Sunday, September 27, 2009

Unemployment Or Unemployability? A Story.

So the recession is over but unemployment is not falling, at least not yet. How on earth can a recovery be "jobless"? And how might this fit with the fact that, in the 1960s, about 60,000 new businesses a year got started in the US, while over a million a year were getting started in the years before the collapse? Here's a little story; bear with me:

In the summer of 2003, I drove my aging BMW over to Dave Marshall's garage, a converted two-bay service station on Pleasant Lake near my summer home in Wilmot, New Hampshire, hoping to find out from Dave—the solid son of the former Chief of Police—where in Concord or Manchester the nearest BMW dealership was. The “climate control” system was gone, a system governed (I correctly surmised) by a complex little computer module—not your change-your-oil-by-the-beach kind of problem. Dave got behind the wheel, confirmed the symptoms, shrugged, and told me he could handle it. I told him I doubted it. He smiled, not quite condescendingly. I followed him inside.

Sitting down at a terminal, Dave tapped a few soiled keys, and logged on—so he took pains to explain—to a network he paid a nominal price to access—a network of tens of thousands of independent, certified mechanics just like him, nationwide. He took a history of my problem—year, make, type of failure, etc.—and transmitted my description in some detail; then he gave me a coffee, told me he'd be back to me when he could “work up a report” and sent me home.

Later on I learned that the website Dave logged onto was set up by the IATN—the International Automotive Technicians Network—which itself began as chartered non-profit back in 1972. The network has grown enormously since then, with nearly 50,000 users worldwide: archives, databases for all cars, a library of technical literature, and over a dozen engineering forums on leading edge automotive design problems. Dave was logging into a “groupware” site, which other mechanics haphazardly checked, to see if they could help a fellow member, or solve a product of their own.

Three hours later, I was driving by the garage again and stopped in. Dave was about to call me. He showed me pages of responses, which produced a consistent number of solutions (17 of 21 were more or less identical), describing methods of repair, parts descriptions, parts numbers, software settings, and part sourcing. He was also able to determine whether his diagnostic computer could actually reset the relevant module. By the end of the day, he said, he could give me a complete analysis and estimate, educating me to the module's engineering in the process. Even if I could not give the car to him, he told me, the printout would help me “ask intelligent questions” of the dealer.

NOW, DAVE IS not one for policy clichés. But if the “ownership society” had ever needed a poster-child, it could have done worse than capture the smile of reason on his face as he revealed his powers to me. Dave could not have survived as an independent entrepreneur of this sort a mere fifteen years ago and he knew it. His two bays had become five. His peer-to-peer information network, his “platform,” had matured into a settled work environment, which meant the world to him: from diagnostic machines to parts ordering systems. These integrated technologies are now so pervasive that our children simply take them for granted. But to those of us who came into our own in the 1960s and 1970s, Dave included, they remain magical.

Dave's platform did not just enable him to fix the problem with my car. It meant he could learn to fix ever more complex problems on a proliferating number of cars. It enabled him to become (or at least perform like) a master technician without having to go for additional formal training. The key was to have good information about information.

For every problem with every car, in other words, Dave now saw an opportunity to assemble snips of knowledge into a “deliverable”—a bundle of technical know-how with market “know-about.” He became a better business strategist as well. He might procure components and tools from suppliers from virtually anywhere—California, Mexico, Canada, even the Far East—and then use inventory control software to track how to maintain margins on parts, distinguishing between parts used everyday (such as bolts), and parts ordered only once in while (such as ball-joints).

Dave could learn what his competitors were charging, or paying for parts. He could instantly explore the burgeoning roster of mechanics who were also his brains-trust. He could help maintain the evolving skills of his employees, anyone of whom might become a competitor.

