says Glenn Shive, an expatriate who administered the Fulbright program as head of the Hong Kong-America Center and is now vice president for programs at the United Board for Christian Higher Education in Asia. Educating students holistically to become well-rounded citizens isn’t a compelling argument in Hong Kong—“it’s all about talent,” he says in an interview at a Hong Kong restaurant.

Universities haven’t been meeting the demands of the job market, Shive adds, too often producing memorizers with narrow, career-focused training, rather than the entrepreneurial problem solvers the business sector wants. By contrast, he says, Asians who have studied in the United States learn to think “beyond the conventional wisdom,” which is why the U.S. liberal arts model has growing appeal.

The interest in a new model, though driven in part by political and social factors, can be explained in large measure by Hong Kong’s dramatic shift in just a few decades from a manufacturing to a service-based economy, says Gerard Postiglione, chair professor of Sociology and Educational Policy at the University of Hong Kong, who heads the Wah Ching Centre of Research on Education in China. The specialized British-style system had many strengths, he says in an interview, but it didn’t do enough to help Hong Kong compete with what are known as the four S’s: Seoul, Shanghai, Sydney, and Singapore.” The city “had to move toward a more innovative mode to stoke creativity.”

A work in progress

Recent interviews with administrators, faculty, and students at the Chinese University of Hong Kong (CUHK), the University of Hong Kong, and the Hong Kong University of Science and Technology (HKUST) suggest that, while advocates remain optimistic, there’s no consensus yet about how successful the three-year-old experiment has been. The reform has never extended to the creation of freestanding U.S.-style liberal arts colleges in the mold of Amherst or Reed. Instead, the focus has been on the two other components of liberal education: curriculum that broadens students’ intellectual horizons and interactive teaching methods that give them the tools to become rigorous and creative thinkers.

Measuring student learning outcomes isn’t easy because the decentralized nature of the reform means that there isn’t a common theme to curriculum offerings (the same is true in the United States, of course). They are vast and varied, both within and across universities. Students at the Chinese University, for example, study Aristotle’s Nicomachean Ethics as part of the mandatory core curriculum, while undergraduates at the University of Hong Kong have the option of enrolling in classes like “The Press, the Public, and the Public Sphere,” in partial fulfillment of the humanities distribution requirement, one of four “areas of inquiry.”

Some faculty and students also worry about the practical difficulties that can thwart efforts to move away from Confucian methods of teaching. Universities usually aim to combine lectures with small discussion-based tutorials, for example. But financial constraints sometimes mean that classes are too large for meaningful interaction between professors and students.

What’s more, faculty aren’t always on board with the changes; some prefer to lecture as they always have. Those who do use the new approach find that it can be hard to get students to open up and speak freely when they are used to listening to lectures, taking notes, and regurgitating the answers they think professors want on exams. “They loosen up toward the middle of the term,” says one CUHK instructor. Still, when students are taking common core classes only because they have to, notes a music professor at HKUST, it isn’t easy to inspire them to participate actively.

As for students, those pursuing traditional professional degrees in engineering, medicine, and law often view the new requirements as a waste of time, a distraction from their progress toward a useful degree. Others say they like the program in principle, but find that, in practice, the exam-driven, non-interactive structure of some general ed courses doesn’t much differ from their other college classes. Still, the new system is working for some undergraduates, who call the new approach eye-opening.

Worldwide growth

Hong Kong is far from alone in its new embrace of liberal education. In recent years, a growing numbers of nations outside the United States have launched some form of liberal arts or general education programs in their colleges and universities. A research initiative known as the Global Liberal Education Inventory catalogues 183 non-US liberal education programs. It demonstrates particularly strong interest in Asia, where a plurality of programs—37 percent—are located, mostly in China, India, and Japan. Europe comes a close second, with 32 percent of non-U.S. liberal arts programs.

The programs have grown quickly, according to a recent analysis by the creator of the inventory, Kara Godwin of Boston College’s Center for International Higher Education. While the number of these programs remains very small in most countries compared to traditional degree pathways, the uptick is unmistakable: almost 60 percent of non-U.S. liberal education programs were started since 1990, and fully 44 percent came into existence just in the past fifteen years.

In Asia, beyond Hong Kong, liberal arts programs have been introduced at institutions ranging from Seoul National University and Japan’s Waseda University to Fudan University in Shanghai. In addition, branch campuses such as NYU-Shanghai, and partnerships such as Yale-NUS College in Singapore, reflect Asia’s growing interest in U.S.-style liberal education.

