Introducing Our Latest Report: Defining Financialization

Jul 27, 2015Mike Konczal

We’re releasing a new report today as part of the Roosevelt Institute’s Financialization Project: Definining Financialization.

Following the well-received Disgorge The Cash, this is really the foundational paper that outlines a working definition of financialization, some of the leading concerns, worries, and research topics in each area, and a plan for future research and action. Since this is what we are building from, we’d love feedback.

Prior to this, I couldn’t find a definition of financialization broad enough to account for several different trends and accessible enough for a general, nonacademic audience. So we set out to create our own solid definition of financialization that can serve as the foundation for future research and policy. That definition includes four core elements: savings, power, wealth, and society. Put another way, financialization is the growth of the financial sector, its increased power over the real economy, the explosion in the power of wealth, and the reduction of all of society to the realm of finance.

Each of these four elements is essential, and together they tell a story about the way the economy has worked, and how it hasn’t, over the past 35 years. This enables us to understand the daunting challenges involved in reforming the financial sector, document the influence of finance over society and the economy as a whole, and clarify how finance has compounded inequality and insecurity while creating an economy that works for fewer people.

Savings: The financial sector is responsible for taking our savings and putting it toward economically productive uses. However, this sector has grown larger, more profitable, and less efficient over the past 35 years. Its goal of providing needed capital to citizens and businesses has been forgotten amid an explosion of toxic mortgage deals and the predatory pursuit of excessive fees. Beyond wasting financial resources, the sector also draws talent and energy away from more productive fields. These changes constitute the first part of our definition of financialization.

Power: Perhaps more importantly, financialization is also about the increasing control and power of finance over our productive economy and traditional businesses. The recent intellectual, ideological, and legal revolutions that have pushed CEOs to prioritize the transfer of cash to shareholders over regular, important investment in productive expansion need to be understood as part of the expansion of finance.

These historically high payouts drain resources away from productive investment. But beyond investment, there are broader worries about firms that are too dominated by the short-term interests of shareholders. These dynamics increase inequality and have a negative impact on innovation. Firms only interested in shareholder returns may be less inclined to take on the long-term, risky investment in innovation that is crucial to growth. This has spillover effects on growth and wages that can create serious long-term problems for our economy. This also makes full employment more difficult to achieve, as the delinking of corporate investment from financing has posed a serious challenge for monetary policy.

Wealth: Wealth inequality has increased dramatically in the past 35 years, and financialization includes the ways in which our laws and regulations have been overhauled to protect and expand the interests of those earning income from their wealth at the expense of everyone else. Together, these factors dramatically redistribute power and wealth upward. They also put the less wealthy at a significant disadvantage.

More important than simply creating and expanding wealth claims, policy has prioritized wealth claims over competing claims on the economy, from labor to debtors to the public. This isn’t just about increasing the power of wealth; it’s about rewriting the rules of the economy to decrease the power of everyone else.

Society: Finally, following the business professor Gerald Davis, we focus on how financialization has brought about a “portfolio society,” one in which “entire categories of social life have been securitized, turned into a kind of capital” or an investment to be managed. We now view our education and labor as “human capital,” and we imagine every person as a little corporation set to manage his or her own investments. In this view, public functions and responsibilities are mere services that should be run for profit or privatized, or both.

This way of thinking results in a radical reworking of society. Social insurance once provided across society is now deemphasized in favor of individual market solutions; for example, students take on an ever-increasing amount of debt to educate themselves. Public functions are increasingly privatized and paid for through fees, creating potential rent-seeking enterprises and further redistributing income and wealth upward. This inequality spiral saps our democracy and our ability to collectively address the nation’s greatest problems.

We have a lot of future work coming from this set of definitions, including a policy agenda and FAQ on short-termism in the near future. I hope you check this out!

Follow or contact the Rortybomb blog:
 
  

 

We’re releasing a new report today as part of the Roosevelt Institute’s Financialization Project: Definining Financialization.

Following the well-received Disgorge The Cash, this is really the foundational paper that outlines a working definition of financialization, some of the leading concerns, worries, and research topics in each area, and a plan for future research and action. Since this is what we are building from, we’d love feedback.

Prior to this, I couldn’t find a definition of financialization broad enough to account for several different trends and accessible enough for a general, nonacademic audience. So we set out to create our own solid definition of financialization that can serve as the foundation for future research and policy. That definition includes four core elements: savings, power, wealth, and society. Put another way, financialization is the growth of the financial sector, its increased power over the real economy, the explosion in the power of wealth, and the reduction of all of society to the realm of finance.

Each of these four elements is essential, and together they tell a story about the way the economy has worked, and how it hasn’t, over the past 35 years. This enables us to understand the daunting challenges involved in reforming the financial sector, document the influence of finance over society and the economy as a whole, and clarify how finance has compounded inequality and insecurity while creating an economy that works for fewer people.

