How government could make the massive transition in the economy easier

Walter Russell Mead is developing a picture of what the new economy might look like.  Most recent post is Beyond Blue 5: Jobs, Jobs, Jobs

That we are in the midst of a massive change in the whole economy has been obvious for a while.  All the rules have changed.

What does this change look like?

The music, newspaper, and manufacturing industries are painfully aware of this.  It is dawning on the publishing industry and the post office that the tidal wave of change has hit them.  Primary education, higher education, and government at all levels haven’t caught on.  I’m not sure where the CPA industry is at.

My opinion, shown clearly on this blog, is that our future is so bright we need sunglasses now.

At the same time, the transition will be terribly painful. Massive changes are needed to make the shift.

One huge area needing change is in the heavy hand of government regulation. Mr. Mead opens his post with:

This is going to mean new kinds of policy at every level of government. In the 19th century, government promoted the rise of the family farm, selling cheaply and ultimately giving away millions of acres of farmland, and promoting the rise of railroads (which could carry the produce of western farms to world markets). In the 20th century the government promoted the rise of large, stable corporate employers that offered armies of white and blue collar employees lifetime employment and a bevy of benefits.

….The new economy needs a different framework to encourage new kinds of jobs and new industries; the faster we get to these the faster we will emerge from the death throes of the blue model into a new and much brighter world.

One of many changes is that lifetime employment is gone.  Nobody in college now will work 40 years at the same company and retire on a defined benefit pension at 50% or 75% of final pay plus social security.  That’s finished.

Much of the regulatory structure, worker protection, social insurance, health care, and compensation structure are built into the lifetime employment concept.  That all needs to change.

The overarching description of the change surrounding us is that we went from an economy based on the family farm to an economy where dad worked out of the home, either at a factory or office for lifetime. We are leaving that entire model for something that might be described as a free-lance economy.

Government policy encouraged development of the family farm economy and encouraged the transition to suburb-drive-to-the-office economy. Policy needs to support the new model as well:

But the weakening of the ties between employer and employee is another way to speak of the “entrepreneurialization” of the American labor market. In the 19th century, most Americans were entrepreneurs: operators of family farms. In the 20th century, most were employees, often of very large companies. In the 21st century we are likely going to become more entrepreneurial again, only instead of selling the produce of our farms, we are going to be selling the services we produce based on our skills and our imaginations.

Heavy hand of regulation and rules and requirements and reporting

Our current system of one company facing thousands of regulations written by hundreds of federal, state, county, city, and trans-agency bureaucracies makes it very difficult to start a business or to grow.

I’ve long wanted to write a post on the huge list of regulations an NPO must comply with. It is staggering. Just in terms of employment law, its overwhelming.

As a one-person CPA firm, I don’t intent to ever hire an employee. The paperwork burden of that first employee is just too huge.

That needs to change.

Some ideas to help the transition

One of Mr. Mead’s many suggestions:

A system that allowed small business to simply hire people with a handshake and pay them with a check, notifying the government once a year of amounts paid and to whom (and with the ability to deduct all reported wages from gross receipts for tax purposes) would likely increase the rate of business formation and hiring and if anything would result in a net increase of revenue for the government as more jobs were created and as fewer start ups and small enterprises would chose to operate under the table.

Cool.  Roll all the federal, state, and local payroll reporting, social security, unemployment tax, worker’s comp, retirement, every-body-has-to-carpool-to-work reporting requirements into one annual report.

Appropriate policies can either stall or encourage growth in the economy.  Mr. Mead’s conclusion:

Government needs to clear unnecessary obstacles out of the paths of the pioneers of the new economy. The single most effective way the government can support the necessary change is to adapt its regulatory and employment policies to the needs of the start ups from whose ranks the leaders of the future will emerge. That is not the only type of change that would help, but it is the most important one.

As you can already guess, I think you would grow and stretch if you read the full post.

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