As the Hong Kong experience shows, the desire to foster economic development is a significant component of the trend. Asian governments “understand that overhauling their higher-education systems is required to sustain economic growth in a postindustrial, knowledge-based global economy,” wrote Richard Levin, then president of Yale, in a 2010 Foreign Affairs article, “The Rise of Asian Universities.” While creating world-class research institutions is certainly these nations’ top priority, they have also recognized that, as Levin writes, “it takes more than research capacity alone for a nation to develop economically.”

Moving away from rote learning, cultivating critical thinking, exposing students to a range of academic disciplines, fostering creativity, teaching students to challenge professors—all these educational goals, says Levin, now CEO of Coursera, the pioneering massive open online course (MOOC) provider, have made the American model of undergraduate education increasingly attractive to Asian leaders. Rather than mastering a narrow body of knowledge, he writes, “[s]tudents who aspire to be leaders in business, medicine, law, government, or academia,” need the ability “to adapt to constantly changing circumstances, confront new facts, and find creative ways to solve problems.”

The U.S. experience: dwindling interest
Ironically, even as countries in Asia and around the world embrace the liberal arts to a growing extent (albeit still modest as a share of all postsecondary education), parents, employers, and policymakers in the United States increasingly are questioning the value of broad-based liberal education. Many suggest that in an uncertain economy students will be better served by career-oriented education than by studying subjects like art history. The growing availability of statistics showing vastly different starting salaries for chemical engineers and philosophers only serves to cement the point.

It may be, as Postiglione of the University of Hong Kong suggests, that U.S. higher education is simply in the midst of a pendulum swing from a relatively large emphasis on liberal arts training in the second half of the twentieth century back toward job-related concerns. This course correction follows an era in which the economy has thrived and liberal arts-driven critical thinking has become commonplace among leaders in government, business, education, and the media. Now, according to this analysis, the problem facing American graduates in a much tighter economy is not that they are products of rote learning and possess insufficient creativity, but, rather, that they have too little discipline and too few useful specialized skills.

Still, the trend infuriates traditionalists such as Cecilia Gaposchkin, a history professor at Dartmouth College. “Information is fairly easy to acquire. And much of the information acquired in 2015 will be obsolete by 2020,” she wrote recently in the Chronicle of Higher Education (expressing a sentiment heard daily in Asia): “What is valuable is not the content of a major, but rather the ability to think with and through that information.”

In a sense, her view is reflected in the general education requirements, and associated teaching of broad academic skills, that remain standard at U.S. universities. However, the institution most closely associated with broad-based undergraduate education, the distinctively American liberal arts college, appears to be an endangered species. Many of these colleges, as economist David Breneman found in a 1990 study, have evolved into career-oriented “professional colleges,” in which majors such as nursing and business have become more common than history or chemistry. Breneman, the former president of Kalamazoo College, identified 540 undergraduate-focused American colleges, of which just 212 were focused significantly on liberal arts fields. The decline since then has been dramatic, according to a 2012 follow-up analysis by different researchers, which found that just 130 liberal arts-oriented colleges remain.

The research case for economic benefits

In economic terms, it is, of course, far too soon to evaluate the success of Hong Kong’s liberal arts programs. And what research does exist in the United States remains limited. Still, the efforts that have been made to explore the economic value of a liberal arts education­—mostly conducted by advocates, to be sure—suggest that the educational approach now gaining worldwide interest may have economic as well as other benefits.

Measured purely in terms of earning power, considerable evidence shows that students who major in traditional liberal arts subjects, particularly those who study humanities, make considerably less on average than their counterparts upon graduation (assuming, skeptics might add, that they have jobs at all).

However, in an effort to counter the view that liberal arts majors do little to prepare students for career success, the Association of American Colleges and Universities (AAC&U) released a study in 2014 attempting to show that long-term career paths for liberal arts graduates, in fact, lead in very productive directions. Relying on Census data, and working with the National Center for Higher Education Management Systems, the report found that by their peak earning years, from ages fifty-six to sixty, workers who had undergraduate majors in the humanities or social sciences earned slightly more annually­—$2000—than those with professional or pre-professional majors such as nursing or business. Unsurprisingly, engineering graduates have higher earnings than workers who majored in all other fields, but the 40 percent of humanities and social science majors who go on to obtain graduate and professional degrees see annual earnings increases of close to $20,000.