Savings: The financial sector is responsible for taking our savings and putting it toward economically productive uses. However, this sector has grown larger, more profitable, and less efficient over the past 35 years. Its goal of providing needed capital to citizens and businesses has been forgotten amid an explosion of toxic mortgage deals and the predatory pursuit of excessive fees. Beyond wasting financial resources, the sector also draws talent and energy away from more productive fields. These changes constitute the first part of our definition of financialization.

Power: Perhaps more importantly, financialization is also about the increasing control and power of finance over our productive economy and traditional businesses. The recent intellectual, ideological, and legal revolutions that have pushed CEOs to prioritize the transfer of cash to shareholders over regular, important investment in productive expansion need to be understood as part of the expansion of finance.

These historically high payouts drain resources away from productive investment. But beyond investment, there are broader worries about firms that are too dominated by the short-term interests of shareholders. These dynamics increase inequality and have a negative impact on innovation. Firms only interested in shareholder returns may be less inclined to take on the long-term, risky investment in innovation that is crucial to growth. This has spillover effects on growth and wages that can create serious long-term problems for our economy. This also makes full employment more difficult to achieve, as the delinking of corporate investment from financing has posed a serious challenge for monetary policy.

Wealth: Wealth inequality has increased dramatically in the past 35 years, and financialization includes the ways in which our laws and regulations have been overhauled to protect and expand the interests of those earning income from their wealth at the expense of everyone else. Together, these factors dramatically redistribute power and wealth upward. They also put the less wealthy at a significant disadvantage.

More important than simply creating and expanding wealth claims, policy has prioritized wealth claims over competing claims on the economy, from labor to debtors to the public. This isn’t just about increasing the power of wealth; it’s about rewriting the rules of the economy to decrease the power of everyone else.

Society: Finally, following the business professor Gerald Davis, we focus on how financialization has brought about a “portfolio society,” one in which “entire categories of social life have been securitized, turned into a kind of capital” or an investment to be managed. We now view our education and labor as “human capital,” and we imagine every person as a little corporation set to manage his or her own investments. In this view, public functions and responsibilities are mere services that should be run for profit or privatized, or both.

This way of thinking results in a radical reworking of society. Social insurance once provided across society is now deemphasized in favor of individual market solutions; for example, students take on an ever-increasing amount of debt to educate themselves. Public functions are increasingly privatized and paid for through fees, creating potential rent-seeking enterprises and further redistributing income and wealth upward. This inequality spiral saps our democracy and our ability to collectively address the nation’s greatest problems.

We have a lot of future work coming from this set of definitions, including a policy agenda and FAQ on short-termism in the near future. I hope you check this out!

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At Vox, Dodd-Frank at 5

Jul 27, 2015Mike Konczal

In honor of Dodd-Frank's fifth birthday party last week, I wrote a 4,000 word summary of the major accomplishments of the financial reform act. It includes what is working as well as what is stalled, what needs to be amplified and what isn't yet tackled. There's a focus on the CFPB, derivatives, capital, and ending Too Big To Fail. It's aimed at both readers with little background as well as people with some familiarity, so I hope you check it out and share.

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In honor of Dodd-Frank's fifth birthday party last week, I wrote a 4,000 word summary of the major accomplishments of the financial reform act. It includes what is working as well as what is stalled, what needs to be amplified and what isn't yet tackled. There's a focus on the CFPB, derivatives, capital, and ending Too Big To Fail. It's aimed at both readers with little background as well as people with some familiarity, so I hope you check it out and share.

Follow or contact the Rortybomb blog:
 
  

 

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Hillary Clinton's Economic Agenda is Good for Women, But Should Be Even Bolder

Jul 16, 2015Andrea Flynn

Hillary Clinton gave her first major economic policy address earlier this week and outlined her goals for lifting wages for the middle class, expanding social services, and addressing growing economic inequality. She said that an important ingredient to strong economic growth is women’s workforce participation, and promised to knock down many of the barriers that hold women—and our economy—back.

Hillary Clinton gave her first major economic policy address earlier this week and outlined her goals for lifting wages for the middle class, expanding social services, and addressing growing economic inequality. She said that an important ingredient to strong economic growth is women’s workforce participation, and promised to knock down many of the barriers that hold women—and our economy—back. But she failed to mention one issue that is critical to the economic wellbeing of women and their families: access to reproductive health care. 

It was encouraging to hear Clinton acknowledge the important role that women play in the U.S. economy. After all, women’s entrance into the workforce in the 1970s and 1980s is credited with driving a fifth of GDP growth. But over the past 15 years, their participation in the labor market has declined from 60 to 57 percent, not a major decline but certainly a trend in the wrong direction. The U.S. now ranks 19th out of 24 advanced countries on this measure. America’s dismal status can be blamed in large part on the lack of generous and sensible work and family polices we see in other OECD countries. These include paid sick leave, paid family leave, and affordable child care. Another factor is the stubborn wage gap that disadvantages women—and particularly women of color—throughout their working lives and beyond. Clinton indicated that addressing these inequities is a primary focus of her economic agenda. Doing so would significantly improve the lives millions of women and their families. 

But we must do all that and more. Without access to comprehensive, quality, and affordable health care, including the full spectrum of reproductive health care—maternal health care, family planning, and abortion care—women and their families will not be able to take full advantage of the economic opportunities available to them.

