To understand why today’s crisis is a truly terrible thing to waste, consider the Panic of 1873, says Richard Florida in his latest ode to economic innovation, “The Great Reset.”
That distant crisis boiled up from a sadly familiar bust in mortgages and building in Europe. It then rolled across the Atlantic to the U.S., where Jay Cooke & Co. collapsed, triggering the fall of other financial firms. The Long Depression had begun. Iron mills shut down; railroads went bankrupt; jobs evaporated, sowing hunger and homelessness. The economy contracted for 65 months.
Yet when we think of that epoch today, we usually recall a brighter legacy: a burst of revolutionary technologies such as Thomas Edison’s light bulb and first power station, Alexander Graham Bell’s telephone, George Westinghouse’s electric transformer. What happened in these dark years?
“Times of crisis reveal what is and isn’t working,” Florida writes in this infectiously upbeat yet disappointing look at how our own crackup could prove a inflection point -- a period when Schumpeterian “creative destruction” sweeps away obsolete systems, making room for innovation. He calls these episodes Great Resets.
A professor at the University of Toronto’s Rotman School of Management, Florida is known for his 2002 bestseller, “The Rise of the Creative Class,” which posited that growth comes to cities that draw creative folks, from software developers to biotech engineers. He also founded the Creative Class Group, a consulting firm whose clients include Goldman Sachs Group Inc. His books can be read as pitches for more business.
His latest begins well, trotting out snappy, six-page chapters that show how the Long Depression and the Great Depression created chances to make America more dynamic and productive. Innovations don’t halt during a crisis, he explains; they just pile up, unused, because the economy is in the dumps. Entrepreneurs put new projects on hold, stockpiling ideas that surge forth as growth returns.
The First Reset in the 19th century brought us modern electricity grids, lighting homes and powering factories. In transportation, horse-drawn “omnibuses” gave way to streetcars. The percentage of Americans living in urban areas surged from less than 20 percent in the 1860s to 40 percent.
The Second Reset accelerated the movement from farm to city to suburbs. Appliances such as refrigerators spread; the share of households with radios jumped to 75 percent in the depths of the Depression. Technological dynamism improved machinery, assembly lines and power generation, Florida says. R&D spending doubled.
As for our own crisis, we’re wasting it: “The whole approach of throwing trillions of public dollars at the old economy is shortsighted, aimed at restoring our collective comfort level.” Are U.S. and EU leaders listening?
Great Resets take time. They unfold over decades -- “like motion pictures rather than snapshots” -- making it impossible to predict what exactly the future will look like, Florida says. While this is obviously true, it gives him an alibi for being vague. After a strong start, the book loses coherence and becomes a sequence of bouncy magazine articles on pet topics.
We get chapters on the longevity of finance capitals like London, government boomtowns, and the death of industrial cities like Detroit. All very interesting, but hardly enough to satisfy an appetite whetted by his Great Reset thesis. I expected Wagyu beef with a rich Burgundy, not shrimp nibbles and bubbly.
Where would a Third Reset take us? Florida imagines a future in which people prefer renting homes to owning them (to stay mobile) and give up their cars (to save time behind the wheel). He envisions a network of high-speed railways that would meld proximate cities such as Boston, New York, Philadelphia, Baltimore and Washington into megaregions, “dense ecosystems” in which success flows from the velocity of human interactions.
The U.S., he says predictably, is shifting from “an economy based on making things to one that revolves around knowledge and creativity.” Two categories of jobs are growing: higher-paying knowledge, professional and creative work (think engineers, doctors and graphic designers) and lower-paying service jobs (nurses and janitors). As for factory jobs, they’re going, boys, and “they’re not coming back,” he says, echoing Bruce Springsteen.
One hitch: In previous Resets, America made plenty of useful stuff and exported it, as Germany still does. Then manufacturing as a share of U.S. gross domestic product sank, from 29 percent in 1950 to 12 percent in 2005, according to government data cited in Kevin Phillips’s “Bad Money.” Financial services meanwhile jumped from 11 percent to 20 percent. Lots of “knowledge jobs” there.
Florida laments that scientists and engineers flocked to Wall Street, where they designed CDOs squared instead of computers. One can only hope he aired that concern to his client Goldman Sachs, employer of Fabrice “Fabulous Fab” Tourre.
(James Pressley writes for Bloomberg News. The opinions expressed are his own.)