A very different way of looking at the economic impact of liberal education is to analyze entire institutions rather than specific majors. One prominent advocate of the liberal arts approach examined how the curriculum and mode of learning offered at liberal arts colleges helps graduates contribute to the scientific research that is vital to economic growth. Thomas R. Cech, a distinguished chemist who won the Nobel Prize in 1989, probed the scientific prowess of U.S. liberal arts college graduates in a 1999 article in Daedalus. Despite the association of these institutions with subjects like history, literature, and psychology, Cech’s analysis found that, when adjusted for the size of each college’s student population, liberal arts colleges are “remarkably successful” at launching future science PhDs. In a ranking of future science PhDs per 100 students enrolled, elite colleges such as Swarthmore, Carleton, and Reed placed just below Caltech, MIT, and Harvey Mudd, and just above the University of Chicago, Rice, and Princeton (all of which have their own general education requirements).

Cech attributed these science strengths to personalized education in classrooms and labs, and to the non-science classes that promote “the development of critical thinking skills and facility with written and oral communication.” (He notes that Harold Varmus, then-director of the National Institutes of Health, was an English major at Amherst.) Although Cech makes no explicitly economic claims about his findings, it doesn’t seem a stretch to suggest that the disproportionate contributions liberal arts colleges make to molding the nation’s scientists do much to improve the wealth of the nation.

Many other claims have been made about the ways in which liberal arts graduates can do a lot more than discuss Plato around a seminar table. The habits of mind developed by an education marked by close study of texts, debating professors and fellow students, and acquiring knowledge about a broad range of subjects are just what is needed to create successful entrepreneurs, argued Leo Higdon, Jr., then-president of the College of Charleston, in a 2005 article. From learning to communicate effectively and challenging conventional thinking to developing “the ability to act from a sound basis of personal values, strong ethics, and a clear knowledge of oneself,” liberal arts grads develop the key skills that entrepreneurs need, he maintained.

In a sense, all these efforts to emphasize the economic value of the liberal arts could be viewed as a capitulation to the chorus of pragmatic adult voices asking students, “what are you going to do with that?” Traditionally, general education promoters have certainly not cited career benefits to make their case, instead emphasizing the importance of learning for its own sake, of understanding, in Matthew Arnold’s phrase, “the best that has been thought and said.” But taking this kind of knowledge to the marketplace doesn’t necessarily involve any fatal compromises. Particularly in economic boom times, liberal arts truth-seeking need not be inimical to the pursuit of success in the business and professional world.

Conclusion: the politics of liberal arts

Is a Renaissance man or woman more likely than a garden variety lawyer or engineer to be a more rigorous, creative thinker of the kind entrepreneurial economies need? In Hong Kong, Po Chung and his many fellow travelers certainly think so. A more, though more elusive, outcome of the liberal arts reform could go beyond fostering economic growth to equip students with the sharpened critical thinking skills needed to take on authoritarian regimes. It is noteworthy that when Chung and others brought in Fulbright scholars to consult on the general education reform, newspapers on the mainland ran articles suggesting that this was evidence of undesirable Western influences in Hong Kong’s higher education system.

This perception of liberal arts as a threat is no accident. In his South China Morning News article, Chung concluded by suggesting that liberal arts can be politically liberating. Hong Kong’s general education reform, he wrote, “will not yield its full benefits unless teachers and students are permitted to use appropriate general education practices that allow different opinions and values to coexist harmoniously in a safe learning environment—not only in the classroom, but in society and within the halls of government.”

Will this happen? There’s certainly reason for pessimism, given Beijing’s allergy to free thought. As former Fulbright scholar Jerry Gaff notes, Chung’s article was published before the student-led Occupy Central movement. The Umbrella Revolution’s seventy-nine days of street protests ended without any shift in the mainland government’s plan to establish de facto Community Party control over Hong Kong’s electoral process. More recently, Beijing has made heavy-handed efforts to control Hong Kong University’s leadership. But pro-democracy student activists, who took liberal studies in high school and have begun taking common core curriculum in their universities, have not stopped demonstrating. Indeed, Beijing’s crackdown might well have the unintended consequence of fueling the democracy movement.