In short, the platform enabled Dave to offer—not standard services—but custom “solutions,” much like an IBM consultant or a Siemens engineer. The platform meant that Dave could compete with, not go to work for, the dealers in Concord or Manchester. It meant not having to offer only “commodity-like” services, like oil changes—and then see his prices (and style of life) eroded by competition from the Jiffy Lube a half-hour away off south 93.

AND ANOTHER THING. Dave would not be (as Adam Smith once put it) “mutilated” by repetitive, mind-numbing tasks in some industrial division of labor. The platform meant that he would have to out his mind to things, even that his wife Carla, a literature graduate of the local college, Colby-Sawyer, could work with him on the myriad human problems involved in customer care—and not get swamped by tedium. It meant that, together, they could establish something like a family practice for cars, and charge accordingly, hiring two or three like-minded people to the team.

What would life have been like without the platform? Had Dave worked only on tire changes and lubrication jobs, he would have had few opportunities to speak his mind or even open his mouth. But now his work day-in and day-out—learning, teaching, serving, persuading—reinforced the skills he needed to perform as a citizen. He had to cultivate a reputation for excellence, and learn to manage all kinds of personalities in stressful situations. For nothing but his reputation could stop others from opening up on the other side of the lake. He had to challenge the prevailing wisdom about what a local garage was, and move his customers to expect ever greater sophistication from him—even to become a community resource. (Every week, Dave now takes out an ad in the local Shopper, answering questions about car repair like the “Car Talk” duo on NPR.)

Was there a social compact here, an implicit deal between citizens and their commonwealth? There certainly was, and Dave’s side of it was to take ownership of his professional life. To make the most of his information resources, Dave had to commit to progress in a technical field, much like a physician. The solutions Dave provided entailed complex engineering, but none of the people at Marshall's Garage had to be an engineer. The knowledge they competed with was embedded in a virtual community which could be instantly called upon. What the garage team really needed was an openness to teamwork, or more accurately, to the act of problem-solving itself.

BUT HERE IS the sad reality impinging on unemployment. For there was greater social risk to the compact, too, and it was not hard to imagine what became of car mechanics who, unlike Dave, were not prepared to hold up their end of the deal. You ran into many such people in rural New Hampshire: not-quite-enough schooling, too much beer, too much TV. One year, a guy I came to know was pumping gas in New London, until self-service equipment did in his job. The next year he was working as a clerk in a convenience store, where inventory control software had turned his job into a minimum wage job.

Once, when Dave was growing, up such badly educated people held more or less steady (though, let’s face it, distasteful) assembly jobs in the gear factories, or wool mills, or shoe factories that had studded the roads and rivers of the state. People with high school education had held sales jobs in small retail stores and banks. Most of those jobs have been lost to the platform in the larger sense, that is, to networks connected to robots governed by custom software or computer-integrated machine tools; or to scheduling and book-keeping software, or even just to ATMs. Most famously, perhaps, such jobs have been lost to Wal-Mart’s outsourcing logistics, while the low prices of the things ordinary wage-earners buy at Wal-Mart keep them in what resembles a middle class.

Labor unions could not make a difference here. It was precisely because direct labor used to be so simple, mechanical and yet critical to value creation that labor unions made sense. The logic behind unions may still apply to some kinds of work—fast-food servers, apparel assemblers, hospital orderlies. But any job that is simple and repetitive, that requires so little individual creativity that an employee would rather join a union than negotiate an individual career path, has become a prime target for the computer-integrative technologies.

All of this has meant that tens of millions of people—people with children, people hobbled by dullness and self-doubt, people who played by rules that simply evaporated from the time they were 15 to the time they were 35—are hard pressed to see a future. When President Obama spoke during the campaign of people consoling themselves with guns and fundamentalism (and, he might have added, FOX), he was putting his finger on the crisis. After all, the school system we conceived, the union movements we adjusted to, the “leading” economic indicators we tracked, the Government programs the New Deal put in place—none of these things assumed that virtually every member of society would need the equivalent of college-level skill just to get a decent job. Paul Krugman said he hoped Obama would be a new FDR. But FDR is not what we need. By comparison, FDR's challenge was simple. We need the equivalent of nation building here at home.

