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!

Follow or contact the Rortybomb blog:
 
  

 

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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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The Future of Small Business Financing: Where We're Going, We Don't Need Banks

Jul 9, 2015Richard Swart

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.

“We need banking, but we don’t need banks.” 

—Bill Gates, 1996

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.

“We need banking, but we don’t need banks.” 

—Bill Gates, 1996

When asked to think about challenges facing small businesses as they attempt to access capital, I could not help but think of the famous quip above, which essentially predicts the end of banking as we know it. None could predict the calamitous rise and fall of the stock market, but with the near death—and eventual resurrection—of the “too big to fail” institutions, it is not hard to see the roots of this crisis running through the last 30 years.

The nature of our relationship to institutions has fundamentally changed. Whereas financial and corporate institutions held the public’s trust in the past, that trust has now shifted to networks—to shared risk, collaborative capitalism, and peer-based lending models. To future generations, the idea of one financial company providing all of our financial needs will seem foreign.

Often, crowds can better predict elections and stock prices than markets; similarly, social intelligence and signals often are more predictive of consumer behavior than past financial history. Today, credit risk can be inferred from one’s peer network, the health of a business better predicted by Yelp than by a balance sheet.

Contemporary fund-based approaches to providing access to capital often fail. Most of the funds are unprofitable, and the expectations and pressure put on early firms is antithetical to the goal of funding and supporting innovative new businesses.

In my thought brief, I speculate that the various forms of collaborative and social finance evolving since the Great Recession will build a new financial system—one that can provide a range of affordable, fast, and transparent financial services to the businesses that need them. These new models will supplant the finance industry that has systematically failed to ensure businesses have access to needed capital.

By 2040, people may read Bill Gates’s quote and wonder, what did he mean by “banks”? The future is bright. The convergence of technology, big data, and social networks has empowered a dynamic generation of fintech entrepreneurs who will create an unimaginable array of new financial products and services. In response, all but the incumbent institutions will celebrate.

Richard Swart is Crowdfunding and Alternative Finance Researcher and Scholar-in-Residence in the Institute for Business and Social Impact at the University of California, Berkeley.

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What Will Unions Look Like in 25 Years?

Jul 9, 2015Michelle Miller

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.

We can only envision the union of the future by imagining the experiences of the worker of the future. Who is she? How does she work? Who is her boss? And, most importantly, what does she need to have power over her own economic future?

The rapid growth of cloud technology platforms that enable new models for the distribution of work signals that the worker of the future will be performing a series of tasks instead of a single job. It’s possible that her “workplace” will not be a fixed geography but multiple points on a map, including a space in her own home. As even senior managers may be replaced by intelligent technology, she may never see her boss or receive performance feedback in person. And while she’ll certainly have coworkers, it will be difficult to gather around a water cooler and discuss the day’s events when they are scattered around the world, accessing their work one gig at a time.

As I worked on cobbling together a vision for the union of the future, I kept this worker in mind. And, as the co-founder of a digital platform dedicated to supporting people who are experimenting with new forms of workplace power, I get to see glimpses of this future every day: Self-sustaining Facebook groups run by workers through their OURWalmart affiliation; Starbucks baristas connecting globally through worker-led campaigns; Mechanical Turkers building plug-ins to rate task requesters and collaborating on campaigns through Dynamo; Etsy sellers supporting one another through teams; Uber drivers sharing information on Reddit. Workers are already making this future real by leveraging popular technology tools to connect with each other; it’s up to our existing institutions to create the infrastructure to make their efforts more effective, powerful, and lasting.

What I lay out in my thought brief are some ideas for how we might do just that. As the employee–employer relationship crumbles, we must accept that our policies and structures for building worker power require radical reform. Embracing platform technology by investing in its connective and collaborative potential for workers opens unprecedented opportunities for building global collective power. Thoughtfully reimagining how we enable resource-sharing to create new, worker-owned safety nets that offset precarity while recognizing the inherent power of our existing institutions can instill stability and support. And recognizing these new kinds of workers by advancing expansive, inclusive policy solutions rounds out the basic infrastructure for building worker power over the next 25 years.