It would probably be overreaching at this early stage to draw a direct causal link between the new academic liberal arts era and students’ passionate push for political freedom. But if, as it takes root, liberal arts education in Hong Kong and beyond can nurture intellectual rigor, economic growth, and a hunger for liberty, it will have more than proved its value.

About the Author
Ben Wildavsky is director of higher education studies at the Rockefeller Institute of Government and policy professor at the University at Albany. His research focuses on the globalization of universities and the push for innovation in U.S. postsecondary education. A former senior scholar at the Ewing Marion Kauffman Foundation and guest scholar at the Brookings Institution, he is the author of the award-winning book The Great Brain Race: How Global Universities Are Reshaping the World (2010). His articles have appeared in the Washington Post, the Wall Street Journal, Foreign Policy, the New Republic, the Atlantic, and many other publications. Wildavsky graduated from Yale University (Phi Beta Kappa, summa cum laude).

The People-Centered Economy:

An Innovation-For-Jobs Ecosystem, Disrupting Unemployment

By David Nordfors Chief Executive Officer IIIJ Foundation
David Nordfors
David Nordfors

Abstract

Assuming all people can create value, we “only” need an economy that makes it happen. The present labor market is inefficient and not designed for an innovation economy.

Innovation for jobs is suggested as an essential additional component. The hypothesis is that an innovation-for-jobs ecosystem of entrepreneurial startup companies can disrupt unemployment and reduce misemployment. It is further hypothesized that an innovation-for-jobs ecosystem always can make a people-centered economy, which maximizes value creation by people, more successful than any arbitrary task-centered economy, which maximizes the cost efficiency of tasks. i4j is doing action research to test the hypothesis of an innovation-for-jobs ecosystem.

Introduction

The present labor market is inefficient and offers significant opportunities for improvement.

According to Gallup, only forty-four percent of all Americans have a good job, defined as more than thirty hours per week with a regular paycheck (Clifton 2015). Only thirty-one percent of U.S. workers are engaged in their jobs (Adkins 2015). Only five percent of employees are experienced, as well as engaged in and talented at what they do. Workers who fit this description are, on average, eighteen percent more productive than the average.

Companies engaging their workforces see as much as 147 percent higher earnings per share compared with their competitors. A culture of employee engagement can lead to as much as fifty-nine percent higher growth potential in revenues per employee. (Beck 2015).

The labor market has failed to place many workers, as evidenced by the fact that $36 billion in unemployment benefit checks were issued during 2013, according to the Department of Labor1. If as little as one-half percent of the issued unemployment benefits could have been used for matching private venture capital dollars, $360 million could have been invested in startups that generate jobs, thereby disrupting unemployment by introducing more efficient labor-market mechanisms.

In comparison, all seed investments in new companies that year totaled $100.7 million, according to the National Venture Capital Association.2 That could be more than enough to bootstrap a disrupting-unemployment venture industry—one comparable to how the government of Israel effectively created the Israeli venture capital industry using a similar scheme. The Israeli initiative did not cost taxpayers anything because private investors eventually bought out the government stakes. (Avnimelech and Teubal 2006).

One reason why it is difficult to use the unemployment budget in this way is the difficulty in determining how many jobs, if any, are created by supporting innovation this way. It can even be difficult to guarantee that the investments will not destroy jobs instead.

This paper presents ideas that might be a step toward solving this conundrum. The main barrier of entry for the ecosystem is, however, not access to capital, as such, but the creation of a successful ecosystem of entrepreneurs, investors, policymakers, strategic partners, and customers—and a common language in which they interact successfully.

Subsidizing the financial risk, as in the Israeli model, lowers the barrier of entry for initial investors and entrepreneurs who may show the way for others. But positive results will not be obtained without forming the right network of good people and ideas for bootstrapping the new culture (Motoyama and Wiens 2015).

i4j, the innovation-for-jobs initiative, is testing the assumption that the low efficiency of the labor market reveals an opportunity and becomes a driver for an innovation-for-jobs ecosystem. Public spending on unemployment is another potential driver for the ecosystem. Such public spending will decrease when entrepreneurial success in disrupting unemployment aligns public and private financial incentives.

The innovation-for-jobs ecosystem, therefore, includes, among others, entrepreneurs who create startups for disrupting unemployment, as well as venture capitalists and public policymakers. 

People-Centered versus Task-Centered Economy

To discuss what the innovation-for-jobs ecosystem is and does, it is helpful to have a common language that can discern innovation for jobs, and make it successful.

