Don't Send Your Kids to College

Everyone from Occupy Wall Street to those who occupy the White House have noticed the widening of the gap between rich and poor.  It has fueled resentment throughout the country beginning with the TARP bailout of the Too Big To Fail banks and the tone-deaf tendency among its recipients to continue to pay multi-million dollar bonuses to their executives.

There will always be people who get rich on Wall Street. The problem isn’t that bankers make too much money and the solution is not for the government to redistribute wealth. 

The greater challenge is the economic prospects of the middle class.  A new study by the Organization for Economic Cooperation and Development (OECD) concludes, “with manufacturing and certain low-skill tasks increasingly becoming automated… the demand for information-processing and other high-level cognitive and interpersonal skills is growing”.  Throughout the 23 industrialized economies included in the study, “literacy, numeracy and problem solving skills” are lacking.  By now, we shouldn’t be surprised that the United States ranked 21 out of 23 in these critical skills. 

A few weeks ago, I wrote about manufacturing in the United States (The Ford Fusion and How the Media Got It Wrong (Again)).  I cited a study by the Boston Consulting Group (BCG) that projects that the US will again be a global center for manufacturing due to lower costs of labor, energy and transportation.  But, it’s not a bed of roses.  Among the risks cited by BCG is the skills gap among American workers. 

But, what skills are we talking about?  Yes, it’s true that our primary and secondary schools are failing us.  But, would fixing that problem solve the larger problem of a skills gap?

Don’t look to the government, the school board or the teachers’ union for the solution.  If you’re the parent of a school aged kid, the place to look for a solution is the mirror.  Start by second guessing an ingrained assumption.  Sending your kid to a four-year college will not guarantee him or her a good job.  College grads now handle our customer service complaints, check us in at the Marriott and help us setup our iPhones in the Apple Store.  None of those jobs are high paying nor are they the first step on the corporate ladder to the executive suite.  And, they don’t pay enough to raise a family or pay off student loans.

To solve the skills gap, we need to expand our idea of what constitutes an education.

Corporate executives can find all the engineers, financial analysts and marketing professionals they need by sending their recruiters to the top universities.  And, they do.  There is a well-established process by which this type of recruiting has been taking place for the last 60 or 70 years.  So, if your kid is an A student, by all means, send them to the best university you can afford. 

But, finding employees with the skills to support computer networks, assist on a medical research project or operate a CNC machine is a greater challenge.  None of these professions truly require a four-year degree.  They require technical skills coupled with a work ethic and personal habits valued by employers. 

The answer to this challenge will spring bottoms up from companies working with local governments and institutions like community colleges. 

In Texas, Houston Community College provides training and certification to work on oilrigs to satisfy growing demand in the energy industry.  In Minnesota, Anoka-Ramsey Community College works with local manufacturers to provide the specific training needed to work in a modern factory -- geometric dimensioning, process control and measuring tolerances.  A non-profit institution, Corporate Voices for Working Families has developed a set of best practices – a blueprint, if you will – for employers to work with local colleges and community colleges with a goal of increasing employment among graduates.

College tuition is increasing 8% per year, well more than inflation and certainly more than real wages, which have remained flat for more than a decade.  Parents are right to question the value of a degree that leaves them or their children saddled with debt.  But, we shouldn’t expect the solutions to come from Washington or the state capital.  Industry will drive the demand for training and education to close the gap.  Competitive enterprises will develop the programs to satisfy their needs.

It all starts with the students, the job seekers.  They must take responsibility for demanding the skills necessary to get a good job with strong career prospects.  They must have the support of those who pay most of the bills for their education – their parents. 

Blaming institutions of government for their failures will not get your kid a good job.  Taking responsibility for the outcome, discovering what employers want and getting the training and education you need, will.

WHO WILL LEAD?