I’m not worried that Hillary isn’t going to be a strong supporter of reproductive rights. In her Roosevelt Island campaign launch, she called out Republicans who “shame and blame women, rather than respect our right to make our own reproductive health decisions.” Her campaign sharply criticized House Republicans for passing a 20-week abortion ban earlier this year, saying, "Politicians should not interfere with personal medical decisions, which should be left to a woman, her family and her faith, in consultation with her doctor or health care provider." Historically, she has been an advocate for reproductive rights in both domestic and international policy.

But it would be powerful if she could also articulate reproductive health as a critical component of economic security, as we at the Roosevelt Institute did in our recent blueprint for reversing economic inequality. Voters understand reproductive health as an economic issue. New polling from Virginia shows that 64 percent of voters there believe that a woman’s financial stability is dependent on her ability to control whether and when she has children, and 68 percent believe laws that make it harder to access abortion can have a negative impact on woman’s financial security. Polling conducted in New York and Pennsylvania showed similar results.

This isn’t just a matter of opinion; the evidence illustrates that reproductive health access has economic benefits for families. Studies have shown links between family planning access and greater educational and professional opportunities for women, as well as increased earnings over women’s lifetimes. Women report that using birth control has allowed them to better take care of themselves and their families, to stay in school, to support themselves financially, and to get or keep a job and pursue a career. And when women don’t have access to reproductive health care, they are economically disadvantaged. Take the results of the recent Turnaway Study, which has shown that women who seek but are denied an abortion are three times as likely as those who access the procedure to end up below the federal poverty line two years later.

In light of these findings, a progressive economic agenda will be incomplete if it does not include access to comprehensive reproductive health care. Lack of access to those services has significant health and economic costs. Women of color, immigrant women, and poor women all experience higher rates of chronic disease, unintended pregnancy, and lower life expectancy than women with higher incomes. U.S. women of color are 3–4 times more likely than white women to die of pregnancy-related causes, and infants born to those women are 2.4 times more likely than those born to white women to die in their first year of life. In some regions of the United States, the maternal mortality rate among Black women is comparable to that in some Sub-Saharan African countries. These disparities impact women’s quality of life. They inhibit these women’s ability to care for themselves and their families, to play an active role in their communities, and to participate in the workforce and achieve economic security. There is no more important time than now to advocate for a broader progressive agenda. Attacks on reproductive health access are at an all-time high and access to basic health services is being rolled back at a rapid rate.

The right and ability to make decisions about our bodies is a fundamental building block of our social and economic wellbeing. We can’t expect people to separate the physical, social, and economic demands and stresses they experience. Are women supposed to worry about their need for an abortion without worrying about the job they might lose if they take a day off to get one? Do they stress over needing to put food on the table for their kids without also worrying about how they will pay for birth control, student loans, and rent? No. For the vast majority of people in this country, life is messy and complicated and overwhelming, and everyday families have no choice but to juggle each of these issues simultaneously.

Progressives know that. Now is the time for them to put forth an economic agenda that will address all aspects of our economic wellbeing—not just those that have historically been politically palatable. 

Andrea Flynn is a Fellow at the Roosevelt Institute. Follow her on Twitter at @dreaflynn.

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Beyond Fairness: Skyrocketing CEO Pay Is Bad for Our Economy

Jul 16, 2015Susan Holmberg

Next week marks the 5th anniversary of the Dodd-Frank Wall Street Reform and Protection Act. While the law has made some solid strides toward regulating Wall Street (with the creation of the Consumer Financial Protection Bureau arguably the most potent and popular), there is still much work to be done, particularly in the realm of CEO pay reform.

Next week marks the 5th anniversary of the Dodd-Frank Wall Street Reform and Protection Act. While the law has made some solid strides toward regulating Wall Street (with the creation of the Consumer Financial Protection Bureau arguably the most potent and popular), there is still much work to be done, particularly in the realm of CEO pay reform.

From 1978 to 2014, executive compensation at American firms rose 997 percent, compared with a sluggish 10.9 percent growth in worker compensation over the same period.

While CEO pay continues its determined ascent up a seemingly limitless mountain of stock options and other performance pay, the SEC has yet to implement all of the Dodd-Frank rules designed to reform CEO pay practices. The Say-on-Pay provision, which allows shareholders an advisory vote on proposed executive compensation packages, has been in effect since 2011, and Section 954—the clawbacks provision—should soon be finalized. But the SEC continues to delay the disclosure rule on CEO–worker pay gaps, as well as a few other key provisions.

This raises a few obvious questions: Why is it so important to urge the SEC to implement these CEO pay reform rules? Does it really matter how much CEOs are paid? Isn’t this debate really just about people being jealous of, for example, former Oracle chief Larry Ellison and his Hawaiian island?

Hardly. We have to stop talking about the CEO pay issue in terms of fairness, which usually leads to accusations of envy. This conversation just doesn’t get us very far. The truth is that skyrocketing CEO pay is terrible for our economy for two reasons, as we explain in the infographic below.