For people with college educations like Dave and Carla, working conditions have generally improved, no doubt, even when we do not work for ourselves. Salaries for college graduates, on average, are more than 100 per cent more than for high school graduates. And then there are the perks. But everyone, including highly educated people, are dealing with higher levels of risk. Knowledge companies do not survive like the old industrial ones did. On the whole, the old command-and control corporation has been replaced by the love-'em-and-leave-'em corporation. (Duke University’s Arie Lewin has shown that even Fortune 500 companies fail or are acquired at a rate three times faster than was the case in the 1980s.)

So the dangers of the knowledge economy are clear enough, but so are the opportunities. Once, in an economy defined by the industrial division of labor, a person who owned none of what Marxists called the “means of production” was helpless and periodically desperate. The welfare state acted to assure that all citizens remained consumers—which stimulated the economy as it saved their lives. But the great danger was once periodic unemployment for have-nots. Now it is chronic unemployability for know-nots. The challenge is to be a qualified producer, not just a qualified consumer. What we need, rather, is a mentor state, about which more in the weeks ahead.

Sunday, September 20, 2009

Palestinian State In The Making

President Obama will be hosting both Prime Minister Netanyahu and President Abbas this week. The subject, presumably, will be how to advance the prospects of a Palestinian state, and the agenda, almost certainly, will focus on such things as settlements and security arrangements. What has been getting less attention, but seems the biggest emerging fact on the ground, is the West Bank economy which is being driven by an exceptional, rising business class: the key to Palestine's civil society, around which a state must form.

I have spent a good part of the summer talking to these leaders, and report on their achievements--and urgent requirements--in the current Harper's. The bottom line is this: Israel could not invent more appropriate partners to build a Palestinian state, economically federated with itself and Jordan; yet in spite of Netanyahu's exhortations, Israel seems to be doing everything to foil Palestine's economic development. Obama's chief objective must be to get Israel out of its way. (Alas, only Harper's subscribers will currently have access to the entire article. Below are excerpts from the article's opening.)

Benjamin Netanyahu ran for prime minister last winter rejecting a Palestinian state but promising to advance “economic peace.” In his much anticipated speech at Bar Ilan University in June, he cautiously reversed himself on statehood but returned to his favorite theme: “Economic peace is not a substitute for peace, but it is a very important component in achieving it. . . . I call upon the talented entrepreneurs of the Arab world to come and invest here.”

For Netanyahu’s boosters, the phrase often means little more than increasing jobs for Palestinians on Israeli construction projects, including settlements that ring Ramallah, and in tax-exempt industrial zones; as well as more opportunity for West Bank farmers to sell to Israeli fruit wholesalers (who, in a grotesque twist, then pad their profits by controlling the distribution of their produce in Gaza). Economic peace slyly implies that Israelis can have no “partner” for a political settlement until Palestine looks more like Delaware. Meanwhile, presumably, fuller bellies and fatter wallets will make Palestinians more tranquil.

Nevertheless, economic peace prompts a reasonable question. If a Palestinian state rises, will it work? Does not the prospect of sovereignty presume a class of resilient entrepreneurs and professionals, people who will build competitive businesses that will, in turn, employ a burgeoning population? The median age in Palestine is nineteen. It is likely that 2 million refugees will be returning in the event of a deal with Israel. Palestine will inevitably become an Arabic-speaking megalopolis spreading east toward Jordan from Jerusalem, yet interlocking with Israel, itself a mainly Hebrew-speaking megalopolis spreading north from Tel Aviv to Haifa. Together, Israel and Palestine will look something like greater Los Angeles. In that environment, fellahin harvesting their olive trees are going to seem beside the point.

