TIME society

Who Is the Freelance Economy Hurting?

car-piggy-bank-driving
Getty Images

The freelance economy is troubling given the unbending and unforgiving realities of today’s economic environment

These days, it’s all about the freelance economy—or what many experts envision as the new economic normal. As the economy makes its bland recovery, flexible (no-benefits and low-cost) freelance (a.k.a. “shared,” a.ka. “contingency”) work is all the rage.

But who benefits from this supposed freelance boom? This growth of contract employees, such as the ride-sharing and taxi-obliterating Uber, along with its competitor and policy partner-in-sector Lyft, has already sparked some good old-fashioned turf wars over innovation. And while the fever-pitched combat between traditional taxis and ride-share services might seem like just another nose-breaking scrap between rivals in a market space, there’s even more to it than that. The outcome promises to radically and forever reshape what it means to be a worker.

The Freelancers Union excitedly sneezed out its “National Survey of the New Workforce” last September, boasting about the 53 million workers disrupting the typical economic model. Gone are the days when like Ward Cleaver strolls through the front door after a 9-to-5 white collar grind. First add June to that equation—she’s working, too, while the Beav and Wally are left latch-keyed to their own smartphone-fueled devices because their parents’ freelance work comes without the benefit of regular hours. The generational impact of the “freelance revolution” doesn’t stop at the nuclear family—imagine Millennials hunched over laptops in the local Starbucks or overwhelmed Gen-X’ing parents hustling for both paycheck and flexibility.

Let the numbers tell it, and it’s all good—advantage innovators. Popular freelance economy pioneers like Uber enjoy eye-popping valuations of $40 billion or more, thereby validating an emerging freelance ideology. Freelancers, according to the Freelance Union, are also contributing more than $700 billion of productivity to our $14 trillion economy, which is solid and respectable. As the economy rapidly reconfigures and technology pushes us further into automation, the segment of the workforce that’s contracted will also rise from today’s 34 percent to an astonishing 50 percent by 2020. Hence, the trend shows no sign of reversing, but rather more signs of metastasizing. It’s reasonable to assume that, in our collective lifetimes, freelance or contractual work will be the fundamental core of our global labor market. There will be way more freelancers than full-time permanents. A world of full-timers and full-time-nots looms just over the horizon—and for some workers, it’s already here.

Not only does that make the Affordable Care Act convenient in terms of its timing, but also rather prescient. Permanent non-freelance jobs won’t be an economic staple in 10 years. Instead, they’ll be something of a highly-prized and rather rare privilege.

From a white-collar perspective, freelancing seems like an efficient fit. Philosophically, it appears to thrive off the notion of high-octane entrepreneurship, an attractive social construct where we control our own agency.

But the freelance economy is troubling given the unbending and unforgiving realities of today’s economic environment. Among traditionally underserved populations, who face income inequality, stagnant wages, and underemployment, disrupting tech enthusiasts prompt more anxious questions than giddy answers. A ballooning freelance workforce means a permanent state of non-permanent wages, adding more uncertainty to an economic environment saddled by stuck income. As Pew found recently, “the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.” While poverty is at 15 percent, economic inequality in the United States is obscene, a place where the top 20 percent own 84 percent of … well … everything.

Anecdotally and statistically, we see persistent public anxiety about the economy. A POLITICO poll discovered 64 percent of respondents feeling as if the country was “out of control” and only 36 percent believing it’s in a “good position to meet its economic and national security challenges.” When a subsequent POLITICO story highlighting economic concerns as a central issue in the upcoming elections dropped, it was peppered with quotes from average voters expressing “raw” concerns about matters such as “outsourcing” and “job growth.”

The question of who benefits becomes more pressing with each passing year the freelance economy grows. Interestingly enough, the decline of purchasing power since 1973 seems to mirror the upward trend of the “contingent” economy during that same period. And, along with the recession, it also means—eventually—that large segments of the population are getting left behind or will remain behind. Already, as Prospect’s Virginia Durivage pointed out some time ago, “most contingent workers are women and minorities clustered in low-wage jobs with no benefits or opportunities for advancement.”