To elaborate, the problems are as follows:

1. How CEOs Are Paid

The current trend in how CEOs are paid, particularly with stock options, creates a range of economic problems. Several studies show that equity-heavy pay, because it makes executives very wealthy very quickly, distorts CEOs’ incentives, inducing them to take on too much risk. Instead of bearing this risk themselves, they shift it onto the rest of society, as we saw during the financial crisis. This model also encourages executives to behave fraudulently, as in the backdating scandals of a decade ago, and lessens their motivation to invest in their businesses. In addition, according to economist William Lazonick, in order to issue stock options to top executives while avoiding the dilution of their stock, corporations often divert funds to stock buybacks rather than spending on research and development, capital investment, increased wages, or new hiring. To top it all off, these pay packages cost taxpayers billions of dollars due to the performance pay tax loophole instituted by President Clinton.

2. How Much CEOs Are Paid

In addition to its problematic structure, the sheer volume of CEO pay creates an array of economic problems. A handful of high-profile economists—Thomas Piketty, Joseph Stiglitz, and Robert Reich, to name a few—have begun to make the case that a high degree of economic inequality precipitates financial instability because it leads to, for example, a decline in consumer demand, which has tremendous spillover effects in terms of investment, job creation, and tax revenue, not to mention social instability.

The growth of executive pay is a core driver of America’s rising economic inequality. According to the Economic Policy Institute, “[e]xecutives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.” Another calculation by economists Ian Dew-Becker and Robert Gordon finds that the large increase in the share of the top .01 percent is mostly explained by the incomes of superstars and CEOs.

Dodd-Frank’s anniversary should remind us that we still have a long way to go to rein in ever-increasing CEO pay, including instituting key provisions like the CEO–worker pay gap. If we move the CEO pay debate beyond the rhetoric of fairness and envy to a conversation about its costs, we could galvanize the public around this issue. The evidence is clear: skyrocketing CEO pay is not just an ethical problem; it’s also simply bad economics.

Susan Holmberg is Director of Research and a Fellow at the Roosevelt Institute.

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On Paleo and Faith in Government

Jul 15, 2015Mike Konczal

Our Rewriting the Rules report is in the news as part of a debate over the more liberal push in economic thinking. Matt Yglesias argues that this report and the new agenda “reverse the neoliberal formula.” He coins the term “new paleoliberalism” to describe it. David Brooks adds to this, arguing that said paleoliberalism displays “a naïve faith” in government. I want to respond to these three points in turn.

First, Yglesias says the new agenda breaks with the consensus. The old consensus, to him, was that “[t]he main way the government can impact the pre-tax distribution of income is by providing high-quality education,” and if that fails, “progressive taxes should fund redistributive programs to produce a better outcome.”

I think focusing on a new consensus is correct, but I’d think about it a different way. For us, the old consensus was built around two economic folk theories: that as an economy matures, inequality will decrease and all incomes will go up; and that any efforts to combat inequality have a serious negative impact on growth. (It’s not clear whether Kuznets or Okin, respectively, would have agreed with the extreme versions of their arguments that became this consensus.)

The new liberal economic consensus has three elements. To start, you can’t really distinguish between pre-and-post tax income the way these old arguments do. The market structures that determine final income, including taxes, also are a serious determinant of market income. This is pretty obvious if you say it in English: The rules of the economy matter. But this gets lost in the consistent idealization of abstract, perfect markets.

Also, in a world without perfect markets, efforts to fight inequality have fewer strict tradeoffs than people imagined, especially at the margins. We certainly see this internationally, with a wide variety of efforts to change the distribution of income and no obvious impact on growth. As a result, as economies grow, inequality can do any number of things—but it is a choice determined by the market.



Not Paleo

The second question is whether the new liberal consensus is “paleo.” Inasmuch as the term means nostalgia, recycling old theories, and is bordering on revanchist, I like to think it is not.

The focus is very much a reaction to the facts on the ground, including a financial system that isn’t working to channel good investments, new forms of monopoly power, lack of institutions that support the working lives of women, a criminal justice system that has become too punitive, full employment in a period of weak demand, and so on.

The tools remain those that Franklin Roosevelt formalized: a mixed economy, a regulatory state, and social insurance as the bedrock of a thriving economy. Those are the right tools to build on. But how those tools are deployed changes with the times.

There is a strain of liberal thinking that imagines we can wish the labor movement of the 1940s or the 1890s back into existence. Our report has a detailed labor section that I think is really important. But it doesn’t simply imagine we can recreate an economy that no longer exists. Instead, it builds from where we are now.

As a third point, David Brooks, talking about Clinton but mentioning the same liberal economic consensus as Yglesias, asks if we have too much “unchastened faith in the power of government,” a faith that is “epistemologically naïve.”

What strikes me about this argument is that the Republicans have no less faith in the power of government. They have faith that the government can privatize social insurance in a way that won’t involve weaker security and higher costs. They have faith that if the government gives employers wage subsidies for poorer workers, employers won’t simply pocket them in wage bargaining. They have faith, against evidence, that the government having no taxes on capital will cause a boom in private investment. They have faith that the government cutting taxes will more than make up the lost revenue. Their faith leads them to conflate building a robust civil society and economic security with laissez-faire economics.