A decade ago, I was part of a conversation with a homecare worker who had helped organize her union. In describing what this meant to her, she said, “the union is a thousand, a million dreams, waiting to become real.” It is not an NLRA-defined bargaining agreement or adherence to a rigid set of classifications. For workers, it is some amount of agency over their lives. It’s a way to connect, a way to shelter each other, and, ultimately, a way to ensure that our millions of dreams have the chance to become real.

Michelle Miller is the co-founder of Coworker.org, a digital platform that matches campaigning tools with organizing, media, and legal support to help people change their working conditions.

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Maximum Happy Imagination: What Rules Should Structure the Sharing Economy?

Jul 8, 2015Denise Cheng

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.

“You have to be an optimist to believe in the Singularity,” she says, “and that’s harder than it seems. Have you ever played Maximum Happy Imagination?”

“Sounds like a Japanese game show.”

Kat straightens her shoulders. “Okay, we’re going to play. To start, imagine the future. The good future. No nuclear bombs. Pretend you’re a science fiction writer.”

Okay: “World government…no cancer…hover-boards.”

“Go further. What’s the good future after that?”

“Spaceships. Party on Mars.”

“Further.”

“Star Trek. Transporters. You can go anywhere.”

“Further.”

I pause a moment, then realize: “I can’t.”

Kat shakes her head. “It’s really hard. And that’s, what, a thousand years? What comes after that? What could possibly come after that? Imagination runs out. But it makes sense, right? We probably just imagine things based on what we already know, and we run out of analogies in the thirty-first century.”

—Robin Sloan, Mr. Penumbra's 24-Hour Bookstore: A Novel (2012)

Besides the rote doomsday scenario, can you imagine what the world will look like in five years? Fifteen? What about 25? 2040 isn’t far off, but when it comes to thinking about work in a technologically advanced economy, it might as well be a millennium away.

Today we see a mixture of full-time, part-time, contingent, and undocumented work, each offering varying degrees of economic stability. With the rise of the “sharing economy,” work has become easier to find, but it has also become ever more precarious, underlining both the pros and the cons of independent contracting. We need to seriously consider the policy challenges posed by a modern economy and start working to address them.

When the Roosevelt Institute asked me to write about online, peer-to-peer marketplaces, they were the first to push me to imagine what the world would look like if all of my recommendations for worker support were implemented. Going back to Kat: If 2040 is where our imagination runs out, then we cannot wait 10 years to seriously consider the legal structures that surround work and the need for change.

In my thought brief, I play my own version of Maximum Happy Imagination: I recommend policy amendments to the independent contractor status, including a third worker classification in the liminal space between “employee” and “independent contractor”; I proffer policy ideas around data ownership and periodic collective bargaining over platforms’ Terms of Service; I recommend easing income penalties by reducing taxation on a certain percentage of peer economy income and considering providers as small businesses once they exceed that minimum; I also imagine the rise of creative financial products that help manage household income without extracting it.

The portrait I paint in this paper still doesn’t get beyond Kat’s 31st century, but I hope it provides a good starting point for some of the many necessary steps along the way. Maximum Happy Imagination opens up a world where we don’t only react to the things we dislike but take charge to build the world we want.

Denise Cheng is an Innovation Fellow with the San Francisco Mayor's Office of Civic Innovation. 

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Envisioning the Economy of 2040

Jul 8, 2015Next American Economy

Early in the morning factory whistle blows / Man rises from bed and puts on his clothes / Man takes his lunch, walks out in the morning light / It's the working, the working, just the working life

—Bruce Springsteen, “Factory” (1978)

The predestined, blue-collar lifestyle that Bruce Springsteen sang about in Darkness on the Edge of Town is already a thing of the past, and it will only grow smaller in our rear-view mirrors as we approach 2040. Soon, the world of the large central firm and steady, predictable work will exist only in museums.

Early in the morning factory whistle blows / Man rises from bed and puts on his clothes / Man takes his lunch, walks out in the morning light / It's the working, the working, just the working life

—Bruce Springsteen, “Factory” (1978)

The predestined, blue-collar lifestyle that Bruce Springsteen sang about in Darkness on the Edge of Town is already a thing of the past, and it will only grow smaller in our rear-view mirrors as we approach 2040. Soon, the world of the large central firm and steady, predictable work will exist only in museums.

What will replace it?