Official unemployment rates released each month by the Bureau of Labor Statistics make recovery feel as fresh as a detergent commercial, but these reports slickly ignore other indicators such as underemployment or diminished labor force participation rates that actually show joblessness is much higher than we think. One factor, perhaps, could be a rising freelance mindset as fed-up workers tap out of traditional models in a bid to make it on their own.

Another obvious factor is a society still largely discriminating on the basis of race and perceived status, a condition for which the freelance economy may have no solution – especially if, as USA Today showed in a recent analysis, “top universities turn out black and Hispanic computer science and computer engineering graduates at twice the rate that leading technology companies hire them.” Would embracing a dominant freelance economy make that situation worse? It’s unclear at the moment. What we can see, for example, is that freelance pioneers like Uber are disrupting taxi industries largely populated by drivers of color: while 32 percent of tax drivers are black, less than 20 percent of Uber drivers are the same compared to more than 40 percent who are white. Asian and Latino Uber driver rates are, however, nearly identical to their proportions as taxi drivers, even while still low (17 percent each, respectively) when compared to white Uber drivers.

That probably doesn’t hint at any pattern of hiring discrimination on that part of Uber when it clears and selects contracted drivers. But, what is clear is that companies reliant on outsourcing as their primary operational model have more incentive to circumvent (or altogether neglect) worker rights than when industries were more reliant on permanent positions.

Charles D. Ellison is a veteran political strategist and Contributing Editor for The Root. This piece was originally published in New America’s digital magazine, The Weekly Wonk. Sign up to get it delivered to your inbox each Thursday here, and follow @New America on Twitter.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Economy

What The Wizard of Oz Can Teach Us About Inequality in the 21st Century

Poppy Field, 'Wizard Of Oz'
MGM Studios / Getty Images A still from the film, 'The Wizard of Oz,' directed by Victor Fleming, 1939.

Income inequality, as we all know, is getting worse by the year. Frank Baum understood the threat this poses to democracy

History News Network

This post is in partnership with the History News Network, the website that puts the news into historical perspective. The article below was originally published at HNN.

In 1900, one hundred and fifteen years ago, Frank Baum wrote a brilliant political allegory called the Wonderful Wizard of Oz. Though he billed it as a modern fairy tale meant solely to entertain children, Baum’s epic was in fact all about income inequality. All these years later, we still don’t seem to get it—we live in a democracy that continues to be run by those few who control almost all the money.

And income inequality, as we all know, is getting worse by the year. This issue likely will be one of the defining questions of the 2016 campaign for the presidency.

In Baum’s time it was all about silver and gold. The country’s supply of money was tied principally to gold, with silver used for coins. The result was that the money supply was severely limited at a time that the country was exploding in growth, due in large part to the industrial revolution and huge immigration waves from Europe.

Those who had the money wanted to keep the money supply limited.

Farmers and laborers, on the other hand, who struggled to keep up with their mortgages or debts to powerful bankers, needed more money in circulation to allow them just to pay their bills.

But, of course, with a constricted money supply, the rich got richer—obscenely rich.

The presidential contest of 1896, often referred to as a “cyclone” because of its turbulence, was the highpoint of the political debate over establishing a bi-metallic standard for money. The populist wanted to see silver established in a 16-ounce-to-1-ounce ratio with gold. “16 to 1” was the battle cry of those who believed in “free silver.”

“Oz” is the abbreviation for ounce. Hence, Frank Baum dubbed his title character the “Wizard of Oz.”

It was a classic haves and have-nots contest. Over a hundred years ago, many argued that it was inconsistent with the notion of democracy to allow an advantaged few to control the money supply. True political equality, they said, required some measure of economic equality—and access to more money was the key.

The prophet for free silver in 1896 was a very young congressman from Nebraska named William Jennings Bryan. He stormed to the nomination of the Democratic Party at its convention in Chicago in the summer of 1896 with his dramatic “Cross of Gold” speech. His opponent, Republican William McKinley of Ohio, stood for “sound money” or the gold standard.