For peace to take root, in other words, a Palestinian business class will have to engender a civil society—people networked to the region and the world, developing a secular state as a counterpart to their combined enterprises. If Israel really wanted peace, wouldn’t it do everything in its power to facilitate this?

THE QUESTION IS intriguing, not only because of what the Israeli prime minister is saying (or how he is bluffing) but because of what the Palestinian prime minister is doing. Salam Fayyad, the head of the PA’s government since the summer of 2007, is a former World Bank official who’s often called a “technocrat.” He’s really a kind of chief executive of this new class of managers and investors: people unafraid of commercial competition, even with Israeli firms, and who expect to eclipse and eventually displace the PA’s Fatah leaders—the old cadres whose patronage, monopolies, and little corruptions during the 1990s all but guaranteed Hamas’s success in the 2006 election.

Fatah held its first general convention in almost twenty years in Bethlehem on August 4, and a young guard more determined to cooperate with Hamas is now challenging President Abbas’s sorry diplomatic record. Behind the scenes, however, it is Ramallah’s business elites who are positioning themselves. Fayyad is not the only seasoned manager now taking a role in the PA: the new economics minister is Dr. Bassem Khoury, the former CEO of generic drugmaker Pharmacare; Dr. Mohammad Mustafa, another former World Bank official, now runs the Palestine Investment Fund (PIF), Palestine’s $850 million sovereign wealth fund, put together with painstaking transparency from monies Yasir Arafat once controlled with virtually no oversight. Even outside the PA, the influence of senior telecom executives such as Paltel’s Sabih Al-Masri and Abdul Malik al-Jaber, or private-equity magnates such as Sayed Khoury, is gossiped about, counted on. One sees the makings of a quiet revolution.

Sam Bahour, an Ohio-born management consultant who was instrumental in setting up Palestine’s first telecommunications company and who, subsequently, pushed through construction of Ramallah’s first shopping center and supermarket during the darkest days of the Al-Aqsa Intifada, does not approve of Fayyad’s American-trained police force’s peremptory jailing of Hamas cadres and their curtailment of civil liberties. But he does appreciate the law-and-order government Fayyad has established in West Bank cities, which the Israeli army tends to avoid. This is a kind of dictatorship of the bourgeoisie, Bahour admits, but the alternative is an Islamist command-state, like the one in Gaza, which offers no real hope and thrives on the uncertainties and brutalities of the occupation.

We are sitting in a café, nicely appointed in Art Deco style, which, Bahour tells me proudly, is the first of a chain, a kind of aspiring Palestinian Starbucks. But everywhere on the walls outside are pictures of young people, “martyrs.” “Pictures of the Israeli army’s innocent victims merge into pictures of suicide bombers and real armed fighters, looking sincere and ready for sacrifice,” Bahour says. “This kind of thing works on our young people. When Israel attacked Gaza, my kids were on Facebook every night showing solidarity. We are surrounded by morbid memorials on every corner. We have got to create another reality fast.”Bahour means a Palestinian state that Palestinian entrepreneurs themselves create in the womb of, and in spite of, the occupation, much as Zionism created a state within the British Mandate occupation. He is on the board of Birzeit University. He is also part of a business delegation that’s been petitioning the Israeli Defense Forces to open the crossings to Gaza, so that West Bank enterprises can get in. (“Put a real Palestinian store next to a Hamas-controlled tunnel, and the store will win every time.”) One green shoot of “another reality,” Bahour notes, is the surprisingly robust Palestine Securities Exchange, whose companies’ market capitalization exceeds $2.3 billion.