Your iPhone Will Take Your Job

“Maybe not today…  maybe not tomorrow…  but soon and for the rest of your life…”*

   

Technology -- driven by customer interaction or some algorithm much smarter than we are – is taking our jobs.  It’s been going on for decades.  We gladly did the work of a bank teller in exchange for 24/7 access to an ATM beginning in the 1970’s.  No more standing in line to cash our paychecks.   More recently, we quickly adopted the convenience of using a kiosk rather than dealing with an airline employee to get our boarding passes or better yet printed them at home. 

In economic theory, capital investment creates jobs.  Yet, technology investment is booming and employment languishes. 

Ken Jennings, who famously won over $2 Million on Jeopardy, was soundly whipped by an IBM computer dubbed Watson on that same game show.  Combine Watson with the Siri app on your iPhone and guess what happens next.  Your doctor’s job is in jeopardy.

If you think the technology is too rudimentary, consider this.  Visionaries like MIT’s Andrew McAfee point out that Moore’s Law correctly predicted that computing power would double every 18 months way back in the 1960’s.  And Moore was right.  Now, apply that theory to Siri and Watson.  If I ask my doctor about a particular drug, he looks it up on his iPhone.  It’s a short hop to the iPhone looking it up and giving me clinical advice.

In the 20^th Century, science assumed an important role in society.  Great inventions  were born at institutions like Bell Labs or MIT.  Today, the Internet has taken the process of innovation global.  This democratization portends great progress – both economic and social.  McAfee suggest we will “live more lightly on the planet” and “eradicate poverty”.

Yet, I am not so easily convinced that the progress of innovation will mean progress for everyone.  America, the land of opportunity, has been sliding backwards in terms of upward mobility.  The OECD’s latestreport on economic mobility rates the U.S. poorly on that score.

Germaine Smith-Baugh

How will great technological progress provide for the poor uneducated masses in the developing world and in our own inner cities?  A good friend, Germaine Smith-Baugh, is CEO of the Urban League of Broward County.   Their mission?  “To assist African-Americans and other disenfranchised groups in the achievement of social and economic equality.”

I am overwhelmed by the enormity of the task.  Yet, Germaine and her underfunded organization soldier on undeterred.  I asked her how she goes about making a difference.  “I start with a family,” she says.  “If I can get a family, I can get a block.  If I can get a block, I can get a neighborhood.  If I can get a neighborhood, I can get a community.”  And so on.

But the problems of income inequality are much bigger than the Urban League and its like across the U.S. can solve.  For all to thrive, for the middle class to remain a stable economic and social force in this country, we need to address the structural impediments to the solutions. 

Those solutions lie in the need for massive investments in education and infrastructure.  Conservatives eschew such investments by government in favor of free market solutions.  Liberals misallocate funds to projects that focus on social outcomes rather than economic ones. 

A college degree is so expensive to obtain that many people are beginning to doubt there is a financial return.  And colleges themselves seem stuck on providing a great 20^th Century education.  For this country to thrive in the 21^st, our education system must be revamped to train more engineers, moreentrepreneurs and more technicians. 

Budget cutting fervor has reduced aid through Pell Grants and student loan interest rates have skyrocketed because, in the absence of government guarantees, bankers will not loan money to poor students whose prospects are not certain.   If we are to produce a better educated workforce, we must identify the skills and knowledge valued by enterprise.  If government were to work hand and hand with industry to provide graduates with the skills that are in demand, the landscape would change.

Government spending on infrastructure is funneled to unproductive projects by politicians who want to make sure that their district gets a share of the pork that’s being doled out.  If we were to focus our infrastructure investments on the large urban centers that produce a return, we must overcome a political battle over how funds are allocated. 

For sure, non-profits like the Urban League must play a role in bolstering a sense of family and community among our nation’s poor.  However, our dysfunctional government structure and its sour relations with corporate America must be resolved before we can make substantial progress on behalf of the middle class and those less fortunate.

WHO WILL LEAD?

*One of my favorite lines from the movie Casablanca.

It's a Vegetable!

The blogosphere loves catchy headlines. Since publishing a blog titled Greed is Still Good and two follow-ups that continued the theme, the Google statistics for this blog show readership quadrupling.