As the common language for innovation stands today, it seems easier to discuss the race against the machine than the innovation for jobs. Discussions have focused on how machines are getting better at doing tasks. This thinking can be seen as belonging to a task-centered economy in which minimizing the cost of tasks is the aim. In the task-centered economy, machines will replace people as soon as machines do jobs better and cheaper.

It is complicated to discuss how people can create value in the language of the task-centered economy. When asked if people are required to complete certain tasks, technology optimists can almost always interject, “Soon, a machine will be able to do those tasks, too.”

If we are interested in how people can create value, a more natural question will be “How can this person create more value?” The focus shifts from the task to the person. This creates the language of a people-centered economy aiming to maximize the value of people rather than minimize the cost of tasks.

In a people-centered economy, entrepreneurs have an incentive to disrupt unemployment because the unemployed, underemployed, and misemployed are seen as an underutilized resource.

For the people-centered economy to be a realistic approach, it must be able to compete with the task-centered economy on the micro-level, inside the firms that create value and in the markets (plus other contexts) that set work and value in relation, i.e., the labor markets.

Some may say that the task-centered approach must be the more competitive, or the people-centered economy already would be in charge. But even if this is true today, nothing says that innovation can’t put the people-centered approach in charge. Given equal, unlimited powers of innovation, which approach is the most competitive?

Two logical assumptions:

  1. Innovation always can enable individuals to increase their net value creation in the economy.
  2. This applies regardless of whether or not the individuals’ present tasks are automated.

Therefore, I suggest that a people-centered innovation economy always can theoretically create more value than a task-centered economy. If it doesn’t, it’s only because the system did not innovate well enough.

The Potential Size of the Innovation-for-Jobs Market

It is impossible to estimate the size of the potential innovation-for-jobs market because it is impossible to set an upper limit to the value that can possibly be generated by a radical innovation. But we may estimate the lower limit as the value that is wasted today as a result of low worker engagement. Engaged workers have, on average, about twenty percent greater productivity than the average worker, and one-third of all workers are engaged, according to Gallup. In the simplest approximation, that means labor productivity can increase more than twelve percent without innovations other than making workers more engaged in the work they already are doing.

Gallup suggests the growth potential is fifty-nine percent higher if workers are engaged, which makes sense—engaged workers are more adaptable to development and change. The simplest approximation suggests that simply making people more engaged in what they are doing would result in a thirty-three percent increase in growth potential overall. 

Comparing the Task-Centered and People-Centered Innovation Economies

Let’s compare how a task-centered and a people-centered economy relate to innovation, respectively.

Imagine an economy in perfect balance, with competing companies producing ideal products and services that perfectly match all demand for them. Initially, each competing company has the exact same market share.

An entrepreneur launches an innovation that instantly raises labor productivity by eleven percent.  The market is not perfect. It takes time for information to spread and generate response (e.g., Poisson distribution).

  1. A task-centered economy aims to minimize the cost of tasks.
    1. Companies have an incentive to introduce the innovation early because it enables them to lower production costs so that they can lower their sales price, underbidding competitors and gaining market share.
    2. Early adopters initially can realize higher profit margins and still offer lower prices due to the lag in market response time.
    3. Earlier adopters will, therefore, take market share from later adopters.
    4. When the market becomes aware that all competitors have adopted the innovation, the competition will drive down profit margins to initial levels.
    5. The market will be in a steady state again.
    6. Result:
      1. Eleven percent increased labor productivity
      2. Ten percent lower labor costs/wages
      3. Ten percent lower prices
      4. Unchanged amount of products and services
      5. Increased income disparity (unless all workers receive an equal cut)
  2. A people-centered economy aims to maximize the value of people.
    1. Companies have two incentives to be early adopters:
      1. Beat competitors in lowering production cost and sales prices to gain market share, temporarily gaining higher profit margins (same as task-centered economy).
      2. Increase the profitability of the workforce, and maximize the value creation from their human capital.
    2. Early-adopter companies, which have gains from temporarily higher profit margins, can reinvest in innovation for jobs to create new value with the ten percent of their workforce that becomes available. The return on investment depends on the:
      1. ability of their workforce
      2. value of the new opportunity
      3. ability to create the new opportunity
    3. Maximizing return on investment creates a market for an innovation-for-jobs ecosystem, increasing the value of people on the labor market.
      1. Innovators within the ecosystem compete. 
      2. There is a market for creating services for both individuals and organizations/companies.
      3. There is incentive to increase value creation by people in multiple ways—for example, by innovating the forms and nature of work, training, contracts, business models, organizations, markets, analytics and/or policy; or by introducing new concepts and paradigms that increase the value of people.
    4. Companies that succeed with people-centered innovation will do better than those who succeed with task-centered innovation.
      1. Companies that succeed in task-centered innovation (a.i) gain market share and a fixed amount of cash from temporarily higher profit margins.
      2. Companies that succeed in people-centered innovation (a.1 + a.ii) gain market share and increase profitability by more than eleven percent, assuming the innovation-for-jobs ecosystem follows the  logical assumptions (1 and 2 above) that innovation always can enable individuals to increase their net value creation in the economy, regardless of whether or not their previous jobs are automated.
    5. The innovation-for-jobs ecosystem will offer work to individuals that is comparable to jobs offered by companies.
    6. Result:
      1. More than eleven percent increase in labor productivity
      2. Same or increased labor cost/wages
      3. Ten percent lower prices
      4. More than eleven percent more products and services

