The Economy

How Do We ‘Build Back Better’?

Harper College instructor Scott Nelson (left) shows students a welding technique on the community college campus in Palatine, Ill., in 2013. (John Gress/Reuters)
The Biden administration should prioritize building bridges — not walls — for workers in order to broaden participation in our dynamic economy.

Beyond the immediate provisions in the American Rescue Plan Act dedicated to fighting the coronavirus and its attendant economic effects, President Joe Biden’s administration now has an opportunity, missed thus far, to “build back better” and broaden participation in American prosperity.

The pandemic has intensified a long-standing divergence in economic outcomes for higher- and lower-skilled workers. Globalization, and especially technological improvements, have made America richer and more dynamic, and have propelled many people forward. But these forces have also inflicted a body blow on our less-educated and less-trained citizens.

A “building” agenda focused on walls to protect these workers — both literally (against immigrants) and metaphorically (against imports) will fail. Yet such an approach is an understandable political response to the lack of action by neoliberal economists and policy-makers over the years. Pieties about the wonders of markets haven’t meant much to struggling communities in, say, Youngstown, Ohio, and elsewhere.

Now that the American Rescue Plan Act has been signed into law, the Biden administration ought to make a push for more Americans to participate in our dynamic economy. We need bridges that prepare and reconnect people to work in the aftermath of those structural forces. Bridges are the counterpart to walls, and they have a long history of success in the United States. From compulsory schooling to land-grant colleges to Social Security to the G.I. Bill, and now to public-private partnerships for economic inclusion: To build a bridge is to “build back better.” 

Mass Flourishing as a Moral and Economic Imperative

Policy-makers are often impatient with the extended time it takes for bridges to make a difference. If a community is hurting because of imports or technology, why not just put in temporary tariffs or other protections (e.g., a wall)? Very simply, because to do so would be to postpone the inevitable work that all communities must do in order to participate in a dynamic economy.

More important, walls are almost always inequitable. Tariffs on steel might temporarily help a few steelmaking towns, but they ultimately operate at the cost of many more manufacturing towns with falling revenue because of higher prices for a key input. Protections usually favor well-connected groups at the expense of underprivileged communities trying to make it the usual way.

Adam Smith, the father of modern economics, understood this dynamic as well as anyone did. In his day, mercantilist thinkers thought that the wealth of nations consisted of stocks of gold or silver. They wanted to increase those stocks, the better to fund wars and explorations. They convinced kings to intervene in markets to limit competition at home and abroad for favored activities. Trade surpluses were good, trade deficits bad, and state-sanctioned monopolies generated more revenue for the crown.

For Smith, the wealth of a nation lay in its potential for consumption by the great mass of ordinary people. He wanted to make the economic pie as large as possible. The consumer, not the crown or court, was Smith’s economic king.

To expand this wealth, Smith promoted free markets and competition guided by the invisible hand. These forces reconciled self-interest with the expanding pie for everyone. He wanted everyone, even those without connections, to be able to compete, so he encouraged education and other kinds of preparation. Mass flourishing was his goal.

Today’s economy is more complex and disruptive than that of Smith’s day, but we still need broad participation. That’s the only way to keep raising living standards for more people, and bring economic justice to formerly marginalized groups.

Participation is also good for its own sake. Think of mass flourishing as being “in the groove” of the dynamic economy, akin to psychologists’ concept of flow. Like flow, flourishing requires individuals who can raise their game to keep up with wherever the economy goes. People feel a sense of belonging in the economy when they work in open markets.

They don’t get that sense when we try to protect them with walls. Well-connected workers will get those protected jobs, while other people will remain stuck. It’s far better to let consumers’ tastes and incomes shape the opportunities for firms and the employment patterns that follow. And once you start a bit of tinkering in the economy, everyone wants favors, and pretty soon you’ve smothered the economy’s dynamism inside a series of well-intentioned walls.

What It Takes to Build Bridges

To be fair, the federal government has tried to build bridges. Congress passed the Trade Adjustment Assistance Act back in 1962, to funnel resources to communities dislocated by foreign competition. It provided two-thirds of a worker’s wages for up to a year, along with education and training subsidies. It was positive in theory, but the follow-through was almost nonexistent — few workers actually received aid. We’d see a flurry of activity only when an administration wanted to pass NAFTA or other free-trade programs.

This intended preparation is all the more important as the economy reallocates jobs across economic sectors in the aftermath of the pandemic. The best delivery mechanisms are community colleges, public training programs, and companies themselves. We need public-policy changes to advance all three, set within a flexible skills-training system to meet the diverse situations of adults.

Community colleges are the logical workhorses of skill development, and their presence in local economies makes them attractive partners for employers. Economists have found that associate degrees or even high-quality certification programs are enough to boost wages substantially — no bachelor’s degrees necessary. Community colleges also work with local employers to develop certificate programs for training — companies are the best ones to decide what skills are really needed. Too many federal and state job-training programs have failed to target the needs of local employers. Yet community colleges have seen their state-level public support wither.