In Baum’s book, the road to Oz was paved with yellow bricks, symbolizing the gold standard. The Wicked Witch of the East (read Wall Street) was accidently killed by the innocent Dorothy from Kansas (read the Heartland) when a cyclone (the 1896 election) fortuitously deposited her home on the Witch, who in the book was wearing silver shoes, not ruby as in the popular movie adaptation.

The Witch of the East kept the Munchkins in bondage through her magical silver slippers, obviously a reference to the Eastern establishment’s regulation and restriction of the use of silver as a monetary unit. Now Dorothy unwittingly had set the Munchkins free and as her reward she was given control of the silver shoes, which she put on and wore on her journey to find the Great Oz, in the hopes that she might return to Kansas.

On her way to Oz, Dorothy runs into the Scarecrow, symbolic of the impoverished and vulnerable farmer in the West, the Tin Man, representative of the urban industrial worker who mutilates himself, chopping off all of his limbs as he labors relentlessly in sweatshops of his day, and the Cowardly Lion, who is Bryan, the man who roared to no effect in the 1896 election.

The Wonderful City of Oz, however, had a curious entry requirement. “You must wear spectacles,” the Guardian of the Gate informs Dorothy and her travelling companions once they make it to the outskirts of Oz.

“Why?” Dorothy asks.

“Because if you did not wear spectacles the brightness and glory of the Emerald City would blind you,” she is told. “Even those who live in the City must wear spectacles night and day. They are all locked on, for Oz so ordered it when the City was first built, and I have the only key that will unlock them.”

A big box containing spectacles of every shape and size is opened and Dorothy discovers that all of the spectacles are made with green lenses. Even Toto the dog is required to strap on a pair of the green glasses.

Turns out, the Wizard of Oz (who represents President McKinley in this allegory) requires his citizens to wear green spectacles, night and day, in order that they might think that there is plenty of money everywhere and for everyone. The illusion works and it keeps the Great Oz’s subjects in a contented state, as they are duped into believing that it is the brightness and glory of Oz, not the lack of money, that necessitates the special glasses.

If Baum were writing today, how would he play out the allegory? Would the citizens of Oz be required to wear Google glasses, filled with images from cable news networks? And how would he portray the characters? What would he make of the present slate of presidential contenders?

Baum was clever enough to write an epic that fascinated on so many levels, but there is little question that a modern-day Wizard of Oz tale would deal with the same underlying question that this nation faced over a century ago: how can a democracy survive if too much money and power is concentrated in too few hands?

One thing is sure: Dorothy would have her hands full getting back to Kansas, or is it Iowa?

James Robenalt is the author of January 1973, Watergate, Roe v. Wade, Vietnam and the Month That Changed America Forever.

TIME Economy

This Stat Is One Big Reason the Recovery Has Been So Weak

Fast Food Workers Protest For Increased Wages Ahead Of McDonald's Annual Shareholder Meeting
Scott Olson—Getty Images Fast food workers and activists demonstrate outside the McDonald's corporate campus on May 21, 2014 in Oak Brook, Illinois.

Almost half of American workers don't have a full-time job

The Commerce Department’s announcement Friday that GDP growth was negative in the first quarter of this year, has analysts scratching their heads, searching for reasons the economic expansion, now in its sixth year, hasn’t yet reached escape velocity.

One explanation? The jobs recovery has been historically weak, both in terms of the pace of job growth and the quality of jobs that have been added.

A report released last week by the Government Accountability Office underscores this point. According to the GAO, a whopping 40.4% of U.S. workers are contingent as of the most recent available data in 2010 — meaning they work some in some other arrangement besides a standard full-time job.

Reads the report:

We found that compared to standard full-time workers, core contingent workers are more likely to be younger, Hispanic, have no high school degree, and have low family income. These contingent workers are also more likely than standard workers to experience job instability, and to be less satisfied with their benefits and employment arrangements than standard full-time workers. Because contingent work can be unstable, or may afford fewer worker protections depending on a worker’s particular employment arrangement, it tends to lead to lower earnings, fewer benefits, and a greater reliance on public assistance than standard work.

This rise of part-time, contract, and other sorts of non-permanent work arrangements has caused our current economic recovery to be dominated by consumers who are wary of spending — or simply aren’t being paid enough to power our consumer-driven economy.