Among the many responses I received, one stood out as unique and piqued my interest. A Belgian reader advocated that technocrats do a better job than democratically elected politicians and the free market at ensuring prosperity for the public. Here’s what he said, in part:

“When dealing with corporate matters, look for the best CEOs. When dealing with agricultural matters, look for the most successful farmers. When dealing with exact science, look in academe for the most respected scientists. When dealing with matters of justice, look for the most respected judges.

“Basically, you look for experts wherever they can be found. Competent technocrats are most likely to be found among those who get the best results or achieve most respect in their respective fields of expertise.”

I challenged him to provide examples of where this works. He responded that it does so in the democracies of northern and western Europe.

This exchange took place a few days before the prime ministers of both Greece and Italy were replaced by technocrats.

When I hear the word, technocrat, I think of a bureaucrat – a government employee whose dogged adherence to some arcane set of rules yields an unreasoned result. But, technocrats don’t comply with policies. They are the experts who make policies.

The argument in favor of technocrats – and, indeed, the European example – is that well-crafted technocracies overcome the inequalities of opportunity that result from unbridled capitalism. Europe has embraced technocracy, perhaps because of its history of class-ridden societies. As a result, Western Europe has better childhood health results and better public education systems than the United States. A recently published study by the Organization for Economic Cooperation and Development (OECD) observed that economic mobility from the bottom is more difficult in the US than most countries of Western Europe.

Naturally, programs that produce these results come with a price tag. Sweden, for example, has the second highest tax revenue as a percent of GDP in Europe at around 48% (more than double the US percentage). They balance their budget, provide extensive health and welfare benefits and run a capitalist economy. Their high tax rates are part of the social contract that the citizens have made with their government.

Many pundits in this country have suggested that the Euro debt crisis demonstrates the failure of European social democracies. That model of governing is unsustainable, they say. But, the Euro crisis is not the result of social democracies. It’s the result of debt. Unsustainable debt is the result of long term, structural budget deficits. Some western European countries – France, Belgium, Italy, Spain – run large deficits and are facing difficult choices. Others, like Sweden, do not.

Americans shouldn’t be casting dispersions on Europe simply because they seem to have hit the wall a few years before we are projected to. Indeed, running a balanced budget is a statement of national character. National character that we apparently lack.

But, neither is the Swedish example proof of the superiority of technocracies. Wasn’t it a group of technocrats who dreamed up the Euro in the first place. The concept of a currency not backed up by a central bank is flawed by definition.

The American model is driven by economic freedom. Property rights, free trade, minimal government regulation, low taxes and freedom to fail are central to our superior economic growth over the last two centuries. The success of that model is best exemplified by the 1990’s when low taxes and a balanced budget were at the root of our economic success.

Clearly, not everyone in this country embraces these principles of economic freedom. There are some obvious flaws to a system that rewards Lady Gaga more than it rewards its teachers. But our nation was founded on the right to pursue happiness. And, Americans do not believe it is the responsibility of government to ensure it. If asked, Americans would express admiration for the Swedish model; but, they would not sacrifice their standard of living – their second car, their McMansions -- to achieve it.

The US has its technocracies. We have technocrats at the helm of the FCC, the FTC, the FEC and, of course, the most important technocracy of all, the Federal Reserve Board. But, on a larger scale, Americans reject the idea. Remember when healthcare reform was to include a panel of experts to examine the high cost of care during the last year of life? “DEATH PANELS!” screamed the opposition.

On the other hand, I would like to meet the technocrat who pointed out that, calorie for calorie, tomato paste has the same nutritional value as an apple. Under one proposal, the National School Lunch Program could credit a serving of pizza as a vegetable. Now, that’s my kind of technocrat.

Greedy or Simply Needy?

I lived in Denver for a few years, back in the 1980s. It was a great experience for a guy who grew up in NY and I wouldn’t mind going back someday. I worked in a national credit card business at the time so the local economy didn’t affect me too much. Others weren’t so lucky.


