The Tale of Two Americas

A very important and unsettling report was issued by McKinsey and Company in August that forecasts the acceleration of trends that undermine the desirability and, indeed, the ability for Americans to own homes. 

One of the findings predicts that 60% of job growth by 2030 could be concentrated in 25 cities and their peripheries.

Based on very thorough research and statistical analysis, the report, available here,  also finds:

  • The Middle class will continue to be hollowed out, with highly educated workers, particularly those in the STEM fields (science, technology, engineering and medicine) seeing the greatest gains.
  • Those with high school or less education will struggle to find jobs that earn the national median income of $30,000. 
  • Middle wage earners have shrunk from 49% two decades ago to 41% in 2017 and could fall further to 38% in 2030.
  • High wage blue collar manufacturing jobs will continue to decline due to automation and off-shoring. Five and a half million jobs have been lost in this sector since 2000, reducing what was a national strength to a mere 7% of the labor force. 
  • The Winners are 12 “Megacities” such as Boston, Houston and San Francisco as well as “High-Growth Hubs”, such as Seattle, and Austin. University towns such Durham and South Bend, will also do well. These cities have the ability to educate and sustain the “Knowledge Workers” who power the new economy.
  • Losers will include the cities that dominated the Industrial Age, but have failed to adapt such as Youngstown, Ohio. Low wage service economy jobs can not fill the gap left by the departure of the steel industry.
  • The country as a whole is experiencing an internal brain drain, in which the best and brightest migrate from the losing areas to the winners. This talent pool leads the development of new technologies, financial products, pharmaceuticals and medical practices and law and regulation.  It leaves the losers with a declining population and massive problems of unemployment and drug addiction.

These findings are not surprising. In fact, they were anticipated by management guru, Peter Drucker, six decades ago. In 1959, Drucker saw that manufacturing jobs would be automated away and replaced by either highly paid Knowledge Workers or low-wage service economy jobs. Drucker feared that the bi-furcation would result in the end of America as a classless society. He hoped that in time – by 2010 or 2020 – that the schism would be resolved.

Unfortunately, it has only worsened and may be the most potent force behind the current partisan divide. Immigration is seen as the biggest threat to more vulnerable workers who lack formal education and see immigrants as competition for jobs such as construction and even low wage food preparation. 

In contrast, highly educated PhD’s in STEM fields are desired no matter what their country of origin. Climate change is seen as the number one threat by young, well educated citizens, but denied by those who fear that regulation will cost jobs if not entire industries. The more visceral definition of this divide is latte-sipping elites versus deplorables.

Housing is, as always, a more local issue, but one which is strongly influenced by the same divide. The growth of the mega-cities has created immense problems of housing shortages resulting in high levels of homelessness in San Francisco and Washington, DC. Rapid gentrification has pushed out ethnic enclaves and pushed up rents to unaffordable levels.

This problem was made visible recently in New York, when state representative (D) Alexandria Ocasio-Cortez worked with others to reject Amazon’s bid to open a campus in Queens, New York. 

“Anything is possible: today was the day a group of dedicated, everyday New Yorkers & their neighbors defeated Amazon’s corporate greed, its worker exploitation, and the power of the richest man in the world,” stated a press release from Ocasio-Cortez. 

New York Governor Andrew Cuomo (D) was not amused by this move. He had offered to change his name to Amazon if that would bring them and their 25,000 high paying jobs to New York.

While the problem seems intractable, particularly in light of the partisan divide, the upcoming elections in 2020 offer the next best chance to do something about it. The mortgage industry has historically partnered with home builders and realtors to advance the quality of life in America’s communities. 

This coalition could martial support in three areas:

  • Affordable Housing: Middle class workers are squeezed out of the megacities by seven figure median home prices. Single room occupancy “hotels” for the homeless are a well-known solution to that problem, but affordable housing has been blocked for decades, leaving people with two-hour commutes or worse, living on the streets.
  • Education: The US has been a leader in the knowledge economy since its inception, but now faces severe competition in China, which is graduating more than double the number of science and engineering students. At the K-12 level, Chinese students rank sixth in the world in math. The US is ranked 39th. Recent changes in the tax law have capped the deductibility of state and local taxes, hamstringing the states that have funded the best public schools in the country. Rather than create another race to the bottom, a better method should be designed to fund education at all levels. This should include the student debt burden that is a barrier to homeownership.
  • Infrastructure: Grid-locked traffic is strangling the ability of megacities and their environs to continue to grow. Uber, whose drivers average $12 per hour, is contributing to the decline in ridership of mass transit. In Washington, as well as other large cities, the unpaid deferred maintenance bills add up to billions of dollars. Similarly, aging pipes carrying gas, water and sewerage are also not being addressed. 

None of these problems have been kept a secret, but any attempt to provide remedies has been thoroughly blocked by partisan politics. An argument should be made that our national competitiveness will suffer if we do not solve these problems.

 

Bill Kelvie has had a long and varied technology career as a programmer, strategist, CIO of Fannie Mae, and CEO and founder of Overture Technologies. He currently is an advisor to technology start-ups and publishes a blog on technology disruption at AWWEW.com