Many states are now experimenting with eliminating tuition charges, which does boost the demand for higher learning. But numerous studies show that institutional funding on the supply side is essential for students to actually gain skills and complete a degree. Free tuition means little if your institution lacks the services to support your education.

Accordingly, Amy Ganz, Austan Goolsbee, Melissa Kearney, and I recently proposed a supply-side program of federal grants to strengthen community colleges — contingent on improved degree-completion rates and labor-market outcomes. In contrast to calls for demand-side support (i.e., free tuition), the proposal centers on supply-side resources for community colleges in their skill-development mission.

Inspired by the 1863 Morrill Land-Grant program, we set the ambitious goal by 2030 of raising community-college-completion rates (or transfer to four-year colleges) to 60 percent, which is the current graduation rate for students seeking bachelor’s degrees. It also aims at increasing the share of Americans aged 25–64 with post-secondary credentials from 47 percent to 65 percent, the level projected to meet the economy’s skill needs by 2030.

These grants would cost $20 billion annually. That’s substantial, but still small relative to outlays in Biden’s first go at boosting the economy during the coronavirus pandemic. And these grants are an investment in our future, so they will pay off in a more productive economy for many years to come. As with the land-grant colleges, federal funding would work through a block grant so that states could adjust as needed to the local context.

Another bridge can help dislocated workers: temporary income to encourage them to invest in skills rather than in a desperation chase for whatever work they can find. Current unemployment insurance is aimed at people suffering from cyclical layoffs, not the structural disruptions that can last for years. For the latter, a better approach would be personal reemployment accounts (cash to support training periods), and substantially expanding the earned-income tax credit, particularly for younger, childless workers. For the hardest-hit communities, we should also consider place-based aid with extra subsidies for employment.

These bridges aren’t cheap. Timothy Bartik of the Upjohn Institute calculates that a robust series of training and income programs would cost about $30 billion annually. But he estimates that support for local communities would bring employment rates in the bottom quartile by area to the median. The cost raises the stakes in evaluating the relative desirability of the massive costs of the American Rescue Plan Act.

Bridges Require Intentional Business and Government Action

Companies have essential roles to play in building back better with bridges. Especially for dislocated communities, governments alone can’t lead the way in restoring the economy to dynamism. Historically, both the Massachusetts Miracle (from textiles to electronics) and the Pittsburgh Renaissance (from steel to “meds and eds”) demonstrate that future-oriented local business leadership — supported by local and national government — make the difference in local flourishing.

Companies can help reduce frictions in the economy that discourage workers from moving to areas of greater opportunity. State and local governments across the country have erected many kinds of barriers to mobility, from occupational licensing (which disproportionately hurts minority groups) to zoning restrictions (which can legislate existing privileges) to various other regulations and subsidies that favor established businesses. Collectively, the business community must offer its strong voice in defense of competition — just as Adam Smith did in railing against the cronyism of 18th-century Britain.

Indeed, business’s role in bridge building has another, more macro objective: to bolster public support for the dynamic market economy. Corporate indifference to the damage from dynamism will only increase populist rage against capitalism and support for walls. One helpful step here would involve companies devoting a section of each annual report to what they’ve done to build bridges for less-skilled workers.

Returning to Team Biden, the policy process matters in addition to ideas, leadership, and framing. A cabinet-level U.S. task force on economic engagement could deliver all-of-government advice and coordination for the White House. An annual report along with regular congressional testimony would engage the public broadly. Building from local experiences across the United States, business and university leaders could be called upon to serve on an advisory council with the task force. 

The Pandemic Accelerates the Need for Bridges

While COVID-19 suddenly turned a strong economy into one with high unemployment, it has mostly just accelerated ongoing structural changes, especially those caused by digital technologies. Workers with fewer skills for jobs of the future are now losing out even more to people in demand on global markets. The coronavirus also laid bare workplace distinctions by skill group. Most skilled professionals can work from home, many less-skilled people faced diminished hours in brick-and-mortar establishments, or no work at all.

Politically, the pandemic has boosted interest in walls: against imports and far-flung supply chains, and against large firms squeezing small and midsize firms. Voters fear diminished future earnings for workers and students with limited access to digital technology. The Biden administration has already taken a step toward protectionism with its “Buy American” program, especially the language on global supply chains.

Bridges for future work have therefore become all the more important. They offer much more than “stimulus” and individual hope; they could strengthen public backing of the competitive market economy in a challenged period. But this time around, such support must not remain so modest relative to both the need and the opportunity. A strong push for bridges will thus help head off renewed calls for walls.

The $1.9 trillion American Rescue Plan Act is law. It gives the economy additional fuel, though likely too much with poor targeting. It also misses building back better. For a much lower cost, we could provide bold support for community colleges and training to match the preparation and reconnection of the G.I. Bill. Indeed, such support would move the political debate toward economic participation and mass flourishing.

That would be building back better.

R. Glenn Hubbard is the Russell L. Carson Professor of Finance and Economics at Columbia Business School and professor of economics at Columbia University. He was chair of the Council of Economic Advisers under President George W. Bush.

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