Global unemployment is reaching record high levels. About 200 million people around the world are currently in need of work. In some parts of the world, large numbers of unemployed young men can lead to political radicalization that undermines governments and breeds global terrorism.
What can be done to stimulate economies to create more jobs and bring down unemployment? It helps to understand the big picture.
“The fact is that when you look at what the capitalistic world was prior to 25 years ago or so, it was about 800 million people in Japan, Canada, Western Europe, the United States,” said Daniel Alpert, Founding Managing Partner of Westwood Capital, LLC, in Reinvent’s recent video conversation. “You added about 3.5 billion additional people, creating this condition of massive oversupply of labor, of productive capacity, of capital…That’s created massive global imbalance.”
Re-establishing the role of government in the economy
The solution starts with shifting attitudes toward the role of government in the economy. Our participants discussed the pervasive cynicism toward government in the U.S. today. “We’ve continued to rely on the meme we adopted in the late ’70s, which is that government doesn’t really have any role to play in the economy,” said Alpert.
“Currently what we have is an unemployment safety net. We bear the costs that come with unemployment,” said Pavlina Tcherneva, Associate Professor and Chair of the Department of Economics at Bard College. Tcherneva recommended that the U.S. try to institute New Deal-like policies at the national level, like direct government stimulation of the economy, to set an example for the rest of the world.
The political environment in the U.S. is veering towards excessively protectionist and anti-trade. A new narrative on fighting global unemployment might involve trade policies that more robustly support domestic workers. “It feels to me that economists are a little too mechanical,” said Robert Johnson, President of the Institute for New Economic Thinking. “They treat everything like a fact or a production, or a good or a service, and they forget that there are people involved. What do we need to do to these trade agreements to restore the sense of humanity?”
Tcherneva believes that the economists and policymakers working on these deals need to do a better job of taking employment into account. “We are missing this very crucial ingredient in international architecture, in our thinking about trade policy, of how directly we deal with the fallout from trade in the labor market,” Tcherneva said. “We think in very mechanistic ways about this, that somehow the labor market is going to adjust, but the reality is that it doesn’t. There are some real costs to free trade.”
Increasing domestic employment through infrastructure
President Franklin Roosevelt’s New Deal programs in the 1930s resulted in much of the infrastructure we use in the U.S. today. Infrastructure spending is the obvious solution for lowering unemployment rates domestically, according to Daniel Alpert, particularly because of record-low interest rates. “You have to take the trillions of dollars that’s idle, not producing jobs, and put it to work,” Alpert said. “Infrastructure is a very easy thing to justify. All you’re doing is present valuing work you know you’re going to have to do anyway. Or as I like to say, ‘the bridge eventually falls into the river.’”
Robert Hormats, Former Under Secretary of State for Economic Growth, Energy and the Environment, believes that the U.S. should be following the Chinese model and investing in infrastructure abroad. “The U.S. needs to do a lot more to develop infrastructure in this country, but American companies also have the opportunity to invest in and produce infrastructure abroad,” Hormats said, referencing Chinese international infrastructure initiatives.
Americans tend to focus much more on domestic unemployment than global unemployment, but high rates of unemployment in other countries can lead to social unrest and radicalization. “We need to start thinking of global unemployment more as a sort of an epidemic, because of the multiple social, environmental, and political costs it bears,” said Tcherneva. “The link between unemployment and mental and physical problems is very well-established…Every socioeconomic problem you can think of is related in one way or another to unemployment.”
According to Tcherneva, much of the research about unemployment has been conducted in developed countries, where unemployment rates are low in comparison to the rates of many developing countries. “We can imagine how much worse the negative externalities are in places that are plagued by persistent double-digit employment,” Tcherneva said.
Increasing international employment through clean energy
Climate change is the clearest cut case of a pressing global need that the world should be devoting more resources to solving. According to David Bank, CEO and Editor of ImpactAlpha, the estimated amount of spending required to reach the conditions of the COP21 deal could be anywhere between $15 and $45 trillion over the next 15 years. The UN’s Millennium Development Goals provide another set of climate standards to strive for.
“That changes not only the energy equation, but also the whole financial and economic equation, when you have a capital shift of that magnitude,” Bank said. “I like the idea of direct measures on employment, but I also think that what you really want to do is solve real needs, of which employment becomes the effect of those kinds of initiatives. Climate is the obvious one to rally the world around.”
Investing in, for example, solar panels in Africa, not only addresses the rising challenge of climate change, but also helps empower commerce in the region and provides employment for the workers installing the panels. “The notion is that there are ways to increase the livelihoods of workers, farmers in particular, that can also help global corporations secure their supply chains,” said Bank. “Off-grid solar in Africa is bringing electricity to lots of people who never had power to run their small business and stay open later in the evening. There are lots of ways that people’s income and livelihood can be increased that are now investable opportunities.”
In an election season where the likely Republican presidential nominee is insisting loudly on “America first” in all things, our participants reminded us just how interconnected our world is, and how global prosperity, rather than exclusively American prosperity, benefits all of us.