But the first order of business is housing. You see construction cranes everywhere in Ramallah. Mustafa says the PIF, in partnership with a Saudi real-estate company, is planning to invest $400 million on the Al-Ersal shopping and business office complex in the heart of the city, a project that will generate thousands of jobs and provide contracts for dozens of medium- and small-sized enterprises, from contracting and engineering to design and supplies. The PIF will also be spending $200 million on the 1,700-unit Al-Reehan project to the north—“our first settlement,” Mustafa said, winking. Another hopeful new feature on the landscape—the one Netanyahu was himself grudgingly responding to—is the new president in Washington. Wherever you go in Ramallah you hear lively talk about Obama’s leadership and confident declarations of how well positioned Palestinian business elites are to make the most of peace should he give them their chance. All of the business leaders I spoke with are eager for a peace treaty, and if Israeli leaders were seriously looking for partners they would look no further.

Yet what’s missing is precisely the Israeli cooperation that Netanyahu’s talk of economic peace would require. The problem is not Israeli companies, many of which are as hungry to chase business opportunities with Palestinian companies as the latter are to engage with Israelis. The problem is the occupation, whose military tactics and settlement institutions have long been directed to the realization of Likud’s Greater Israel, not a Palestinian state; whose logic is to repress Palestinian autonomy rather than help prepare the ground for it or just get out of its way.

If you spend time in Ramallah and talk to its emerging leaders, it becomes depressingly clear that if the Israeli government were intentionally trying to crush Palestinian entrepreneurship, it could not pursue the endeavor more perfectly. Palestinian businesses have not only been cut off from Jerusalem, their natural commercial center; they cannot count on the things any company needs to survive: access to obvious markets in Jordan and Israel, the mobility of goods, the capacity to recruit talent, basic resources for specialized manufacturing and services, and a reliable financial infrastructure.

(Again, to read the whole article, go to the Harper's website here, free only to subscribers.)

Thursday, September 10, 2009

Outliers: We Stand On Guard For Thee

I did something embarrassing this past summer. I bought and read the (then) #1 non-fiction best seller: Malcolm Gladwell's Outliers. I expected the usual Gladwell, smart, off-beat, the distiller of academic psychological data for people responsible for judging (and perhaps marketing to) the rest of us. What I found was a profoundly humane grasp of ordinary fate. Consider reading Outliers in the silence induced by President Obama's closing words to Congress last night.

Gladwell purports to write about what makes unusual people successful. But it's the negative space that stays with you: the things we all need to catch a break. I mean the luck to be born at the right time and place. The luck to have local ways to develop ones' talents. The luck to be born to a family that assumes you will indeed have talents to develop and then demands the rigor to master difficult tasks. The luck to be born to a culture that allows you to fail and continue learning, or (what is often the same thing) to speak your mind without undue discouragement from hierarchy.

The luck, in short, to be born, if not a Kennedy, then (as Gladwell and I were ) a Canadian. For you add up the lucks and what you have is really something quite predictable: the benefits of a welfare state--or what I like to call (since this is a knowledge economy) a mentor state.

Everybody born in today's America was born at the right time and place. But how to develop talents without good schools, universities and clinics that don't bankrupt you--or a community that correspondingly assumes discipline as well as the obvious freedoms?

I suspect that readers of this post do not need much convincing. But, for the record, Canada allowed me to go all the way for a PhD without debt. My child, when I was studying in the 1970s, went to nearly free day-care. I never worried about health insurance. Our public television and radio hosts never had to become wood-peckers three times a year. Libel and hate-speech laws required you to actually have some evidence for your claims against someone. I have since put three children through the University of Toronto, also without debt.

Call it luck, if you want. But Gladwell, like Obama last night, might just as well have called it commonwealth. The healthcare debate is just the beginning.

Wednesday, September 9, 2009

Cooperatives: The Best Public Option

Perhaps I am too immersed these days in the novelties of the electric car's "ecosystem," or just cranky contemplating returning to Israel and trading Obama for Bibi, but I am finding various threats to the president from Democratic progressives about the public option shrill and unpersuasive. A progressive seems to be somebody who brings to analysis of public policy none of the astounding progress we've made in commercial information and social networking technology during the past generation--except, of course, when talking about the virtues of blogosphere. (Just watch this short interview with the Daily Kos' Markos Moulitsas on MSNBC and you'll get the idea.)

