Recession Warning

The relationship between spurs to investment and widespread economic recovery breaks down when the only investments that are incentivized are in capital of the plant-and-equipment variety. We have already moved into a world where things like software are no longer sold as products but as services, and with the integration of global supply chains, there is far less incentive than in the past to perpetually invest in more and more physical capacity unless necessary. Witness Uber and Lyft, which don't own the majority of the cars driven in their names. Or services like DoorDash, which doesn't own any kitchens.

The problem is that if you exhaust the choices for investment in things like plant and equiopment, then the other choice is to invest in improving the quality of your workforce. But there is a widespread and commonly-accepted notion that today's workforce is far less loyal than any comparable workforce in the past. Some of this may be an earned reputation; surely, the gig economy and certain preferences for acting as a contractor rather than as an employee give rise to the observed behaviors that create the impression.

But if neither of the conventional routes to investment (physical capital and human capital) are attractive, then what good does the conventional approach to stirring economic growth (via low interest rates) actually do?

We may need to rethink the way that human-capital development is done. With 70% of GDP being created by private-sector service providers, upskilling may be the surest route to growth we can find. But if employers no longer have the same incentives to develop long-term employees (whether out of real fear of losing those employees or unfair perceptions that they will be disloyal), then it may be far more of a community-level problem than ever before.

Big, community-level problems of big skills gaps have happened before. The rise of the land-grant college system and university extension outreach both point to efforts once made on the national scale to try to upskill local populations in an effort to spur growth. By necessity, these programs were done on the community level when there weren't really any major employers worthy of the name. We may in some ways be coming full-circle, as truly large institutional employers have highly refined models of talent development and everyone else is left in a gap between individuals (who may invest in themselves, but will do so only out of purely selfish motivations) and those large employers (with whom small- and mid-sized employers cannot compete for internal resource development). And we may be especially trapped by the growing perception that conventional educational pathways are not as economically viable or net positive as they may have been in the past. If every high-cost degree were matched with a high-income job, then student loan forgiveness wouldn't be a needle-moving promise in national political debates.