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Eric Schmidt At Davos Praises Globalization, Dismisses Jobs Crisis

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At Davos, Eric Schmidt says government needs to do more to address skills gap.
At Davos, Eric Schmidt says government needs to do more to address skills gap.

DAVOS, Switzerland -- Eric Schmidt, the executive chairman of Google, is clearly tired of modern-day Luddites complaining about the job-destroying forces of technology.

"I assume that everybody here agrees that globalization is wonderful," he said here Friday, speaking during an afternoon panel at the World Economic Forum -- certainly among the more receptive audiences on the planet for such pronouncements. He was sitting next to Tom Friedman, The New York Times columnist whose best-selling books about globalization often seem to outnumber in-flight magazines in the first-class cabins of intercontinental jets.

The subject they were discussing was both controversial and crucial: Why has the success of innovative giants such as Google and Apple failed to directly translate into significant numbers of jobs? How do we generate large numbers of high-quality paychecks in such times?

Schmidt pushed back against the premise, arguing that while Google itself employs about 30,000 people around the globe -- a fraction of the count at manufacturing giants such as Caterpillar and Boeing -- the company has indirectly generated millions of additional jobs and trillions of dollars in wealth by offering up a valuable platform for commerce.

Its online services -- from maps to search to cloud-based word processing and email -- have made people and businesses vastly more efficient just as in another age advances such as plows and cotton gins enabled farmers to expand their usable acreage.

Yes, he acknowledged, many nations on Earth -- not least the United States -- are mired in a crisis of joblessness. Technological advances such as automation on the factory floor have rendered millions of jobs obsolete, but they have also created millions of fresh ventures, while freeing workers toiling in antiquated industries to forge careers in higher-value pursuits. This is textbook creative destruction, the force celebrated by Joseph Schumpeter, the Austrian economist who is the intellectual touchstone for Silicon Valley.

What has been happening since the advent of the Internet "is no different from the loom when it was invented, and I don't think any one of us would want to eliminate the loom," Schmidt said. "This is how the world gets better. This is how the GDP grows. This is how we leave a better world for our children."

No one ought to blame Google, or any tech company, for job destruction in a moral sense. Automation is as old as capitalism, the natural outgrowth of the human impulse to extract greater harvest with less effort while saving the cost of paying other people to do what one cannot or does not care to do oneself.

Labor sidelined by technology is a story not confined to the wealthy world. For Americans, a discussion of lost textile jobs conjures thoughts of laid-off mill workers in the Carolinas, with production shipped to factories in China. But China has lost more jobs in the sector than any nation on Earth -- the direct result of automation.

All of that said, Schmidt too blithely dismissed a problem with no easy answers, one at the center of the populist ferment now seething from Cairo to Columbus. In the United States, he suggested, unemployment is predominantly the result of inadequate skills among the workforce, a problem that could be addressed with better education.

"Governments have to do something that's hard," he said. "They have to go back and invest in human capital. There are plenty of companies in the U.S. and other countries I've visited that are very short of highly skilled workers."

For a clearly brilliant man who likes to advertise his passion for data, Schmidt's explanation sounded both lame and self-serving.

Yes, there are always companies in any industry that will at any given time have difficulty finding skilled people, a factor now enhanced in the United States by the housing disaster: Laid-off pipe fitters in Michigan cannot move to available jobs in Texas if they cannot sell their homes. Yes, American education has fallen behind the need for certain skills. Greater access to degree programs at the community college level and higher would surely help. But the notion that a skills shortage explains away high unemployment in the aggregate is awfully hard to square with the numbers.

As of December, more than 13 million Americans were officially out of work, according to the Labor Department. The previous month -- the time of last available data -- the government counted 3.2 million job openings. It seems fair to assume that even if one could sweep people out of unemployment offices en masse and send them straight to Harvard, many of these people would remain out of work. (Or, more likely, other people who didn't get sent to Harvard would be out of work, soon to be replaced by the lucky people dispatched to Cambridge, Mass.)

For an individual, gaining education as an approach to increasing work opportunities is a no-brainer. But for society as a whole, the employment shortage cannot be eliminated in this fashion because of a feature that Schmidt seemed uninterested in addressing: The benefits of technological progress and automation are being spread unevenly, exacerbating the forces of inequality that have left millions of formerly hard-working people unable to pay their bills.

Friedman, no Luddite himself, tried to take the conversation there. A half century ago, he noted, the largest employer in Baltimore was Bethlehem Steel, where a high school graduate could work and earn enough to pay for an average house and support an average family. Today, he said, the city's largest employer is Johns Hopkins University.

"They do not let you cut the grass at Johns Hopkins without a B.A.," Friedman said. He acknowledged that the history of technology is full of dislocation and the eventual formation of new ventures that create vast numbers of jobs. "But it feels like this time is different," he said.

It does, which brings me to the part of Schmidt's prescription that sounded self-serving. If the only impediment to full employment is education, then no one gathered here, among the 1 percent of the 1 percent, need take responsibility for the fundamental problem of our age: how to enable people who want to work for a living to do just that.

One defining characteristic of the Internet boom is the degree to which it has concentrated the wealth in a limited number of hands. As is often noted, income inequality in the United States has expanded to levels not seen since the 1920s. Overall average taxation as a share of national economic output is lower than at any time since 1950.

Schmidt expressed few misgiving about this state of affairs, suggesting in a private conversation after the panel that he subscribes to the school of trickle-down economics, whereby which lower taxation supposedly yields greater wealth and fresh innovation. The market then spreads it around.

The wealth part has worked out smashingly. Google is a magnificent company -- not only as a source of enrichment, but as necessary testament to the productive capacities of the free enterprise system, and the American version in particular. Yet too few Americans have gained a slice of the spoils, leaving too few able to consume enough to propel the economy. That limits demand for all sorts of workers -- from parking-lot attendants and short-order cooks to tax accountants and architects.

Fixing that will require something that the fabulously wealthy executives now here wandering the snow and cocktail circuit are too prone to oppose: making the tax code more progressive, thus enabling more people to enjoy the wealth derived from innovation.

In short, the skills mismatch argument is really a red herring for the lack of fair distribution in the tax code. (Though this is a widely subscribed idea: Google "unemployment" and "skills mismatch" and 803,000 results arrive in less than half a second!)

Creative destruction is indeed an elemental part of free enterprise. Massive unemployment need not be.