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Need More Jobs? Revive the Public Sector

09/10/2012 02:25 pm ET | Updated Nov 10, 2012

Consider this Part Deux of my July 27 essay, "You Didn't Build That: Obama's Public Sector Gap," not least because the "you didn't build that" meme played out so prominently in the political conventions. Republicans ridiculed the notion, and Democrats reworked their framing of the communitarian sentiment by insisting that "we're all in this together."

It's a good fight. But its meaning for me is not in the choice between rugged individualism and community spirit. I made the point in July that the structural changes in our economy may mean that the middle-class jobs we hope will return may never do so because they're now done by machines. The antidote to high unemployment may instead be to reinvigorate the promise of the public sector, which has been shedding jobs quickly and broadly. President Obama has never made a "cross of gold" speech to articulate a public sector philosophy -- a tricky thing to do politically, but possibly as important as any gesture or policy he could make on our doddering economic prospects.

I am all the more convinced of this after devouring Why Nations Fail: The Origins of Power, Prosperity, and Poverty, coauthored by the MIT economist Daron Acemoglu and Harvard political scientist James Robinson. Rare is the case that a book by two top scholars is so accessible and absorbing -- and relevant to what we're facing here and abroad today.

The authors narrate one historical case after another across the globe to illustrate a cardinal principle: robust and inclusive institutions -- political and economic -- are the sine qua non of success. States that instead suffocate such institutions or run their own extractive institutions will fail. "In all these cases," they write, "the basis of these institutions is an elite who design economic institutions in order to enrich themselves and perpetuate their power at the expense of the vast majority of people in society."

And what institutions are they talking about? In part, they mean the familiar story of innovators and entrepreneurs whose ingenuity might undermine a monopoly that feeds the corrupt alliance of politicians and tycoons. In the worse case, an extractive state institution would likely undermine the innovators; in the better case, law and functional government institutions will protect and even promote the innovators.

So Acemoglu and Robinson include in their formulation political institutions, legislatures and regulatory agencies that should be transparent and well-informed and empowered, but also labor unions, civil society groups, the educational system, and the news media, among others. Much of this resides in the public sector -- either explicitly public institutions, or those who can only thrive if government is working as it should.

I could see the effectiveness of inclusive institutions in a study we conducted at MIT on "urban resilience," the ways in which communities beset by poverty and instability cope with violent actors and try to lead normal lives. The study, spearheaded and written by my colleague Diane Davis, found that successful communities banded together and connected with other communities to resist violence entrepreneurs. These horizontal connections became more effective when government institutions strengthened them -- communities, most of them marginalized, negotiated new relationships with mayors, the police, and other officials.

In the places where the communities and the municipalities worked together, often with a strong assist from businesses, the formerly dangerous neighborhoods thrived. They thrived not only in resisting bad actors, but were able to increase their economic status as well. Infrastructure was improved -- such as a tram built in Medellín that brought businesses in and allowed residents to work elsewhere in the city.

Public spaces were refreshed and made safe. The communities saw more benefits in continued cooperation and solidarity, and the governments supported them. It is, in a sense, the "virtuous circle" that Acemoglu and Robinson describe, though on a micro level. But micros add up to macros. And healthy cities are always essential to a nation's prospects.

The lessons of this are obvious for developing countries whose major cities are often wracked by criminal syndicates and political violence. Bottom up engagement supported by municipalities and states will yield positive results. It's not a panacea for global poverty and insecurity, but it is one encouraging set of ideas and practices that could be replicated.

But the lessons from the tough neighborhoods of Rio and Johannesburg and Mexico City also have meaning for the United States. One of the consequences of the severe budget cuts the GOP has forced on states and envisions for the future under the Ryan plan is a growing disconnect between communities and government.

When you cut 500,000 jobs from already lean state and municipal budgets, valuable things get tossed out. School cutbacks are particularly damaging: they are not only indispensible learning centers, but places for important community building. Centers for elders, teens, disabled, and neighborhood business have been sliced away. These kinds of small institutions and networks make up the "social capital" so essential to functional societies and effective governance.

The larger-scale investments that only government will make also have multiplier effects of lasting importance. I recall when the Boston area's subway line through Cambridge was expanded northward for the first time since 1912. One of the new subway stops was opened in 1984 in Davis Square, Somerville. It transformed the once-unremarkable neighborhood into one of the most popular destinations in the metropolitan area. It was achieved with public funds. Only public funds and the public sector -- planners, managers, workers -- could make that happen.

Running against City Hall and stigmatizing government workers has become such a habit of American political discourse that reversing such talk is an immense challenge. But consider how expanding the public sector will address several pressing problems: the long-term loss of middle-class jobs; the $2 trillion (or more) needed for infrastructure repairs just to maintain what we have; investment in green technologies; and training --starting with good elementary school education -- for the highly skilled world we now compete in. All of this depends on inclusive institutions, public institutions, to go forward -- and a public that demands such action from the neighborhood up.