For God's sake, you no longer need a single, Medicare-style insurer to get efficiencies in claims processing, or buying leverage with pharmaceutical companies, or the sharing of best practices. If you did, you'd still need General Motors to tell suppliers exactly how to make every part, or one big blog to keep the cost of bandwidth low. If, as seems likely, key Senate committees will insist that the public option be delivered through non-profit cooperatives, that may not only be "good enough," it may--with certain collateral regulations--be better than any Medicare-style insurer.

I CAN'T ADD much to Steve Pearlstein's excellent observations about how cooperatives could be best in transforming medicine to the results-based care Atul Gawande famously advocates--provided, as Pearlstein writes, cooperatives are "big enough and built around networks of hospitals and physician practices that accept a fixed, annual fee for treating patients rather than billing for every procedure." I will note that Michael Porter wrote some time ago that the cost and quality of care would benefit from institutional specialization, much the way commercial ventures and universities benefit, which is exactly what cooperatives built around existing teaching hospitals and medical networks encourage.

It is through cooperatives of this kind that public health is delivered in Israel and the system works just fine. You can also find this model in Switzerland and Holland, as Matthiew Miller writes. Princeton's veteran advocate for health reform, Ewe Reinhart, has been promoting the idea for years. You could even make the case that Canada's "single-payer" system is actually based on ten insurance cooperatives, since each province is responsible for setting up its own plan.

Nor do you need one big buyer to confront drug companies, any more than you need one big school to confront text book publishers. Remember that the public option will initially cover fewer than 20 percent of Americans. Private insurers want good prices (generics, etc.) the same way Walmart wants good prices, and public cooperatives will benefit as a by-product. Besides, you could establish a buying consortium among healthcare cooperatives on nothing more complicated than Facebook (the same way, incidentally, that the Daily Kos is threatening to establish a "netroots" campaign against Obama).

Anyway, the problem with the price of drugs has much less to do with buying power (a look at Porter's "Five Forces" might help here) than with the duration of patent rights and the simple fact that, as drugs become more tailored to individual diseases and genomes, their costs are amortized over fewer and fewer patients. (Between 30-40 percent of lifetime medical costs are incurred in one's last year of life; the number is bound to rise as treatments become more personalized.)

Finally, innovations in claims processing are more likely to be developed first in the private sector, for all the obvious reasons. (Would you rather deal with American Express or the IRS?) I am not freaked-out by the word bureaucracy. But you do not need to be as big and rich as Medicare circa 1965 to buy IBM mainframes. If you haven't noticed, we no longer need mainframes at all.

What we do need, urgently, are mandated standards for digitizing medical records and common protocols for reporting patient care. These are the real roads and bridges of a knowledge economy. They will be necessary to establish not only consolidated billing systems for doctors currently being driven crazy, but also ways for them to share information about standards of care. Reporting standards will also give NIH and biotech labs, who share annually $60 billion worth of research, common access to otherwise diffuse pools of data.

ALL OF WHICH brings us to Obama's speech tonight. I have not spent my life studying healthcare, but I know a thing or two. Obama, clearly the best president of my lifetime, could use a little more obvious support from people who should know better, from Bill Maher to Bill Moyers.

If we did not have, as Rick Hertzberg tirelessly reminds us, a political system that puts veto power in the hands of "a forty per cent minority of the Senate, representing as few as one-tenth of the nation’s human beings," does anybody doubt Obama would have delivered a universal reform package by now? If we did not also have a politics in which presidents can be "put on the defensive" by people who'll say anything, and media "political directors" who chart the flocking behavior of independents who particularly disdain defensive presidents, would we really need progressives to cover the president's back?

The point is, we do have this system and this politics. Before we start threatening a revolt, perhaps we might bring our ideas up to code--and count our blessings.