Last fall in the New York Times Magazine there was an article by Adam Davidson titled “Empire of the In-Between”. This is a fantastic article about the geographic corridor between New York City and Washington D.C. It also illustrates how this area is a great micro depiction of the state of economics in the United States. If you can find a copy of this article it is well worth the read.
A couple of the many interesting passages in this article that caught my attention are the sections where the author wrote:
“That’s where raw material was turned into valued products by hard-working people who made decent wages even if they didn’t have a lot of education. Generation after generation, and wave after wave of immigrants, found opportunity along the corridor. Washington collected the taxes and made the rules. Wall Street got a small commission for turning the nation’s savings into industrial investment. But nobody would have ever confused either as America’s driving force. This model was flipped inside out as Wall Street and Washington D.C. became central drivers, not secondary supporters, of the nation’s economy”.
“The atrophying of the country’s ability to “make real things” has been much lamented, but the truth is that U.S. manufacturing has never been stronger. While there are no universally accepted numbers, the United Nations Statistics Division calculates that the dollar volume of goods made in America is at an all-time high of $1.9 trillion, just about even with china. The catch is that the number of American workers needed to create all that value has dropped steadily.”
So what is being suggested in these two passages? Is it being suggested that Wall Street and Capital Hill only look out for what is in their best interest? Is it being suggested that there is simply a lack of demand for traditional blue-collar workers?
Well maybe a little of both. Maybe.
First of all, I can absolutely attest to the fact the Wall Street, at least at the level of capital formation, really has no interest in building companies. Wall Street has evolved into an industry that is in the business of making short-term capital returns.
Now, those that are making a living on Wall Street will argue that there are many large companies that are followed by thousands of people who “buy and hold” for potential long term capital appreciation. This may be true, but a fundamental problem is that Wall Street no longer is in the “company building” business. It simply takes too long to finance and nurture a company from an early stage through maturity. Wall Street pretty much demands “immediate” results and buying into large mature companies with strong trading volumes is the best way to create such results.
How many times have we heard that you should not invest in small emerging growth companies because they are too volatile or they have not yet reached a critical mass sizable enough to warrant your attention? I don’t know about you, but I am pretty sure that I do not want to be offered the option to only invest in companies where I am put in the position to “take out” all of the early investors.
I want to be able to hit a home run too! Unfortunately the way our capital markets work today, the idea of getting in “early” for the average investor has pretty much become a fond historical memory. Check out my September 17, 2012 article titled “Random Thoughts: Income Inequality” for more color on this topic. The topics on investment discussed in that article are key elements to helping to rebuild of country’s middle class.
As for the lack of job opportunities for those who are not highly educated, the simple truth is that even at the factory level, there is a need for higher educated or trained workers. With the advent of automation and globalization, the likelihood of an increase in demand for “unskilled” workers is not particularly good.
It is true; there is a slight “trend” in manufacturing job growth in the United States. This is partially due to middle class growth in countries like China and India, making US manufacturing wages more globally competitive. Some other opportunities are coming from new industry growth in areas such as natural resources. But these few options are not going to rebuild the middle class in America. Without educated workers, we will continue to lose out to other more competitive regions around the globe.
We must make it a priority to motivate our citizens to get as much education or training as they can. This is something all of us can do. You don’t need to wait for the government to create a new program. There are many low cost or even free educational and training options available to Americans looking to expand their horizons. This is where we will make the most strides in rebuilding our middle class. An educated workforce has great value. The additional expertise provided by an educated workforce is a real value added proposition that companies can make to their customers in return for higher prices, which in turn can offset the higher cost of labor of the educated workforce. This is value worth paying for.
Education is absolutely one of the key elements to the rebirth of the American middle class. Our world has changed, period, end of story. Technology innovations have made it possible to manufacture items with far less workers. Now, that same innovative technology still has to be operated by humans, they just need to be better skilled and educated humans.
The following is an excerpt from an article written by Harvard Professor Clayton M. Christensen. This article appeared in the New York Times on November 3, 2012. Take the time to read this article as well.
“Ideally, the three innovations operate in a recurring circle. Empowering Innovations are essential for growth because they create new consumption. As long as empowering innovations create more jobs than efficiency innovations eliminate, and as long as the capital that Efficiency Innovations liberate is invested back into empowering innovations, we keep recessions at bay. The dials on these three innovations are sensitive. But when they are set correctly, the economy is a magnificent machine”.
Educating our citizens so that we can better compete for good paying jobs is a key element for economic growth. However, this education only becomes effective if we are investing in the visionary entrepreneurs and businesses that become the catalyst for creating the job opportunities that our citizens are in need of. The way to jump-start this crucial investment cycle is to return the ability of the average citizen to participate in the capital formation process.
Education + Investment = Strong Middle Class.