A Tale of Two Economies

For most of the 20th Century, we could talk about “the economy” as a single thing. A rising tide could lift all boats, even if some floated higher in the water than others.

In the early decades of the 21st Century, though, “the economy” split into two, each offering completely different experiences to those inside them. In one, workers find good jobs in growth industries like finance, manufacturing, information technology and digital services. They add big value to their employers, whether measured in profit, productivity or effectiveness, and are paid good wages in return. They can afford to live in prosperous neighborhoods that offer attractive retail, strong schools and rewarding social and cultural institutions.

In the other economy, workers are stuck in menial jobs that generate only small value for their employer, which keeps their wages low. They work in food services and accommodation, manual health care and social services jobs, building administration and waste services. They live paycheck-to-paycheck in places with poor housing, limited and costly retail outlets and too little in the way of culture or entertainment.

The power of digital transformation

There is no accident to this division. It is not the product of immigration or offshoring, though both have contributed to the change. Mostly, it is the result of automation – of the digital and mechanical technologies that let machines do work only people once could do.

Automation has been a force in the economy for well over a century. But it was the rise of what an early innovator called “the universal machine” – otherwise known as the computer – that supercharged its ability to transform your world. Not just the factory but the office, the farm, the store and warehouse, the ship and the truck, the school, the house of worship, the home and the community where we live. It is the power of digital that allowed Facebook to grow from a dorm-room project to a US$30 billion company in just 14 years. It is digital that has made AirBNB the world’s largest hotel company, Uber the world’s biggest taxi company and China’s Alibaba the world’s top retailer – all in what feels like the blink of an eye.

It is also what has led to massive disruptions of employment, with its impacts on individuals and communities, as well as huge changes in how we communicate, relate to each other and engage in local, regional and national politics.

For most of modern history, investment in technology has raised living standards by making the economy more productive. And over time, higher productivity boosted growth for everyone. In 1900, agriculture employed 12 million people in the United States. By 2014, automation had swept away 10 million of those jobs. But as farm labor declined, the industrial economy added jobs even faster. As the new farm machines boosted food production and made food cheaper, demand for food grew and farmers used their higher incomes to purchase more industrial goods. There were hard times for plenty of people but, over time, everyone benefited.

Today, something different may be going on. A study by David Autor of MIT and Anna Salomons of Utrecht University found that, over the last 40 years, employment has fallen in every single industry producing technology that makes us more productive. The jobs that are left require substantial education and knowledge of digital technologies.

The challenge to transform the place called home

While the effects of this transformation are global, the impact is local. It falls to local and regional governments to make decisions that empower their people to adapt successfully to economic disruption, to strengthen local society rather than see it weakened, and to make local culture a source of engagement and pride. Helping them do it is the mission of the Intelligent Community Forum and the “community of communities” it has forged around the word.

Want to know more? Visit our library of reports on the ICF Method and books outlining how communities can take action to make “the place called home” the best it can be.