Conclusions

If everyone can create value, and it’s possible to design innovations that help anyone create more value, then it’s suggested that:

  1. The concept of a people-centered economy (maximizing the value creation by people) and a task-centered economy (maximizing the cost efficiency of tasks) offers a base for discussing how innovation and jobs relate.
  2. Innovation for jobs can be driven by an incentive to increase value creation by people.
  3. A people-centered economy can create more value than a task-centered economy.
  4. A task-centered economy can become a people-centered economy by adding an innovation-for-jobs ecosystem.

According to Jim Clifton [Clifton 2011], of the seven billion people in the world in 2011, five billion were age fifteen or older. Three billion wanted full-time jobs, but there were only 1.3 billion jobs available. Only seventeen percent of workers are engaged in their jobs.

This points to a huge potential market for innovation-for-jobs ecosystems.

Next Steps

This paper builds on discussions facilitated by i4j (http://i4j.info). A framework for an innovation-for-jobs economy—economics, business, education, technology, and policy—is discussed in i4j 2014.

After two years of high-level brainstorming seminars, i4j has grown into a network of thought leaders and actors with the intention of testing the validity of the concept of an innovation-for-jobs ecosystem that can disrupt unemployment through action research.

We aim to identify methods to measure and facilitate the ecosystem. If we are successful, we will be fostering an innovation-for-jobs ecosystem, beginning in Silicon Valley.

We wish to identify and build a community ecosystem that includes enough actors to bootstrap it.  

Acknowledgements
I wish to thank my i4j cochair and cofounder, Vint Cerf, for making this work possible. The work with i4j in 2015 has been supported by the Ewing Marion Kauffman Foundation, Google, SITRA, and Cisco.

About the Author
David Nordfors is chief executive officer of the IIIJ Foundation, and is cochair of i4j, the innovation-for-jobs initiative.

Appendix

Examples of Services that Belong to the Innovation-for-Jobs Ecosystem
Here are examples of specific services, existing or futuristic, that might be provided as modules in a platform economy. Each service can, in principle, be provided by entrepreneurial companies in the innovation-for-jobs ecosystem. (From i4j 2014)

Modules for Strengthening People

  1. Strengthsfinders help people discover their unique combinations of strengths. Today, this can be accomplished by survey, such as the Clifton Strengthsfinder.
  2. Skills training and education cultivate identified strengths. Massive open online courses (MOOCs) such as Coursera, could serve people with education, while SamaUSA could serve people without.
  3. Mentor matching offers a meeting place that pairs people with mentors. Pave.com, for example, is developing a market for mentors.
  4. Learning and maker venues convert empty buildings into public centers with resources, including maker tools, computer labs, online classes, networks and shops for people to create things (Tech Shop) to sell in the marketplace (Etsy).

Modules for Finding Opportunities

  1. Career profilers show the present state of careers: required skills and commitments, in-demand skills, career paths, salaries, available jobs, demographics, and satisfaction rates among professionals. Balloon.com offers some of this today.
  2. Career concierges recommend jobs, Amazon style. If the user likes one job, Jobly suggests other jobs the user might like.