This is why many economists, like Vice President Biden’s former Chief Economist Jared Bernstein, have stressed the importance of policies that would lead to full employment, like higher infrastructure spending, work-sharing programs during downturns, and loose monetary policy.

In an environment of full employment, competition for workers would require employers to offer higher pay and better conditions in order to retain their workforce. One of the few times the U.S. economy reached full employment was in the late 1990s, and it was also one of the few periods in past forty years where the median American worker saw significant and sustained growth in his or her wages.

TIME Economy

Warren Buffett: $15 Minimum Wage Will Crush the Working Class

Warren Buffett And BofA CEO Brian Moynihan Speak At Georgetown University
Drew Angerer/Getty Images

The billionaire has a surprising position on beloved issue for the left

Warren Buffett is a favorite of the American left for his support of such policies as higher taxes on the rich and healthcare reform.

But advocates for workers rights may be a little less pleased with the billionaire investor after he published an op-ed in The Wall Street Journal Friday, decrying the efforts in many cities across the United States to raise the minimum wage to as much as $15 per hour.

Buffett admitted that the middle class has increasingly hurt by an economy that rewards people with “specialized talents,” but not the vast majority of Americans who hold “more commonplace skills.” However, Buffett argues that trying to solve the problem of stagnant wages for working Americans by raising the minimum wage is misguided. Writes Buffett:

In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.

That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.

Instead, Buffett says, we should expand the earned income tax credit, also known as a “negative income tax,” in which the government subsidizes the wages of workers making under a certain amount. “The EITC rewards work and provides an incentive for workers to improve their skills,” Buffett writes. “Equally important, it does not distort market forces, thereby maximizing employment.”

TIME Labor

These 5 Charts Show How Hard it is for Americans to Take a Vacation

Americans have seen nearly a full week of vacation disappear from their lives

Memorial Day weekend is upon. It’s time to hit the road as vacation season officially kicks off–that is unless you’re like the majority of Americans who’ve cut back on their beach time. In the 1980s, employed Americans took up to 21 days of paid vacation each year. By 2013, that number had shrunk to 16, according to research performed by Oxford Economics for Project Time Off.

To read more about America’s vacation problem, see this week’s TIME magazine.

It’s important to note many employees do have access to vacation. Data from the Bureau of Labor Statistics (BLS) shows that access to paid time off (PTO) remains above 90 percent among private industry employees, shrinking only 2 percentage points since 1989.

Access to paid vacation 1989-2014

chart1

The chart above includes all full-time employees in private industries–the primary employers in the U.S.–including small and large businesses. “Larger companies traditionally offer relatively good access to benefits, like paid time off”, says Elizabeth Ashack, an economist with BLS. But the availability of paid vacation varies greatly among occupations within the private industry.

Access to paid vacation by sector in 2014

chart2

Only 55 percent of service jobs offer paid time off (compare that to management and financial positions which come in at 96 percent, the highest level among the above occupations). Without a federal mandate for paid time off or paid sick leave, private industries are left to their own discretion, often resulting in unequal access across occupations.

Ashack says that employers may offer better benefits to keep workers from jumping ship in good times, but in bad times those benefits worsen, evidenced by cuts during the economic downturn of 2008 to 2009.

Likewise, the amount someone makes is a good indicator of the quality of paid time off they receive.

Access to paid vacation by income groups 2014

chart3

Those making the lowest wages are the least likely to have paid leave, with a steady increase in access as wages rise.

For those with access, the use of paid time off has declined sharply in the past decade to an average of 16 days taken each year–an all time low within the past four decades.

Annual vacation days used among employed adults 1978 – 2013

chart4

The U.S. Travel Association, a trade group which encourages Americans to travel, funded Project Time Off to measure the economic impact of the decline in vacation time. They found that among employees with access to paid time off, nearly five days went unused in 2013, and 1.6 of those days did not carry over to the next year. That totals to 169 million days of lost vacation time for Americans.

By surveying the hours worked by employees, BLS measures the percent of the American workforce on partial (less than 35 hour work week) or full vacations on any given week. Analysts noticed a decrease in full-week vacations, and a corresponding increase in partial week vacations, yet another measure indicating that Americans need a break.

