Education as a force of convergence

Voiceover: We talked about the dissemination of information being a force of convergence on the global scale. But what about on the individual scale? When we're talking about knowledge dissemination on an individual scale, we're really talking about education on some levels. So once again this is a topic very close to my heart. So let's just go through a few thought experiments here. So in general you have income. And that income, in order to produce it, you need capital. And you need labor. For example if you're running a farm, you need land and you need animals and you need some equipment, but you also need people to run the equipment and manage the farm. If you're running a software company, you need a building, you need computers, you need servers, I guess that's computers as well. But you need people to program the computers, and to sell the software and to develop it and whatever else. So these are the two things that you need in order to produce output, which you would recognize in terms of income. But then the question is how does that income get split? How much of it goes to the capital, and how much goes to labor? And the idea here is that if you have dissemination of knowledge, and if knowledge work becomes more and more and more valuable, so let me put a little aura around this. So this is the aura of knowledge. If this is knowledge work and it's less and less of a commodity, then maybe labor has more leverage here. On the other hand, if you have these hugely capital- intensive industries where labor is kind of this monotonous, unskilled work, then maybe capital has more of the leverage. Now let's just think about, and Piketty tends to be a little dismissive of this happening on a large scale. He says it might be happening in pockets in terms of managers and finance, or maybe in certain industries like the software industry. But in his mind this knowledge dissemination isn't going to make labor important enough in order to offset this whole more and more income going to capital, especially after generation to generation, potentially leading to dynastic wealth. But the one thought experiment, once again my goal here isn't to give my point of view, it's really just to give you things to think about and for you to come to your own point of view, is to think about the comparison between the present day and the Gilded Age, which the book makes. If we look at the Gilded Age, so let me write this here. So the Gilded Age, so this is the end of the 19th Century, the late 1800's. The Gilded Age, what were the forces of growth in the Gilded Age? Where was a lot of the income being generated from? Well this was really the peak of the Industrial Revolution. You have things like railroads. You have oil, I guess you could say energy, oil. You have manufacturing. All of these industries are incredibly capital-intensive. Capital is very important. You can't even do these things without capital. And in all of these, labor is a bit of a commodity. That, hey, you just need people to kind of nail the railroad ties in and things like that. You need people to work on the rig. You need people to work on the assembly line. And the Industrial Revolution was really a process of taking these crafts and turning them into more and more one off, almost you could call it commodity labor. Now let's think about the present day, and I think it's fair to call it the Information Age. And what are the growth industries in the Information Age? Well, one that's close to my heart, I'm making this video in the middle of Silicon Valley, is software. Actually, that's not the one that really stands out to me as a major growth area, but there's kind of bio-tech. We could go on and on and on. And what's common about all of these? Well, they're not necessarily as capital- intensive is what we see here. In particular, If we're talking about software, it's not very capital-intensive at all. You just need some computers and a place to program, and you can in theory do it inside someone's house. And this is really more about highly, highly, highly skilled labor. Same thing with bio-tech. It does need capital, but that capital isn't for railroads, there is some equipment, but it's mainly for people. It's mainly for researchers and people to run the clinical trials and for whatever else. And it seems that we are in an age where labor is going to to become more and more invaluable, more valuable. But not just commodity labor. Not just to someone to kind of work one shift at the factory, but highly, highly, highly skilled labor. Now, just because this is happening, or because this is happening, this could be a driver of more and more income going to labor. But that by itself wouldn't necessarily drive off inequality. For example, you might have a situation, and there's some date signs that maybe this is happening, where if this is the pool of folks, that the people who are able to participate in these high growth sectors, where labor adds a significant amount of value, that that's actually a small percentage of this population. So a small percentage of the population could potentially take advantage of these dynamics. But if the rest of the population doesn't have the skills necessary, then they're going to essentially be left out of this growth. And so that could still drive inequality. It won't be driving inequality because of income going more and more to capital because of R being greater than G, because returns of capital are greater than growth. It wouldn't be because of that. It would be because of this differentiation of labor where highly, highly skilled labor is getting a disproportionate share of the income relative to other labor. So the question is can we get more people to participate in this? And once again, this is an issue of education. Can we get this pool as a percentage of the population to become a much larger pool of the population so more and more of the world, can participate in that? So once again, this is just something to think about. I don't know the answer to this, but there are some dynamics in play. And we're definitely in a different type of world than we were in the Gilded Age. Another way that you could think about it, this isn't from the book, but this is just a way that I sometimes think about it. If you think of the Industrial Revolution, the world was kind of a pyramid. That down here you have your labor, then you needed a lot of folks there, but it was relatively unskilled. And then, in the middle, you kind of have your white-collar jobs. White-collar jobs, these are the folks who are kind of manipulating information, filing papers, etc., etc., the office jobs. And then at the top of the pyramid, during the Industrial Revolution, really going into the 20th Century, you had I guess you could say, your capital owners, your owners of capital. And then you had also a very small, I would say, creative class. So this is creative class. And so this would be folks like engineers and artists and people doing research. And so, this is essentially the dynamic you had. But now when we go into the Information Age, automation is making labor less important, and even white-collar jobs, information processing. And so there's two different realities that we could potentially go to. There's one, where essentially, you still have a relatively small class of people who own capital, or own most of the capital or in a creative class. And then you have a small, so if I just take that triangle, that same triangle right over there. So you still have a small group of people who fall into the top of the triangle and because automation is taking care of these middle two, you only have a small sliver of people who are participating in here. And so everyone else here is essentially going to be left out. So these folks are going to be left out, which isn't a good recipe for anyone. But there's another reality where, well, what if we could expand this top triangle, where we could have a larger and larger creative class, and if these people can participate in the high value labor jobs, I guess you could say, then they are going to be in a position to capture more and more of the income, and they will also be in a position to have more and more capital. You see that happening in Silicon Valley. People who get a neat software job at Google or Facebook or Apple, not only they're getting that through their labor, but because that income is larger than their expenses, they're able to start to accumulate capital and also become capital owners. So there's a reality that if we play our cards right in education, and once again this is close to my heart, maybe instead of going to this world, where we leave all of these people out, we can go to a world that looks more like this, where we don't need a lot of labor, because of automation, more kind of, I guess you could say commodity labor. We don't need a lot of kind of the traditional white- collar jobs in information processing. And then most people, if we can get education to be good enough, can now participate in these really high value jobs, where labor has a lot more leverage, where the returns to labor are larger than the returns to capital. And because the returns to labor are larger, you're going to have those people also, they're gonna get more share of income and they're also going to be able to start to accumulate capital. So if getting to this reality, where you're having a larger and larger percentage of people who are essentially capital owners and software engineers and artists and people doing R and D, in my mind, this is predicated on improving education. So to get from here to here, and to avoid going to this top one, it really is about having a more talented labor pool, a more educated labor pool. And if we pull this off then we get into kind of a Star Trek reality. In Star Trek reality people don't really view Star Trek from an economic point of view, but in Star Trek, you might realize there aren't a lot of people kind of tilling the fields here. There aren't a lot of people just kind of doing desk jobs at Star Trek. Everyone at Star Trek is either doing R and D, they are explorers, or they are artists. So once again, just something to think about, that education, that knowledge dissemination could be a very, very powerful force of convergence and keep us from going into another Gilded Age.