You could say that this is a faith in “the market.” Yet rules and institutions will always shape markets; the nature of rules is what determines what the economy will look like. The transfer of power to employers and owners isn’t “less government” in any real sense of the term. Structuring markets to give employers and owners more power based on a faith that this will usher in more prosperity is not just naïve; the past few decades have shown it to be a failure.

Follow or contact the Rortybomb blog:
 
  

 

Our Rewriting the Rules report is in the news as part of a debate over the more liberal push in economic thinking. Matt Yglesias argues that this report and the new agenda “reverse the neoliberal formula.” He coins the term “new paleoliberalism” to describe it. David Brooks adds to this, arguing that said paleoliberalism displays “a naïve faith” in government. I want to respond to these three points in turn.

First, Yglesias says the new agenda breaks with the consensus. The old consensus, to him, was that “[t]he main way the government can impact the pre-tax distribution of income is by providing high-quality education,” and if that fails, “progressive taxes should fund redistributive programs to produce a better outcome.”

I think focusing on a new consensus is correct, but I’d think about it a different way. For us, the old consensus was built around two economic folk theories: that as an economy matures, inequality will decrease and all incomes will go up; and that any efforts to combat inequality have a serious negative impact on growth. (It’s not clear whether Kuznets or Okin, respectively, would have agreed with the extreme versions of their arguments that became this consensus.)

The new liberal economic consensus has three elements. To start, you can’t really distinguish between pre-and-post tax income the way these old arguments do. The market structures that determine final income, including taxes, also are a serious determinant of market income. This is pretty obvious if you say it in English: The rules of the economy matter. But this gets lost in the consistent idealization of abstract, perfect markets.

Also, in a world without perfect markets, efforts to fight inequality have fewer strict tradeoffs than people imagined, especially at the margins. We certainly see this internationally, with a wide variety of efforts to change the distribution of income and no obvious impact on growth. As a result, as economies grow, inequality can do any number of things—but it is a choice determined by the market.



Not Paleo

The second question is whether the new liberal consensus is “paleo.” Inasmuch as the term means nostalgia, recycling old theories, and is bordering on revanchist, I like to think it is not.

The focus is very much a reaction to the facts on the ground, including a financial system that isn’t working to channel good investments, new forms of monopoly power, lack of institutions that support the working lives of women, a criminal justice system that has become too punitive, full employment in a period of weak demand, and so on.

The tools remain those that Franklin Roosevelt formalized: a mixed economy, a regulatory state, and social insurance as the bedrock of a thriving economy. Those are the right tools to build on. But how those tools are deployed changes with the times.

There is a strain of liberal thinking that imagines we can wish the labor movement of the 1940s or the 1890s back into existence. Our report has a detailed labor section that I think is really important. But it doesn’t simply imagine we can recreate an economy that no longer exists. Instead, it builds from where we are now.

As a third point, David Brooks, talking about Clinton but mentioning the same liberal economic consensus as Yglesias, asks if we have too much “unchastened faith in the power of government,” a faith that is “epistemologically naïve.”

What strikes me about this argument is that the Republicans have no less faith in the power of government. They have faith that the government can privatize social insurance in a way that won’t involve weaker security and higher costs. They have faith that if the government gives employers wage subsidies for poorer workers, employers won’t simply pocket them in wage bargaining. They have faith, against evidence, that the government having no taxes on capital will cause a boom in private investment. They have faith that the government cutting taxes will more than make up the lost revenue. Their faith leads them to conflate building a robust civil society and economic security with laissez-faire economics.

You could say that this is a faith in “the market.” Yet rules and institutions will always shape markets; the nature of rules is what determines what the economy will look like. The transfer of power to employers and owners isn’t “less government” in any real sense of the term. Structuring markets to give employers and owners more power based on a faith that this will usher in more prosperity is not just naïve; the past few decades have shown it to be a failure.

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Transforming Education to Close the Creativity Gap

Jul 14, 2015Joe HallgartenRoisin Ellison

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

“Education should equip young people to shape an uncertain future so they can live more successful lives, on their own terms and together. They need the confidence and the capabilities to make their world together, in the face of tightening constraints on resources, rising aspirations, exploding opportunities for collaboration and pervasive institutional upheaval. They need an education that prepares them to be collaborative agents of change rather than atomised victims of change, to respond to frustration with creativity and innovation.”

—Leadbeater, C., Learning to Make a Difference: School as a Creative Community (2014)

The Royal Society for the Encouragement of Arts, Manufacturing, and Commerce (RSA) proposes that we live in an unprecedented time of rapid social, political, and technological change, with increased access to the tools and networks that generate potential for many more people to realize their ideas and aspirations. This is our “Power to Create” approach. And yet, much of this creative opportunity is untapped, leading to a “creativity gap” where inequalities of wealth and skills and differing levels of confidence mean not all can access the resources required.