Percentage of employed adults on full or partial-week vacations 1978 – 2013

chart5

 

TIME energy

This Chinese Businessman Just Lost $14 Billion in Half an Hour

Ouch

You might think you’re having a bad day, but Li Hejun will tell you it could be a heckuva lot worse.

The chairman of Hong Kong-listed Hanergy Thin Film Power, a maker of equipment for the solar power industry, just saw $14 billion wiped off the value of his controlling stake in the company in a so-far unexplained end-of-day crash.

Li had become one of China’s richest men on paper after shares in his company nearly tripled in the first four months of the year, giving it a market capitalization of $40 billion at one stage. For comparison, the U.S.’s largest solar company, First Solar Inc. [fortune-stock symbol=”FSLR”], is worth $5.6 billion. But the company’s shares fell over 42% in the last half-hour of trading in Hong Kong Wednesday, before being suspended by the local market regulator.

The boom in Hanergy’s shares has raised eyebrows. Transparency about the company’s business practices is limited by the fact that most of its sales go to a single company–its parent, the privately-held Hanergy Group. That has fostered suspicions–denied by the company–that it may be overstating its financial strength.

The collapse appeared to be triggered by Li’s failure to attend the company’s annual shareholder meeting. In one of the more memorable corporate quotes of recent times, The Financial Times reported a company spokesman as saying that Li “had something to do” instead.

Sentiment towards China’s solar companies had been battered on Tuesday after one of Hanergy’s biggest rivals, New York-listed Yingli Green Energy Holding [fortune-stock symbol=”YGE”] said in its annual report that there was “substantial doubt” as to its ability to continue as a going concern, driving its shares down 37%. The company put out a statement Wednesday saying that the media had blown its comments out of proportion.

TIME

Why Walmart Has Big Problem on Its Hands

An employee pulls a forklift with display units for DVD movies at a Wal-Mart Stores Inc. location ahead of Black Friday in Los Angeles, Calif. on Nov. 24, 2014.
Bloomberg—Getty Images An employee pulls a forklift with display units for DVD movies at a Wal-Mart Stores Inc. location ahead of Black Friday in Los Angeles, Calif. on Nov. 24, 2014.

The world's largest retailer is hurting

As gas prices hit multi-year lows a few months ago, many retailers hoped the savings consumers would enjoy would yield a bonanza.

Those hopes have been dashed.

Instead of going out to buy a new polo shirt or barbecue grill, consumers seem to be saving some of what they would have spent on gas to pay other bills.

Walmart, a unit of Wal-Mart Stores on Tuesday joined a chorus of U.S. retailers to report disappointing first quarter sales that has included Macy’s, Gap Inc and Kohl’s.

The retailer reported comparable sales, which includes digital revenue but excludes newly opened or closed stores, rose 1.1%- not bad, but below the 1.5% Wall Street was looking for. On the earnings side, Wal-Mart, which also owns Sam’s Club and Walmart stores abroad, reported a profit of $1.03 per share, down from $1.11 a year ago, and a penny lower than analysts anticipated.

So what happened? Consumers have shifted their budget to other priorities, the company said.

“We know that many of our U.S. customers are using their tax refunds and the extra money from lower gas prices to pay down debt or put it into savings,” Wal-Mart CEO Doug McMillon said on Tuesday.

“They’re also using these funds for everyday expenses like utilities and groceries. That’s where we can be their destination of choice.”

Indeed, some improvements on the grocery side were a silver lining for the company last quarter. Walmart gets 55% of revenue, or $155 billion last year, from grocery.

Walmart has made it a priority to improve its grocery business, both in terms of assortment, particularly fresh food, and making sure stores are amply stocked to avoid a chronic problem with empty shelves. (It is still grappling with a lot of food spoiling before it can be sold, something that was a drag on profit.) It has also raised its starting wage to increase employee motivation and improve customers service.

Encouragingly for the company, comparable sales at its Neighborhood Markets stores, smaller-sized grocery stores, comparable sales rose 7.9%. And Walmart saw more shoppers come into its stores for the second quarter in a row after nearly two years of declines.

