Saturday, February 04, 2006

The Secret to Future Growth

The Secret to Future Growth
Leaders must understand that economic competitiveness hinges on developing the full creative capabilities of the store clerk and landscape laborer as well as the computer scientist
Newsweek International

Jan. 30, 2006 issue - As the world's elite gathers for the annual world Economic Forum summit in Davos, the focus will be on harnessing creativity to make nations and businesses more competitive. That sweeping question tends to produce narrowly tech-centric discussions. One favorite approach is to project the raw numbers of science and engineering grads into the future, highlighting the rapid rise of India and China. The issue, then, becomes how to keep up.

That's true, as far as it goes. But the economic advantage of the United States, in particular, derives from much more than technical prowess. The real key is the rise of its creative economy, in which growth comes as much from entrepreneurship and entertainment as from engineering. Already, more than 40 million Americans work in the creative economy, which has grown by 20 million jobs since the 1980s and accounts for more than $2 trillion—nearly half—of all wages and salaries. Over the next decade, the U.S. economy will add some 10 million new creative-sector jobs, according to our calculations based on the latest Bureau of Labor Statistics forecasts. That includes 950,000 in computers and another 195,000 in engineering. But the biggest gains by far will be in health care and education: more than 3.5 million jobs. The entertainment industry, from hip-hop music to videogames, will produce another 400,000 jobs, twice as many as engineering.

Equally important will be the continued expansion of the service economy, where more than 5 million new jobs will be added, including retail salespeople, customer-service representatives, janitors, waiters and landscapers. Because these jobs pay a third of those in the creative economy, and half of those in the declining manufacturing sector, this trend is generally seen as a danger sign, a signal that the labor market is cleaving into two classes: high-skilled, high-paying creative work and much-lower-paying service work. The general consensus is that the only way to raise wages for these jobs would be with massive government intervention.

But a new generation of service companies is discovering that increasing pay and improving working conditions can add significantly to the bottom line. A good example is Best Buy, which employs 90,000 people and is the largest specialty retailer of consumer electronics in the world, with annual sales of some $25 billion. Taking a page from Toyota's much-lauded management system, employees are encouraged to improve upon the company's work processes. Small changes suggested on the salesroom floor—a teenage sales rep's reconception of an Internet phone-calling display, or an immigrant salesperson's proposal for ways to target advertising and service to non-English-speaking communities—have been implemented across the company, generating millions in added revenue. Best Buy likes to grow from within so motivated employees are able to move quickly from in-store sales to retail management, where pay increases substantially.

This retail revolution provides a model for turning service work into stable middle-class jobs. Thriving companies such as Best Buy, Starbucks, Whole Foods, REI, and the Container Store dominate lists of the best places to work. Many of them are increasing pay and benefits and making their work environments more stimulating. At the Container Store, for example, the typical hourly worker earns $29,277 a year, or 50 percent more than the U.S. retail industry average. They're doing this not out of altruism, but to increase productivity and profit.

Of course there is more to do. The service economy, particularly fast-growing personal-service fields like haircutting and landscaping, is dominated by small and medium-size companies who are unable or unwilling to upgrade pay and working conditions. The "on-ramps" that better-paying service jobs can provide remain too few and far between. The leaders in Davos must understand that economic competitiveness hinges on developing the full creative capabilities of the store clerk and the landscape laborer, as well as the computer scientist and the architect. And they should look beyond the tech sector for models.

Florida is the Hirst Professor of Public Policy at George Mason University and author of "The Flight of the Creative Class"
© 2006 Newsweek, Inc.

© 2006