Colorado is a boom or bust state. In the 80s, it boomed early on high oil prices. It went bust later on the collapse of oil prices. Big Oil closed all their Denver operations when it became economically infeasible to explore for oil in the Rockies. The contractors, most of whom were geologists and engineers went bust along with them. Many left town leaving a declining real estate market and failed regional banks and S&L’s behind.

Sound familiar? It was a microcosm of our national banking crisis. The difference? The banks weren’t too big to fail. The Federal Deposit Insurance Corporation (FDIC) spent about $900B to take over failing banks (an amount which they later recovered by raising rates on its member banks), the banks’ shareholders lost all of their stock, none of the executives walked away with multi-million dollar severance packages and no one occupied Denver.

Too bad it didn’t work that way in the financial crisis of 2008.

Last week, the press reported on an Organization for Economic Cooperation and Development (OECD) study that concluded that the wealth gap between young and old is growing. The report went further in concluding that economic mobility from lower to upper income strata was more evident in Canada and many European countries than it is in the US.

Naturally, this information is used as fuel for those sympathetic to the Occupy Wall Street movement (OWS). I wonder how many of those who reported on the OECD study actually read it (which you can do by clicking HERE).

What the report actually said was that upward mobility was primarily a function of parental influence on education starting in early childhood and extending through college. The gap between young and old, rich and poor is the result of how well educated you are.

To quote directly from the report: “Parental or socio-economic background influences descendants’ educational, earnings and wage outcomes in practically all countries for which evidence is available.”

Many pundits have speculated that the fervor behind OWS will peter out when the weather turns too cold to camp out in city parks. Even if that happens, the underlying problem – young adults who have worked hard and played by the rules can’t find jobs – will not vanish with the first snow. However, over time something must change.

Here’s my prediction: in the absence of jobs, many will start businesses. Yes, comrades, they will become capitalists. They will go from being needy to being greedy. As one pundit put it, their Plan B will become Plan A. And, there’s an app for that. "Start Your Own Business" will set you back $.99 in the iTunes store.

I have sat in on many presentations on how the Internet – Google, Facebook, Retargeter.com, Tumblr.com, YouTube, etc. – are changing the way business is done. When they are over, the middle aged listeners in the audience usually remark that they don’t get it. If I were 25 today, I would see those folks as too fat, dumb and happy to stand up to the competition I can offer.

Those too sluggish to adapt to the new world will end up like the last buggy whip manufacturers. We live in a world where $600 can buy a disk drive that would store all of the world’s music, where 5 billion mobile phones are in use and 30 billion pieces of content are shared on Facebook every month (according to the McKinsey Global Institute).

Creative entrepreneurs have figured out how to use technology to destroy old business models in healthcare, music, journalism, libraries, education, travel, supply chain management and the credit card industry – among others. Just as the transition from an agricultural to an industrial economy caused economic disruption – lost incomes among those whose skills weren’t adaptable – the transition to a global information/Internet based economy is doing the same right now.

And, just as the OECD study concluded, education is critical to making the adjustment.

What if you’re not an A student and can’t figure out how to disrupt an old business model? Dilbert cartoonist Scott Adams wrote of his experience creating new businesses for himself while in college in an Op-Ed piece in the Wall Street Journal last April. Titled "How to Get a Real Education", he outlined the real world skills required to make a business work – any business. Not just those that are disruptive.

Free market capitalism has been the basis for American prosperity since our nation’s founding. Successful business people act in their own self-interest. It doesn’t result from greed; it results from need. That one man’s success can cause another man’s failure is part of the natural order. Those who seek to change it must consider that our prosperity will suffer.

Back in Denver, one enterprising geologist opened a micro-brew pub in an old industrial part of town called LoDo (Lower Downtown). Wynkoop Brewery became a popular restaurant in a bad part of town. His Plan B became Plan A.

Today that successful entrepreneur is governor of Colorado.