Modules for Matching People and Opportunities

  1. Dating service entrepreneurs and companies often search for people with skills, talents and personalities that align with a team and a mission, rather than a career title.
  2. Skills translators help translate experience from one context to another so job seekers and hiring managers can bridge differences in vocabulary. Hiring managers struggle with this issue, and end up hiring the wrong people or overlooking great candidates. A translator could help organizations understand a person’s skills in terms that are recognizable and relevant, and help people see how their skills can be applied in a new context. For example, street smarts are as important as book smarts. To survive, someone from the streets develops skills to regularly think outside the box. The same skills can be used in entrepreneurship. A college student who majored in psychology might be perfect for marketing, an aura healer could become a human resources professional, or a hardworking bartender with the ability to teach himself new skills may become a hardware engineer—and be better at it than an applicant with credentials in the field.
  3. Virtual-world matching provides a safe environment for prospective employees to experience company culture, make mistakes, and assess fit as part of a team. It also encourages new, emphatic social behaviors.

Footnotes

  1. ET Financial Data HANDBOOK 394 Report.
  2. National Venture Capital Association Year Book (2015), p.39, Figs 3-10 and 3-11, http://nvca.org/?ddownload=1868

References

i4j 2014, Nordfors, David, and Vint Cerf, editors. “How to Disrupt Unemployment: The Innovation for Jobs Economy,” i4j DC Paris Report, ideas from the i4j summits in Washington, DC, co-organized i4j + Google, and in Paris, co-organized i4j + OECD (Nov 2014), http://i4j.info/2015/03/i4j-dc-paris-how-to-disrupt-unemployment/.

Harter 2015, Harter, Jim. “Companies Are Maximizing Only Five Percent of Their Workforces”, Gallup Business Journal, March 24, 2015.

http://www.gallup.com/businessjournal.aspx.

Clifton 2015, Clifton, Jim. “The Big Lie: 5.6% Unemployment,” Gallup Opinion, Feb. 3, 2015.

http://www.gallup.com/opinion/chairman.aspx.

Beck 2015, Beck, Randall, and Jim Harter. “Companies Are Missing Opportunities for Growth and Revenue,” Gallup Business Journal, April 28, 2015.

http://www.gallup.com/businessjournal.aspx.

Nordfors 2011, Nordfors, David, and Sven Otto Littorin. “The Innovation for Jobs Chasm,” Huffington Post, April 4, 2011.

Adkins 2015, Adkins, Amy. “U.S. Employee Engagement Unmoved in June at 31.9%,” Gallup Employee Engagement, July 9, 2015.

Avnimelech and Teubal 2006, Avnimelech, Gil, and Morris Teubal. “Creating venture capital industries that co-evolve with high tech: Insights from an extended industry life cycle perspective of the Israeli experience,” Research Policy 35 (2006), 1477–1498, /doi:10.1016/j.respol.2006.09.017.

Motoyama and Wiens 2015, Motoyama, Yasuyuki, and Jason Wiens. 2015. “Guidelines for Local and State Governments to Promote Entrepreneurship,” Kauffman Foundation Research Series on City, Metro, and Regional Entrepreneurship. 

Clifton 2011, Clifton, Jim. 2011. “The Coming Jobs War,” Gallup Press.

Session Summary


New Entrepreneurial Growth Conference: Disrupting unemployment

Several years after the financial crisis and Great Recession, many countries still struggle with underemployment and concentrated pockets of unemployment, such as among young people. Additionally, even among those with jobs, surveys report lower levels of employee engagement. One way to look at this is to see a problem in need of fixing. Another way to see it, however, is as large stores of human potential and value being underutilized and even wasted. To address this, one New Entrepreneurial Growth participant made a pitch to “disrupt unemployment:” a multi-dimensional matching platform for employers and potential employees. The platform would allow potential employees to differentiate themselves and market their value, which would allow them to get better jobs with higher earnings. Three panelists played the role of investors, responding to the business idea and offering thoughts and criticisms. The themes concerning unemployment that emerged from this conversation are described below.