Still, the world’s largest retailer recognized that there is a lot left for it to do to get back to its growth rates of the past. In addition to all its challenges at home, some of its foreign markets are struggling badly: Asda, its U.K. subsidiary, saw like-for-like sales excluding fuel fall 3.3% on the quarter, suggesting that it’s now taking most of the strain in a relentless battle for market share between established players and German-based discounters.

“We know, though, that we’re not where we want to be yet. It will take time to achieve our goals, but we’re fully committed to providing our customers with a shopping experience they can love, and associates who see their efforts leading to broader and better careers,” said Greg Foran, CEO of Walmart U.S., the company’s biggest division with annual sales of $288 billion last year.

MONEY Economy

5 Reasons Cheap Gas Isn’t Fueling Consumer Spending

Getty Images/Tom Merton

Why you're just not feeling that confident.

The American consumer is difficult to figure out these days.

We currently enjoy substantial, if not strong, tailwinds. Despite a recent hiccup, employment numbers are improving, and wage growth has (kinda sorta) started to kick in. While gas prices have crept up a bit lately, drivers will most likely spend hundreds less at the pump this year than last. And a strong dollar has improved our purchasing power overseas.

Nevertheless, Americans are not translating these positives into more spending—except perhaps at bars (more on that below). And readings of how people feel about the economy and their stake in it are all over the map.

To demonstrate, here’s a snapshot of how consumers are behaving in five key areas:

Spending Is Flat

Last week the Commerce Department announced that retail sales were flat in April, and up only 0.9% from the year before. That’s the smallest year-over-year increase since the fall of 2009. The economy struggled in the first few months of 2015, with GDP increasing by just 0.2%, which economists blamed on, among other things, severe winter weather. But the poor retail figures in April make the bad weather theory a bit less compelling.

One area of the economy that’s seeing lots of cash? The service sector. Spending at bars and restaurants has boomed lately. “It is clear that this is the place where U.S. consumers are spending some of the money they are saving by buying cheaper gasoline,” per Wells Fargo Securities senior economist Eugenio Alemán.

Saving Is Up

In the years leading up to the financial crisis, Americans’ personal savings rate—a ratio of savings to disposable income—bounced between 2% and 3%. These days it’s up to 5.3%. Moreover, household debt relative to GDP has fallen dramatically since the end of the recession. My spending is your income, and vice versa, so more savings and less debt can limit wage growth for workers.

Confidence Is Iffy

All of the above has led to a lot of noise when it comes to gauging the economy’s animal spirits. Consumer sentiment recently hit a seven-month low, as the initial cheap gas sugar high faded. Gallup’s economic confidence index has dipped lately, too, and rests in negative territory. That said, surveys show substantial improvement from a year ago. A recent Bankrate poll, for example, found that only 16% of Americans say their financial situation has deteriorated over the past 12 months, down from 35% in August 2011.

And while you’re paying more at the pump than a couple of months ago, prices are still much lower than last year. The Energy Department estimates that you’ll spend almost $700 less in gasoline, making this summer look to be the least expensive for car travel since 2009. That should boost household confidence a bit.

More People Are Quitting

Though the quit rate has held relatively steady this year, people are quitting their jobs at much higher rates than in the years following the recession, which suggests they are feeling good about their ability to land a new gig. With good reason: The jobs picture is pretty healthy despite a lackluster report in March. Employers have added roughly a quarter-million jobs a month since 2014, and the unemployment rate has dropped to 5.4%. Still, for many people there’s one major thing holding them back.

Wages Are Stagnant

What’s missing is wage growth. Median household income is still well below pre-recession levels, and wage increases have hovered around 2%, which is only slightly more than inflation. That’s pretty abysmal, so it’s not difficult to see why households might be cautiously optimistic in the face of good news—i.e. lower gas prices.

One silver lining can be found in a gauge called Employment Cost Index, which measures benefits as well as salary. The ECI rose 2.6% in the first three months of 2015 compared with 12 months ago. Per the Labor Department, that’s the best showing since the end of 2008. While it’s still in the early days, workers may be in for the raises they so desperately need.