In a new series of thought briefs, we attempt to address this question and describe some ways that economic, social, and political institutions in the U.S. must adapt to provide opportunity and prosperity in the mid-21st century. Guided by the belief that we are in the midst of an economic transformation on par with the Industrial Revolution, the Roosevelt Institute’s Next American Economy project identifies the trends and challenges that will shape our economy in the next 25 years in order to better inform the policy decisions we must make today. We are particularly focused on the potential impact of new technologies on productivity, employment, and economic security.

To help glean insights on these topics, we convened a diverse group of economists, technologists, union leaders, and entrepreneurs, and framed a series of conversations aimed at identifying the key concerns of today and projecting how they might evolve, dissipate, or intensify over the next 25 years.

These briefs—our first public release—take on some of the most promising and challenging issues that our expert working group came up with, including the promise and perils of the gig economy, smarter cities, and better modes of finance, as well as the need for new worker bargaining platforms and improved, lifelong education. We consider these topics in what we hope is a thorough (though of course not exhaustive) and accessible narrative.

Although each brief in this series focuses on a different aspect of economic evolution, the collection as a whole is primarily concerned with a foundational question of adaptation: How should American society—its workers, businesses, and government—adapt to a rapidly shifting economic environment? Generally, we identify four recurring formative trends that will shape the 2040 economy.

First, technologies like cloud computing, 3D printing, and robotics will revolutionize the way Americans work, communicate, and generally relate to the world. Technology will replace workers as a variety of professions become automated, but, as it leads to the creation of new jobs and overall economic growth, the extent to which technology can offset its own economic drawbacks remains to be seen. In “Where Will Work Come From in the Era of Cloud Computing and Big Data?” John Zysman and Martin Kenney discuss how American manufacturers can make up for lost business by ushering in a new era of high-tech, value-added products.

Second, changes in the workplace will move traditional employment increasingly toward entrepreneurship, freelancing, independent contracting, and gig economy or “peer-to-peer” work on platforms like TaskRabbit. This will result in myriad changes to the ways in which Americans look after basic needs, from health care to retirement planning, that were previously met by a single employer. In “Barriers to Growth in the ‘Sharing Economy’,” Denise Cheng addresses numerous facets of the gig economy, while in “Challenges in SME Access to Capital” Richard Swart discusses the importance of start-up capital in a more entrepreneurial future economy.

The third trend, following directly from the second, concerns the likely increase in overall economic insecurity that will result from a society-wide decrease in the number of traditional jobs. Without the stability of long-term, full-time employment from a single firm that provides not only salary but also comprehensive benefits, Americans will need new tools to provide economic security for themselves and their families. Key to this point is not only the cost of benefits but the increased time and effort workers will have to expend just to manage their careers. How will workers bargain, for example, when they are employed—effectively—by a multitude of customers across a number of platforms like Uber and Etsy? If they are contractors, what institutions will help them complete their annual tax returns and handle billing and payments? And lastly, how will workers keep their skills up to date as employer needs evolve around them? Michelle Miller addresses some possibilities for the future of bargaining power in “The Union of the Future,” while briefs by Chelsea Barabas and our colleagues at the Royal Society for the Encouragement of Arts, Manufacture, and Commerce discuss two revolutions in education that will help workers adapt in a rapidly changing economy.

Finally, the government’s increasing inability to make policy that benefits society and meets the economy’s most pressing needs will be exacerbated by rapid technological and economic evolutions that make such policy ever more pressing. Simultaneously, swelling retirement entitlements will raise budgetary challenges that further restrict the federal government’s ability and willingness to invest and reform. As such, is out of necessity that we at the Next American Economy project feel cities—already successful laboratories for creative policy solutions—will increasingly become the incubators and epicenters for innovation and business growth. Julia Root goes into great depth on this topic in “Urban Platforms in 2040.”

The challenge of adapting to these evolutions is grave. Indeed, it would be easy—and some of us were tempted—to throw up our hands and prepare for the worst. To avoid unproductive handwringing, the Next American Economy project took a collective oath of optimism. This is perhaps most apparent in our final brief, written by Next American Economy leader and Roosevelt Institute Senior Fellow Bo Cutter, in which we project many of the ideas discussed in these papers into 2040 and paint a holistic picture of this (not overly) optimistic scenario.

We hope that you will enjoy this foray into our future.

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