Last month, PPI released a provocative policy brief by Will Marshall, “Labor and the Producer Society,” which argued that the Great Recession and stalled economic recovery mean, “there can be no going back to the old economic model of debt-fueled consumption.” In this, Will is precisely correct. Even as median American income failed to rise over the past two decades, consumption surged because households piled up credit card debt or tapped their home equity. The massive debt deleveraging that typically follows financial crises still has some ways to go, which means that consumption cannot be counted upon to drive economic growth.
The United States, wrote Will, needs to “shift from a consumer society to a producer society.” We need a “new economic strategy that stimulates production rather than consumption; saving rather than borrowing; and exports rather than imports.” While such a shift needs to happen, we need a conception of “producer society” that is somewhat wider than old-line manufacturing, which tends to be the image that comes to mind when talking “production.”
Yet, in some ways, a new producer society is already taking shape all across the country, driven by very real grassroots movements in tinkering, do-it-yourself (DIY) projects, entrepreneurship, and even manufacturing. This is not the producer society of auto assembly or equipment manufacturing. In rural Missouri, a Polish immigrant with a doctorate in physics has founded Open Source Ecology, which creates what it calls the “Global Village Construction Set,” dramatically lowering the barriers to farming, construction, and manufacturing. The idea has clear implications for developing countries, but for a place like the United States, with massive legacy infrastructure and deep pools of engineering talent, the idea of repurposing existing technology for lower cost and better quality is very attractive.
Or take Maker Faire, which bills itself as the “world largest DIY festival.” It is a joyous collection of “makers”: proverbial garage inventors, hobbyists, and people who like to tinker. A Maker Faire held in Detroit several months ago drew 70,000 people! A recent issue of Make magazine, moreover, featured information on how to build your own go-kart. A slightly more formal version of the maker movement is TechShop, which originated in Silicon Valley and has now expanded to Detroit and Raleigh, NC, with additional locations planned. TechShop operates on the subscription model—you pay, say, $100 per month and gain access to cutting-edge equipment such as 3-D printers and laser-cutting machines. Several new companies have already emerged from TechShop. These are the faces of American manufacturing’s future.
But we must expand our notion of “producer” as well. All around the country, thousands of people participate in Startup Weekends throughout the year. This event is exactly what it sounds like: a 54-hour crash-course in pitching ideas, forming teams, building products, and pitching again. Many actual and sustainable companies have emerged from these. To date, most Startup Weekends focus, quite naturally, on software and Web-based businesses. But in the coming months there will be a Startup Weekend focused on 3-D printing and even health services. The idea echoes those of OSE and Maker Faire: rapid learning, lower costs, higher quality.
Startup Weekend participants, moreover, see themselves as builders and creators and, yes, producers. As Marc Andreessen recently emphasized, software is “eating the world,” transforming industries that we previously thought of as far removed from software. If you follow the myriad blogs and opinion pieces in the world of technology entrepreneurship—and if you can look past the persistent claims that we are in a new “tech bubble”—it becomes clear that this is a movement of producers.
Is this enough, however, to save the American economy from a Japanese-style lost decade? Skeptics will rightly assert that these movements of makers and startups are far from sufficient to create jobs for all the unemployed and underemployed. And, the challenges facing the United States in areas like education and health care are deep-seated. We have seen, moreover, that even before the onset of the financial crisis in 2008, new companies were “starting smaller and staying smaller,” a trend that only worsened during the recession.
A full treatment of public policies and private actions that might build on the foregoing movements and fully address the American economic challenges must wait for a future column. We should work, of course, to boost the competitiveness of the “old” producer society, but this will be achieved more through free trade agreements than government-directed investments. But, history teaches that the next economic frontier is born in the depths of recessions. The future being created right now at Maker Faire, in TechShop, and at Startup Weekends is the leading frontier of our next era of economic prosperity.
Photo credit: Laughing Squid
“We need a new economic strategy that stimulates [...] saving rather than borrowing”
Okay I have to object to this line. It sounds intuitively reasonable to say we have too much debt, not enough savings, because for a lot of the middle class this is true and because, for an individual, savings and debt are opposites. However, in the economy as a whole, savings and debt are not opposites, they are the same thing just viewed by different people. If you increase savings, banks look for who else they can convince to go into debt to earn interest on the savings. The subprime mortgage boom happened because people were looking for more ways to make money from their savings; CDOs of subprime mortgages filled the demand. And debt is constrained by savings.
You cannot move the economy to “more saving, less borrowing.” You could shoot for less of both. Or you could say we need an economy where the middle class does “more saving, less borrowing,” but that can only happen if the rich or the government shift to less saving, more borrowing.
I’m also a little puzzled by the idea we should do more production and less consumption — these aren’t even opposites on an individual level, and I’m trying to imagine the warehouses we’re going to build to fill up with stuff so that we have something to produce and we make sure we don’t wastefully consume it. Unless you only meant this to be redundant with your third suggestion that we do more exporting and less importing. That’s a theoretically possible outcome. Of course it means some other country has to do more importing and less exporting. The global nature of this recession is going to make it difficult to find willing and able volunteers there.
Eric: I think you’re missing the point when it comes to saving/borrowing. Right now the interest earned on a savings account is basically zero, and it could go even closer to zero if banks can’t make enough on loans to pay interest on savings accounts. That doesn’t mean people can’t still find value in putting aside large sums of savings, despite there being little or no interest earned on that savings. We may be entering an era where “doing nothing” with money is wiser than “making money” with it, whether from savings interest or investing/leveraging it.
Interest on savings comes from interest on debt. To get more interest on savings, you need to convince more people to go into debt at a higher interest rate, or you need less savings. (The government could easily fix that by borrowing a lot more money if we really thought that low interest rates were a problem.)
Anyway, I’m not sure why low interest rates should be seen as a bad thing. Will Marshall’s policy brief noted that return to capital has gotten quite high due to record corporate profits, so it’s not like we have no ways of turning money into more money. Given the economy, I’m not sure it’s such a bad thing that investing in businesses is a better way to get returns on your savings than convincing consumers to go into debt.
Eric has the right sentiment.
If we’re all producers, who will be consumers? Production and consumption are just accounting metrics of means to an end. We consume energy to produce schools. We produce schools to consume education.
Americans are focused solely on the accounting of dollars, which the US government has infinite supply as the sole producer, instead of the big picture goals of society.
The problem with the American economy is that 71% of GDP is consumption – in other countries like Asia, it is 40%-50% (Japan reaching 57% is a developed economy). What this means is that policy makers will focus on short-term goals of encouraging consumers to go out and shop, buy new cars, etc and voila….GDP growth rises. But this type of growth is unsustainable simply because consumers income are not sufficient to support their spending…they need debt to finance it. The best consumption is financed by personal savings after a certain amount is allocated to investment.
The idea of a producer society is not complete because it still depends on consumers, whether local or foreign, to buy the products/services. I think the idea of a prosumer society is more interesting whereby what you produce is also what you consume, which one step towards a barter economy. The world will not grow as fast with lower debt but people will be happier without big government or big companies trying to interfere with their choices/time.