Overqualification and unused potential. A participant explained that there is significant unused potential in the economy; half of all people work, only 20 percent of people who work are engaged in what they do, and 20 percent are actively disengaged. All people can create value, he said, and we need an economy that allows this to happen. Furthermore, the United States has a high percentage of people who are overqualified for their jobs because they have more education and experience than is necessary to do their jobs. Recessions, a participant explained, typically result in increases in overqualification measures, as those who are laid off during recessions may take new jobs for which they are overqualified. From an employer perspective, hiring overqualified employees is beneficial, as these employees are more productive in the short-term, even if they leave their jobs earlier. The mismatching has significant costs, though, for the employees and the economy overall, as those who are overqualified have lower earnings. To address this issue, we need to understand why people get stuck in jobs that aren’t right for them, exploring the possibility of student loan debt and other financial constraints, among other factors.

Barriers to successful employment. A participant noted that there is a demand for mundane tasks, and there are many unemployed people to do these tasks. However, most jobs go to job switchers rather than the unemployed, and the mechanism to match the demand and supply isn’t working. Participants suggested that people don’t work because nothing fits them or because they have a quirk that makes it difficult for them to get jobs. Disadvantaged people, including illegal immigrants or those with criminal records or drug habits, face additional challenges in finding employment. And, the long-term unemployed need some intermediary to provide motivation, recognize latent skills, identify the skills that would yield the highest returns, and offer advice on new skill development that would be worth investment. We need as much innovation to help people earn better, one participant said, as we have to help them spend better.

People-centered economy. Participants suggested that we need to move from a task-centered economy in which we shape people to fit jobs to a people-centered economy in which jobs are tailored to fit people. Today, we focus on maximizing the efficiency of tasks and minimizing costs, which leads to allowing machines to replace people. We need to focus instead on maximizing the value of people so that everyone has a job for which they have talent and passion. Citing Good Jobs, Bad Jobs, a participant suggested that even companies in low-margin businesses can generate good jobs if they invest in their workers and operations. Another participant pointed out that machines replacing people doing repetitive, unchallenging jobs is a good thing because we need better jobs for people that allow them to live with dignity.

Importance of social networks. Participants emphasized that people primarily find jobs through their social networks rather than through vacancy, and platforms that are most successful are those that incorporate social networks. Monster.com, for example, is less successful than LinkedIn.com because LinkedIn incorporates the social network. When social networks are not incorporated in new platforms, society reverts to its worst instincts and prejudices. For example, research on Airbnb, a company that does not use the social network, has found that individuals with names that sound African American are turned down more often than others.

Gig economy. One participant suggested that what it means to have a job is changing and that new platforms are moving us toward a gig economy in which people aren’t employed, and companies have no incentive to invest in workers. Another contributor, however, disagreed with the idea that technology will change the nature of work and jobs, making us all micro-entrepreneurs who work for ourselves using networks. He explained that it is not in the interest of the larger economy for most people to work for themselves; we want them to work for the star entrepreneurs who are much more productive. Most people, he said, work for large firms, and most job creation comes from fast-growing firms. Another participant pointed out that, while policy discussions and agendas say that innovation and entrepreneurship will result in jobs, the discussion of job-filling often is seen as unrelated. He suggested that there is a disconnect between the study of innovation and entrepreneurship and the study of employment and jobs. We need to think about the opportunities and interplay between them, and how new platforms may serve as bridges. Another contributor pointed out that, if our future does hold more platform companies like Uber and Airbnb, we need to rethink our regulation to protect workers and ensure market competition.

Globalization. Several participants emphasized that where jobs are located is an international issue and that a narrow focus on the U.S. context is too limited. We need to open the discussion to appreciate the deep interconnection between the United States and all other economies.

Policy recommendations. Panelists were asked to identify one major policy change that would solve the jobs problem. Proposals included the following:

  • Reduce regulatory, government-imposed costs that make freelancing or starting new businesses very difficult.
  • Reduce professional licensing requirements that serve as barriers to entry. While professional licensing establishes competence, a common basis of beliefs, and standardized knowledge, it also restricts who can practice and who can innovate. Furthermore, old paradigms are less likely to be challenged in this environment, and new paradigms are less likely to be considered. Relaxing credentials for physicians, for example, would allow nurse practitioners to play a greater role in both practice and innovation.
  • Change criminal sentencing laws. Higher rates of incarceration mean that many people are entering the job market with criminal records, making it even more difficult to find employment.
  • Create cloud development centers for small and mid-size businesses.
  • Offer better skills training.
  • Create a public health insurance system to reduce the fixed costs of employment and allow employers to hire more easily.
  • Encourage firms to reduce employee hours rather than laying people off. While those who are laid off get half-pay for unemployment, those with reduced hours are simply paid for the time worked.