Today's date:
Spring 2014

The 401(k) Society

Thomas Friedman, the New York Times columnist and author of the seminal book, “The World Is Flat,” spoke recently with NPQ.

NPQ | You have written about how we are becoming a “401(k) society” where all contributions are defined, but benefits are not. You use it as a metaphor for the coming freelance nature of work and livelihood in the highly competitive economy of the future.

Three things are happening globally. The system is concentrating wealth at the top but distributes the power of connective technology at the bottom—yet transparency has spread everywhere. Watch out!

Can you spell out what you mean by a 401(k) society?

TOM FRIEDMAN | We have experienced a huge “Gutenberg-scale” inflection point in the last ten years. The world has gone from connected to hyper-connected and from inter-connected to interdependent. This has been such a shift in degree that it has become a shift in kind.

The technological underpinnings of this inflection point are important to understand.

By the turn of the 21st Century, four major technologies had come together to create what I then called “the flat world platform.”

For the first time, the personal computer allowed individuals to author their own content—words, data, images, spreadsheets, video—in digital form—a form that could be manipulated in so many more ways than ever before. That was a fundamental breakthrough in how we create and share knowledge and information.

That happened to coincide with the explosion of the Internet that enabled me to send that content anywhere and the emergence of work-flow software that allowed me to collaborate with others on my content and their’s anywhere.

That then coincided with the new ability to “search,” which, thanks to Google, enabled me to search other people’s content and for them to search mine, enhancing collaboration even further.

These four things converged in the decade from 1990 to 2000, creating a platform on which more people from more places could compete, connect and collaborate—as individuals or companies—for less money with greater efficiency and greater ease than ever before. I called the creation of that platform the flattening of the world and wrote book in 2004 called The World Is Flat. I would say there were about 1 billion people on that platform.

In 2011, I sat down to write a new book, with my friend Michael Mandelbaum, called That Used to Be Us. the first thing I did when I started that new book was look back at the first edition of The World is Flat to remind myself what I had said. What I noticed when I look back at the book, which I started in 2004, was that Facebook wasn’t in it. Indeed, when I started that book in 2004 Facebook didn’t exist, Twitter was still a song bird, the cloud was still in the sky, 4G was a parking place, Linked-in was a prison, for most people an application was something you sent to college, Big Data was a rap star and Skype was a typo.

What this told me is that something very big had happened in just the previous 7 or 8 years—the world had gone from connected and flat to hyper-connected and flatter, and from inter-connected to interdependent. The ability to author your own content went from the PC to the smartphone and the iPad connected to the cloud, from which anyone could rent the most powerful software tools for nickels and dimes. we went from the dial-up internet, as the channel for sending and receiving that content, to high-speed broadband and wireless, meaning that you could send so much more content to so many more places, from so many more places. we went from workflow software as the main engine of collaboration to Facebook, Twitter, crowd-funding, crowd-sourcing and crowd innovating. and our ability to search went from Google to Big Data.

In only one decade, we have seen this fundamental, non-linear explosion in all the tools to create, connect, compete and collaborate! But what is even more interesting is that there are about 3 billion or 4 billion people—and now also machines—wired together on this platform, and we are heading for universal connectivity.

The same thing happened when Gutenberg invented the printing press. So, the wiring of the world has gone, as I said at the outset, through a Gutenberg-scale transformation. But a lot of it was disguised by the sub-prime crisis and the reaction to 9/11. The fact is, we’ve been going through a Great Recession and a technological revolution at the same time!

We argued in “that used to be us’’ that the single most important socio-economic fact flowing from all this is that “average is officially over.’’ In our hyper-connected world, every boss has cheaper, easier, faster, more efficient access to the “above average” in every realm—above average automation, above average robotics, above average software, above average cheap labor and even above average genius.

That is why the signal socio-economic development of our time is that average is officially over.

What is this so important? It is important because during the 50 years after World War II what sustained the middle class was something called the “high-wage middle skilled job.” When we lived within a world of walls, before the world became flat, you could get high wages for middle skills.

In those days there were no Japanese, Chinese or robots at scale to challenge you or threaten to replace what you did. And because of all the walls, unions had much greater leverage in negotiations with management, which had fewer options. Then, suddenly, boom, the world goes flat and NOW only blue-collar high skills can earn high wages. Since the world has become even flatter in the past decade because of hyper-connectivity, now white collar jobs are suffering the same fate. Average is over for white collar workers, too. Everyone now has to define and drive their “extra”—their unique value-add that justifies why they should be hired and promoted.

In the old world of walls, where everything was slower and protected, you could create a system of defined benefits because it was a closed system. Then, France or Italy, or even post-war America, could afford to pay for that. An employer could, in those days, reliably define your benefits from the first day of work to your last day. An employer could in those days pay above average for average work.

In a hyper-connected world without walls, the only option is a system of defined contributions—a 401(k) world. As an employer, I cannot afford to pay you anymore than for your precise contribution. And, by the way, I don’t have to.

This is now being combined with Big Data, which allows me as your employer to define your contribution down to the micro-level! Jamba Juice does this, where it breaks down the work day of every worker into 15 increments and knows exactly how much juice is being sold in each increment you are on duty.

In the legal profession, just getting a degree from a university was not considered a good enough proxy to certify lawyers to practice. For that, you need to take the bar exam. In a world where average is over, this will be true of every job. No employer now will pay you just because you have a degree.

In a hyper-connected world, no one will hire you for what you know—only for what you can do with what you know. Because we can now measure performance, we will. Simply, there are endless above average alternatives out there to you personally.

NPQ | By definition, not everyone can be above average. What happens to those who don’t make the cut or who fall in the cracks of the roiling “creation-destruction” dynamic of accelerated technological change?

FRIEDMAN | In such a world where so many workers will be freelancing, we will need a stronger safety net. I’m strongly in favor of raising the minimum wage and universal health care, or Obamacare in the US. These are of fundamental importance to ensuring flexibility and mobility in the labor market.

The social contract got totally out of whack in the 1990s. It will have to be renewed. You can’t have a society where the CEO pays himself $10 million and the worker ten dollars an hour.

In an age without unions, the people at the top will have to take less of the pie.

But that is jut half the story. In a 401(k) world people will need to learn how to invest in themselves. As Reid Hoffman of Linked-In has put it, “the start up of you.” The government’s new job will be to be much more proactive and creative in helping you invest in yourself—for example as Germany does in its dual-track training program where a worker simultaneously earns a degree based on skills and trains how to apply those skills on the job.

In this sense, the safety net has to become more of a trampoline.

NPQ | What are the global ramifications of the arrival of the 401(k) society?

FRIEDMAN | Three things are happening globally. This same system is concentrating wealth at the top but distributes power of connective technology at the bottom—yet transparency has spread everywhere.

Watch out. Get ready for more Occupy Wall Street movements and Tahrir, Taksim, Independence Squares.