The stakes are high when it comes to tapping into this potential, as we face immense and complex global challenges that require innovative and collaborative solutions. At the RSA, we believe that public, professional, and political attitudes toward creativity need to be rethought in order to prioritize the development of creative capacities in schools and educational institutions. This is both an end in itself and an economic and social imperative if young people are to thrive and flourish in the 21st century.

As such, when approached by the Roosevelt Institute to identify, through an educational lens, the trends and challenges that will affect our economy in the next 25 years, we saw an opportunity to collaborate with a like-minded organisation on exploring the issue of closing the creativity gap. In contributing to the Roosevelt’s Next American Economy project, we were given the space to reflect on more long-term considerations of redesign and reform—something from which the education sector itself could benefit.

Our thought brief examines how school systems could be designed to maximize students’ creative capacities such that learning is geared more clearly toward equipping students to meet the demand for creativity. It presents the trends, challenges, and potential solutions to the problems faced by our current education system in this regard, arguing that there is an increasingly strong economic rationale for schools to prioritize fostering creative capacities to ensure a future creative workforce. We conclude by outlining 12 design principles with related case studies, intended for use by school leaders, teachers, and systems to inform policy ideas within their particular context.

Having avoided prescriptive policy recommendations, we aim to stimulate conversation and debate around our 12 principles on creative learners, creative educators, and creative institutions from which a vision of school systems that would best equip young people for the 21st century can be realized.

Joe Hallgarten is the RSA's Director of Creative Learning and Development. Roisin Ellison is Programme Coordinator for RSA Academies.

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Paths to Prosperity: What Workforce Development Will Look Like in 2040

Jul 14, 2015Chelsea Barabas

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

Fifty years ago, the path to professional success and economic stability was pretty clear:

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

Fifty years ago, the path to professional success and economic stability was pretty clear:

Get good grades -> Go to college -> Find a well-paying job -> Climb the corporate ladder -> Retire

Today, this path is much more ambiguous. Many icons of modern-day success—Zuckerberg, Gates, Jobs—are college dropouts. In lieu of lifelong employment, young people are encouraged to develop “entrepreneurial skills” so that they can launch their own startups or, in other words, create their own jobs where there are none. But what will those jobs look like?

Recent technological breakthroughs in the fields of machine learning and robotics engineering have led to dramatic changes in the nature of work across many different sectors. Some researchers predict that over the next 20 years, 45 percent of jobs in the U.S. will be “computerized,” meaning that they will be broken down into automatable tasks that can be carried out by robots of one form or another.

Against this backdrop, it is no longer clear what skills, experiences, and knowledge are necessary in order to succeed in today’s rapidly evolving economy.

A few months ago, the Roosevelt Institute invited me to speculate on what the future of workforce development will look like in the coming decades, as technology continues to drive fundamental shifts in the nature of work in the U.S. economy. In my thought brief, I explore the following questions:

What skills and competencies should we focus on equipping the workforce with in order to meet the labor demands of the future economy?

Are university degrees dead? How will we demonstrate and package our competencies in order to find gainful employment in the future?

How will companies find skilled workers in the future? What institutions are needed in order to mediate fair relationships between potential employees and employers in the labor market?

In order to answer these questions, I outline a few specific trends currently underway in the arenas of workforce development, recruitment, and hiring. I examine the emergence of alternative higher education programs that seek to foster metacognitive competencies alongside the training of in-demand technical skills. In addition, I discuss the rise of online platforms like Khan Academy and Degreed, which could provide more customized educational experiences to a wide range of students. And finally, I touch on the opportunities and challenges that accompany the rise of recruitment methods that are driven by big data analysis.

These trends serve as an anchor for a much broader discussion on what the pathways to prosperity could look like in the rapidly changing U.S. economy. Although the future of workforce development remains highly ambiguous, my hope is that this thought brief can serve as a guide to thinking about the immense set of opportunities and risks that lie before us as we figure out how to prepare coming generations for the future of work.

Chelsea Barabas is the Senior Advisor for Social Impact at MIT Media Lab's Digital Currency Initiative.

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Working in the Cloud: How the Platform Economy Will Transform Employment

Jul 13, 2015John ZysmanMartin Kenney

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

Digital platforms are the base upon which an increasing number of activities—economic, social, and political—are being organized. If the Industrial Revolution was organized around the factory, today’s changes are organized around the algorithms running in the cloud. The salience of these digital platforms suggests that we are in the midst of a reorganization of our economy in which the platform firms are developing power roughly equivalent to that of Ford, General Motors, and General Electric of earlier eras.

Like the Industrial Revolution, this “platform economy” is already having a profound impact on firm organization, employment relationships, and types of work available across a wide variety of economic activities. Will the digital economy in this current manifestation, based ultimately on the operation of algorithms in cloud computing, inexorably lead to the elimination of jobs and work? Or are new opportunities for work emerging? In what new ways is value being created and captured?