TIME Economy

How Social Security Could Boost India’s Economy

Traffic make way in haze mainly caused by air pollution in Delhi, India on January 20, 2014. Air pollution in India exceeds that of China as diesel fuel subsidies encourage ownership of polluting vehicles. (Kuni Takahashi/Bloomberg)
Kuni Takahashi— Bloomberg Finance LP Traffic make way in haze mainly caused by air pollution in Delhi, India on January 20, 2014.

This weekend, India’s Prime Minister Narendra Modi launched three social security schemes aimed at helping the people of West Bengal gain access to pensions and insurance. Earlier, Modi also launched a program to provide every Indian citizen with a bank account in a bid to promote financial management, especially amongst the poor, and to modernize payment methods for workers.

Social security, though not novel, is still an underdeveloped concept for a country where at least 30% of the population continues to live in poverty and where old age is often accompanied by extreme destitution for many. The current program covers only a small portion of the population and is primarily employer driven, limiting its scope to help the vast majority of people.

While Modi’s plans to create a bigger safety net for more citizens are still in their infancy, they could be a harbinger of an important change for the Indian workforce, one that can enhance the skill level of labor, enable entrepreneurship, increase consumption, and propel Indian commerce to new heights.

The concept, of course, has a successful precedent in the U.S. When President Franklin Roosevelt created social security in 1935, his landmark action arguably changed the course of American history by freeing Americans to aim for higher education, innovate, and take entrepreneurial risk instead of worrying about their welfare when they grew old. That spirit of risk-taking has been instrumental in creating America’s technology boom and boosting its economic power over the decades.

The same could happen in India if Modi succeeds in widening the scope of the nation’s social security program. It might even be crucial.

One of the highest areas of growth for the Indian economy has been its Information Technology sector, which accounts for 7% of GDP, grew at a compound annual growth rate of 25% from 2000-2013, and is creating new jobs at a rapid clip. But the industry may be slowing down, driven by international competition from companies such as Google and Microsoft, due to a lack of innovation, according to forecasts by Indian trade association IBEF and Livemint, a sister publication of the Hindustan Times.

While half of India’s population is under 21, creating a fertile labor pool for the future, a large rural population (68%) and poverty could hold the country back in being able to realize its potential unless its people are freed from a hand-to-mouth existence. For example, a lack of options and financial necessity still keep almost 50% of workers stuck in the agricultural sector, most of whom have no social security whatsoever, while what is needed is a shift of the workforce towards more skilled jobs, such as in IT or the equally emergent and large healthcare sector. A robust social safety net could well give such people the courage to migrate towards urban areas and pursue higher education and knowledge-based jobs.

In addition, social security will add to the Indian economy through increased consumption, which is important in a nation where the per capita income is only about $1,500, according to the World Bank. Once again, there is a striking parallel to justify this assumption. According to a report by the AARP, social security adds about $1 trillion to the U.S. economy every year, mainly through consumption.

Much of the attention surrounding Modi’s economic plans has focused on the Indian government’s opening up of its markets to foreign investment and lowering barriers to trade, but more subtle initiatives like social security will also play an important role in helping the Indian economy become the powerhouse that the Modi administration has promised it can be, and which the international investment community is hoping for.

Kumar has worked at leading U.S. investment banks in technology, media, and telecom mergers and acquisitions, He has also served as a strategic consultant to media companies and hedge funds. He has an MBA from Columbia Business School and has lived in India.

TIME Economy

Here’s the Secret Truth About Economic Inequality in America

Mmmmmoney: Get a grip; it's just paper
KAREN BLEIER; AFP/Getty Images

Once you look at the issue this way, it's hard to think of it any other way

We all know that inequality has grown in America over the last several years. But the conventional wisdom among conservatives and even many liberals has always been that inequality was the price of growth–in order to get more of it, we needed to tolerate a bigger wealth gap. Today, Nobel laureate Joseph Stiglitz, the Columbia professor and former economic advisor to Bill Clinton, blew a hole in that truism with a new report for the Roosevelt Institute entitled “Rewriting the Rules,” which is basically a roadmap for what many progressives would like to see happen policy wise over the next four years.

