I’ve been thinking a lot on these topics lately. In part in preparation for tomorrow’s talk on the topic at the EO Alchemy conference. In part because what we’re doing at RG Labs intersects all three of these areas very directly. And in part because some of the statistics and trends right now are downright scary.
First off, it feels like we have a burgeoning employment crisis in this country. I wrote about this a bit in my TechCrunch article A Tale of Two Countries. In the bigger cities (and especially the ones with a heavy emphasis on technology) it’s boom time. There’s a lot of cognitive dissonance involved with living in Silicon Valley and hearing about how hard it is to hire and seeing the acquisitions and funding valuations at all-time highs and then to go back to Minnesota (where I’m from) or Kentucky (where my wife is from) and hear people there talk about a radically different economy. I was in Detroit last month and that city is probably prime example of a scenario that’s playing out in Cleveland, Memphis, St. Louis and a whole host of other less technologically advanced cities around the country.
Some of the statistics are pretty crazy. Mean duration of unemployment is at 40 weeks. That’s twice as long as the worst it’s ever been over the last 70 years. U-6, the government’s measure of under-utilization is 16.5%, up from 15.8% in May. Almost 50% of Americans are living on some form of government benefits. Wild stuff. And I’ve been reading guys like Tyler Cowen, Thomas Friedman and W. Brian Arthur and there’s some serious, serious cause for concern.
Sure, we’ve been in bad situations before. The stagflation of the 1970s. The fall-out from the dot com bubble in the early 2000s. Heck, fall 2008. But this time something feels different. It doesn’t feel like a traditional cyclical downturn. We’ve developed an incredible amount of technological sophistication in the last decade. And, as I referenced in the Tale of Two Countries article, I tend to believe Paul Graham’s view that as you have increasing sophistication of tools, you are going to to have an increasing gap in levels of productivity (the most productive person is going to be much more productive than the mean). And if wealth follows productivity (I tend to believe it does) then with the increasing sophistication in the tools you are going to end up with an increasing level of income inequality. And that’s what seems to be happening right now. The people at the top (presumably those with higher productivity) are doing very well. But there is an increasing number of people being left behind (as evident in the unemployment and under-employment numbers).
Which brings us to education. I’m fairly convinced that the vast majority of the unemployment we’re seeing, and will likely continue to see, is structural unemployment. We’re training people for jobs that don’t exist while at the same time we’re not training enough people for high-demand jobs. Today Chris Dixon pointed to this as an example of structural unemployment and I think he’s right. Technology companies can’t hire fast enough. But step outside of technology and other tech-focused industries and it quickly becomes a wasteland. Compensation is rising for engineers, designers and pretty much anyone who is tech-savvy. But are we seeing an accompanying increase in demand for computer science degrees? No, actually it’s just the opposite. Check this out:
There were 43 percent fewer graduates and 45 percent fewer CS degree enrollments in 2006-2007 than in 2003-2004, according to the Computer Research Association.
One answer to this might be that despite growing demand for people with these skills and increased compensation, people are simply preferring to not work in technology. But that doesn’t really make sense. After all, people are spending more and more time with technology (e.g., Facebook, gaming, etc.). Why wouldn’t they want to pursue careers in the space as well. Well one reason would be that our education system is not providing them with the foundational knowledge to go after more advanced careers in technology.
Salman Khan, perhaps the most innovative thinker in education in a decade, makes this point really well in his must-watch TED Talk:
Whether you get a 70 percent, an 80 percent, a 90 percent, or a 95 percent, the class moves on to the next topic. And even that 95 percent student, what was the five percent they didn’t know? Maybe they didn’t know what happens when you raise something to the zero power. And then you go build on that in the next concept. That’s analogous to imagine learning to ride a bicycle, and maybe I give you a lecture ahead of time, and I give you that bicycle for two weeks. And then I come back after two weeks, and I say, “Well, let’s see. You’re having trouble taking left turns. You can’t quite stop. You’re an 80 percent bicyclist.” So I put a big C stamp on your forehead and then I say, “Here’s a unicycle.” But as ridiculous as that sounds, that’s exactly what’s happening in our classrooms right now.
The modern equivalent to unicycling might be writing code. We’re not doing a good enough job teaching people fundamentals and then we’re seeing them not pursue careers where that fundamental knowledge is pretty much a prerequisite. And then we’re wondering why we have a problem with unemployment despite that fact that so many companies can’t find enough qualified people. Is it starting to become clear how inter-related these things are.
So finally we come to entrepreneurship. And this is where, for me at least, the lightbulb went off. According to the President’s Job Council (and similar research done by the Kauffman Foundation and others), almost all net new job creation is coming from start-ups. Not big companies. Not old companies. Small companies that are less than five years old are keeping an economy that’s already in rough shape from being much, much worse.
But there’s a governor on the growth for many of these startups. Want to guess what it is? They can’t hire enough people with the technical skills to help them growth. And here’s where we enter either a vicious cycle or a virtuous one. More startups, more jobs. Fewer startups, fewer jobs. Startups throwing up their hands because they can’t find the engineers, designers and product people to achieve their goals? Fewer startups. Fewer jobs. So the education sector fails the entrepreneurial sector which causes the entrepreneurial sector to fail the economy because it isn’t creating enough jobs.
And there’s one more problem here, perhaps an even bigger one and that’s the our current education system does a very poor job of preparing people to become entrepreneurs. To understand why you have to go back to the formation of the modern education system. When you do the research you realize that the modern education system was essentially created to produce good factory workers. The skill set, and more importantly, the mind set required to be a good factory worker stands in almost direct opposition to the mindset required to become an entrepreneur. We don’t teach people to fail in school. We fastidiously get them to avoid failure. We don’t have people learn by doing. We have them learn by listening to someone or reading something. We don’t reward out-of-the-box thinking and breaking the rules. We penalize those things. And because of how the system is structured, we end up with far, far few entrepreneurs than we could have.
This is probably over-simplifying things and I’m most definitely not an economist. But the more that I read on these topics, the more interconnected they seem. You can throw money at programs for promoting entrepreneurship, fixing education or creating jobs but until you step back and see the whole system, you’re missing critical information.
I’m excited the dive deeper into this and am very much looking forward to the ongoing dialogue about this. And I feel incredibly blessed to be helping to run a company that I feel could have an impact in all three of these areas. BTW, as you could probably guess, we’re hiring. 
Photo credit: http://www.flickr.com/photos/juliettereyes/4952717445/