In our thought brief, we maintain that even as algorithms automate work, "new work" is being created. App stores, YouTube, Uber, TaskRabbit, Homejoy, and many other platform firms are transforming industries by linking together "workers" with customers in new ways. In some cases, this is displacing or threatening existing, often regulated, service providers such as taxis and hotels. In other cases, it is formalizing previously less organized or locally organized work. Finally, other platforms, such as app stores and YouTube, are creating entirely new occupations or occupational branches.

And yet, everywhere "employment" appears to be more precarious than ever, with the emergence of the Gig/1099 Economy and non-monetarily-compensated value creation such as user-created content on Facebook or YouTube. Paradoxically, it could be argued that more value than ever is being created, even while traditional notions of employment are challenged. These changes are not likely to result in the "workerless" society, but rather in a society within which the preponderance of the work and value creation is more dispersed than ever before, even as the platform owner centralizes the transactions and captures value from them.

The particular configuration of the platform economy will vary greatly across countries and across sectors, both in service and traditional manufacturing sectors. W know from examining previous technological changes that the manner in which technology is deployed and utilized powerfully shapes the employment outcomes, both in terms of the number and character of jobs. As existing firms and new firms are established to deploy these new ICT technologies, they are overturning existing domestic employment and challenging social policies. This creates conundrums for policymakers concerned about employment and equality as they are pushed to support these transformations, but also to prepare for what are likely disconcerting outcomes. Supporting the transformation requires, for example, not only building the information infrastructure but also creating the market rules to encourage experimentation and new methods of value creation. This will engender intense political fights about who captures the value and who suffers the consequences of these transformations. 

John Zysman is a professor of political science at the University of California, Berkeley. Martin Kenney is a professor in community and regional development at the University of California, Davis. 

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The Role of Cities in the 2040 Economy

Jul 13, 2015Julia Root

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

This week, the Roosevelt Institute's Next American Economy project is releasing a series of thought briefs in which experts examine how the economy will change over the next 25 years. Read the introduction here.

2014 was the year of Big Data (a term that has now fallen out of favor), the Sharing Economy (think Uber and Airbnb), the Internet of Things (your mobile device), and the explosion of data from sensors and daily transactions that are quantifying our everyday lives. In mid-2015, these trends are now a part of our everyday lexicon and daily rituals whether we think about them or not—when we hail a car service, use an app to route our travel itinerary, monitor our fitness levels using Fitbit, or check out energy usage at home.

But behind the scenes it’s all still a bit messy, and there are many unanswered questions. Academics, policymakers, urban thinkers, and citizen advocates are still interpreting and vigorously debating what these trends mean for people, our cities, and how we govern.

In May 2014, the Roosevelt Institute convened a group of economists, researchers, data scientists, policymakers, and academics to speculate on the future of our economy. Drawing on expert projections, my thought brief starts with a focus on our rapidly changing world in 2015 and then looks forward to 2040. It seeks to evaluate how the city is evolving into an urban platform and how new tech-enabled governance models and digital infrastructure will play an important role in supporting new economic growth.

In this thought brief, I explore what the role of cities could and should look like in 2040 and how cities could evolve to address a complex future. I discuss the promising developments and trends that have occurred during the last year and offer two speculations for what the city will look like in 2040 as a dynamic urban platform. There will be a new organizational structure for how municipal governments solve public problems and a new regional, mega-city approach for economic development that is ripe for entrepreneurism. I return to 2015 to present the infrastructure investments—in data, talent, technology, and broadband Internet—that will be required to advance a progressive agenda. I also present a list of questions to be considered. Lastly, I offer a set of recommendations to a fictional mayoral chief of staff on what ideas could be implemented now.

Julia Root is a Fellow at the Governance Lab at NYU and project lead for Open NYU and the Open Data 500 Global Network.

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A Policy Agenda for Stronger, Fairer, and More Sustainable Growth

Jul 13, 2015Roosevelt Institute

The Roosevelt Institute today released the following statement in response to Hillary Clinton’s economic speech at the New School:

The Roosevelt Institute today released the following statement in response to Hillary Clinton’s economic speech at the New School:

Today, Hillary Clinton began outlining a comprehensive framework for tackling America’s problems of slow economic growth, low investment, and stagnant wages. Secretary Clinton’s speech reinforced an argument made by the Roosevelt Institute and supported by the economic evidence: inequality is a choice determined by the rules that structure how our economy works—the laws, regulations, and institutions that shape market behaviors and outcomes. Changes we have made to the economic rules over the past 35 years have left the U.S. with a weaker economy, higher inequality, and greater concentration of economic power. This cannot stand if the U.S. economy is to be put on track for long-term prosperity.

It is encouraging to hear Secretary Clinton focus so clearly on this central cause of America’s economic problems as she articulates a three-pronged approach to putting the U.S. economy back on track: making economic growth stronger, fairer, and oriented toward the long term. Delivering on the sweeping vision offered today will require a detailed policy agenda that addresses a number of issues ranging from family-friendly work policies to financial reform. Below, we’ve offered an outline of specific policies that we urge all presidential candidates to consider as they build their platforms.