There are a number of provocative insights but the key takeaway–inequality isn’t inevitable, and it’s not just a social issue, but also an economic one, because it’s largely responsible for the fact that every economic “recovery” since the 1990s has been slower and longer than the one before. Inequality isn’t the trade-off for economic growth; rather, it’s both the cause and the symptom of slower growth. It’s a fascinating document, particularly when compared to the less radical Center for American Progress policy report on how to strengthen the middle class, authored by another former Clinton advisor, Larry Summers, which was widely considered to set out what may be Hillary Clinton’s economic policy agenda.

While the two have some overlap, the Stiglitz report is bolder and more in-depth. It’s also a much more damning assessment of some of the policy changes made not only during the Bush years, but also during Bill Clinton’s tenure, in particular the continued deregulation of financial markets, changes in corporate pay structures, and tax shifts of the early 1990s. During a presentation and panel discussion on the topic of inequality and how it relates to growth (I moderated the panel, which included other experts like Nobel laureate Bob Solow, labor economist Heather Bouchley, MIT professor Simon Johnson and Cornell’s Lynn Stout, as well as pollster Stan Greenberg), Stiglitz made the point that both Republican and Democratic administrations have been at fault in crafting not only policies that forward inequality, but also a narrative that tells us that we can’t do anything about it. “Inequality isn’t inevitable,” said Stiglitz. “It’s about the choices we make with the rules we create to structure our economy.”

One of the big economic questions in the 2016 presidential campaign will be, “why does inequality matter?” The answer–because it slows growth and thus affects everyone’s livelihood–is simple. But the reasons behind it are complex and systemic. Senator Elizabeth Warren and New York Mayor Bill de Blasio were on hand to help connect the dots on that front, with de Blasio calling for more social action in order to “move to a society that rewards work over wealth,” and Warren re-iterating a hot button point that she made last week about inequality and the trade agenda; she believes that Fast Track trade authority for President Obama would allow big bank lobbyists on both sides of the Atlantic to further water down financial reform that could combat inequality, which led the President to call her ill-informed (he didn’t elaborate much on why). Warren noted that the trade deal was being crafted in conjunction with 500 non-governmental actors, 85 % of whom are either industry lobbyists or from the big business sector.

Warren’s mantra about how America’s economic game “is rigged,” ties directly into two of the key takeaways from the Stiglitz report; first, that inequality is all about the political economy and Washington policy decisions that favor the rich, and secondly, that it’s not one single decision–Dodd Frank, capital gains tax, healthcare, or labor standards–but all of them taken together that are at the root of the problem. “Our economy is a system,” says Stiglitz, and combatting inequality is going to require a systemic approach across multiple areas–financial reform, corporate governance, CEO pay, tax policy, anti-trust law, monetary policy, education, healthcare, and labor law. It might also involve revamping institutions like the Fed; Stiglitz and Solow both agreed that the Fed needs to start tabulating unemployment in a new way, perhaps focusing not on a particular number target, but on when wages actually start to go up, which Stiglitz said is the best sign of when the country’s employment picture is actually improving.

Thinking in these more holistic terms would be a big shift for lawmakers used to tackling each of these issues alone in their respective silos. But as Stiglitz and the other economists on the panel pointed out, they are often interrelated–consider the way in which pension funds work with shareholder “activists” to goad corporations into over-borrowing to make large payouts to investors even as lowered wages and profits kept in offshore tax havens mean that long-term investments aren’t made into the real economy, slowing growth. Or how continuing to tie worker’s healthcare benefits to companies makes them virtual slaves, decreasing their ability to negotiate higher wages, not to mention start their own businesses.

It’s a huge topic, and the Roosevelt discussion was part of the continuing campaign on the far left to try to make sure that presumptive nominee Hilary Clinton doesn’t continue business as usual if and when she’s in the White House. Progressives are looking for her to do more than talk about minimum wage and redistribution; they want her to make fairly radical shifts in the money culture and political economy of our country. That would mean a decided split from the policies of the past, including many concocted by her husband’s own advisors, ghosts that Hilary Clinton has yet to publically reckon with.

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