But beyond any specific policies, an effective agenda must take a comprehensive approach to reforming the economy—an approach built on the evidence that our economy works best when it is working for everyone, not on the faith that prosperity will trickle down from a wealthy few at the very top. We cannot achieve strong, sustainable growth so long as the majority of economic gains remain concentrated in so few hands. To put it simply, stronger growth, fairer growth, and more sustainable growth are interconnected. We can’t have one without the others.

As we discussed in detail in our Rewriting the Rules of the American Economy report, there is a long list of policies that America can choose to implement in order to promote stronger, fairer, and more sustainable growth. We have summarized those policies below.

Making growth stronger

This means breaking down barriers to work: creating good jobs, sustaining good jobs, and ensuring that more Americans can obtain good jobs.

1)     Expand access to labor markets and opportunities for advancement

  • Enact paid sick and family leave so that more people can have the security to work while still caring for their children and family members.
  • Subsidize child care to benefit children and improve women's workforce participation and economic mobility.
  • Open Medicare to all to make health care more affordable for families and employers.
  • Expand public transportation to promote equal access to jobs and opportunities.
  • Reform the criminal justice system to reduce incarceration rates and penalize employers for discriminating against people with an incarceration history.
  • Enact comprehensive Immigration reform, recognizing immigrant families for their contributions to America’s economic success.
  • Protect women's access to reproductive health services so all individuals can access comprehensive, affordable, and quality care.

2)     Make public investments needed for private sector growth

  • Invest in large-scale infrastructure renovation with a 10-year campaign to make the U.S. a world leader in infrastructure manufacturing, jobs, and innovation that raises efficiency and cuts the cost of doing business in the U.S.
  • Enact universal early childhood education and a universal child benefit, ensuring that every child in America has access to pre-school starting at age 3 and that parents have the resources to invest in their children’s futures.
  • Make higher education accessible and affordable by reforming tuition financing, restoring consumer protections to student loans, and adopting universal income-based repayment.

3)     Make full employment the goal

  • Appoint members to the Federal Reserve who prioritize the Fed’s full employment mandate.
  • Restore balance to trade agreements to ensure that U.S. businesses and workers can compete with the world on a level playing field.

Making growth fairer

This means rewarding work fairly and crafting a tax code and compensation system that incentivizes investment and innovation in the real economy. 

1)    Empower workers

  • Close the pay equity gap to ensure equal pay for equal work.
  • Raise the national minimum wage and expand enforcement to ensure that work pays a living wage.
  • Strengthen the right to collective bargaining by easing legal barriers to unionization, requiring mandatory arbitration for first contracts, imposing stricter penalties on illegal anti-union activities, and amending laws to reflect the changing workplace in America.
  • Leverage government to set workplace standards by attaching strong pro-worker stipulations for private government contractors.

2)  Make taxes more progressive

  • Ensure top earners pay their fair share by raising top marginal income tax rates, replacing tax expenditures with capped credits, and taxing capital gains at least as much as labor income, with a much higher tax rate on short-term capital gains.
  • Enact revenue-positive corporate tax reform that ends the indefinite overseas deferral of corporate profits  in foreign tax havens, eliminates the incentive for offshoring by taxing corporations as unified entities on the basis of their global income, establishes a global minimum tax, and reduces corporate welfare within the tax code.

Focusing growth on the long term

This means ensuring that our financial system focuses on creating long-term value and minimizes the risks of a major financial crash.

1)     Fix the financial sector

  • Eliminate hidden subsidies to big banks that create too much risk and then hold taxpayers hostage to the need for bailouts.
  • Appoint officials to key federal agencies with a track record of enforcing regulations rather than lobbying for the industry.
  • Level the playing field between large financial institutions and community banks with increased leverage requirements and leverage surcharge.
  • Address the “shadow banking system” that eludes existing rules and regulations designed to make our economic system safe, stable, and accountable.
  • Eliminate the loopholes promoting offshore banking centers and tax havens.
  • Increase transparency throughout the financial sector so we can finally understand the risks and conflicts of interest that tip the scale of fairness and threaten to destabilize the economy.

2)    Focus corporate executives on long-term investment

  • Eliminate the CEO performance pay loophole, i.e. Section 162(m), that ties incentives to short-term stock prices rather than long-term performance; increase disclosure requirements on executive compensation and stock options; and implement the Dodd-Frank rule requiring disclosure of the CEO–median worker pay ratio.
  • Enact tax reform to combat short-termism for shareholders, first by raising tax rates on capital gains to the same level as the rates on labor income and then by raising the rate on short-term capital gains and non-productive long-term capital gains (land speculation) even higher.

3)     Rewrite the rules of trade to put all U.S. workers and businesses on a level playing field

  • Restrain the scope of the investor–state dispute settlement procedures for future agreements (and revise the myriad prior agreements) and build in safeguards so that public interest regulations cannot be undermined by private international courts.
  • Rebalance intellectual property protections to encourage innovation and lower consumer prices.
  • Make U.S. market access benefits contingent on firm audits of compliance with labor and environmental standards—a social standards export license—to give real meaning to a high-standard global economy.

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