Our Industrial Era Government Design is Failing. We Need a New Approach.

And tech leaders should help.

We tech leaders love telling ourselves we're here to solve gnarly problems and put dents in the universe. Today, the structure of government in California — and the US — is a gnarly problem that needs a big dent.

We can improve people’s lives via market innovations, but in the areas where Americans experience the greatest costs and frustrations — housing, homelessness, climate change and its effects, education, social mobility, healthcare, criminal justice — innovation comes up against a set of legacy institutions built to solve a prior era’s problems. 

We can innovate on the edges of these systems via startups, or we can tackle issues head on via direct engagement in government reform. We believe tech leaders should engage directly to improve government.

First some background on the problem. 

Great Tech Transformations of Societies and Governments

Government is periodically transformed via sweeping reform movements. These government transformations are preceded by techno-economic paradigm shifts. The last such instance was the Progressive Era, when government was transformed from serving an Agrarian society to an Industrial society.

We now need another reform movement to help our government transition from the Industrial era to the post-Industrial era, which for the sake of simplicity we’ll call the “Knowledge era.”¹

Life in industrializing cities was, at first, nasty, brutish, and short. From a NY Times Magazine piece:

In 1843, the British statistician William Farr compared life expectancies in three parts of England: rural Surrey, metropolitan London and industrial Liverpool. Farr found that people in Surrey were enjoying life expectancies close to 50, a significant improvement over the long ceiling of the mid-30s. The national average was 41. London, for all its grandeur and wealth, was still stuck at 35. But Liverpool — a city that had undergone staggering explosions in population density, because of industrialization — was the true shocker. The average Liverpudlian died at 25.

Turn-of-the-20th century American cities were also miserable places to live. There was little public infrastructure for sanitation and clean water, and living and working conditions were poor. 

Why did conditions change? Because activists fought to upgrade government. With hard work and multi-decade time horizons, they transformed a government built for the Agrarian age into one capable of solving Industrial-era problems. 

Economic historian Carlota Perez describes these ebbs and flows of progress as a natural part of a techno-economic paradigm shift. You can learn more about her thinking in this video. (10 min) 

Perez posits that over the past few hundred years, technology and innovation have reshaped society in a recurring pattern. In each cycle the existing institutions, structured around the old economy and society, no longer work for the new one. As a result, social unrest bubbles, people feel dislocated, and society strains. Eventually we reform and build new institutions, such that our institutions better match and shape the economy in ways that benefit everyone. 

The last version of such a transformation in the United States was during the Progressive Era (~1890-1920), when the institutions that governed the Agrarian economy broke down because the US had transitioned to an Industrial economy. It took a couple decades to attract a new set of leaders into politics, experiment with various policy ideas, and eventually hit on a new approach to government designed for an Industrial era economy and society. This institutional transformation laid the groundwork for the post-WWII boom. 

The Rift Between Industrial Institutions And The Knowledge Economy

Over the past 50 years a set of new technologies and innovations, ranging from telecommunication tools to shipping containers to software, have changed the shape of the economy. We’ve moved from an Industrial economy to one increasingly defined by knowledge, but our institutions and our politics have lagged. 

What are some examples of the disconnect?

Housing — In the old Industrial economy, it made sense to have factories in many cities vs. having all the factories in a few cities because transportation was expensive. As a result, economic prosperity was geographically distributed and no one city had too much population pressure put on it. In turn, local zoning was not a critical issue. 

Compare that to today — knowledge and software have zero distribution costs, so agglomeration effects lead to a handful of superstar cities that offer the best opportunities for upward mobility. Or should, if their housing stock could adjust to the rising demand.

Because the housing stock is essentially frozen by local zoning laws and the left-NIMBYs who leverage them², prosperous regions cannot accommodate ambitious people looking to move to opportunity, and thus are less effective ladders to upward economic mobility. Viewed this way, the YIMBY movement is a necessary corrective to a broader set of historical circumstances, and is critical to making the Knowledge economy work for more people. 

Homelessness — Homelessness is downstream of housing.

Healthcare — Because of globalization, competition between firms is much fiercer than it used to be. Back in the Industrial Era, especially after World War II when international productive capacity had been bombed-out, the strongest American companies could offer lifetime employment to their employees. As a result, it made some sense to tie healthcare to an employer. 

In the post-Industrial world, more than half of all Americans still have their healthcare tied to their employer³, but companies rise and fall more quickly⁴ and median employee tenure has fallen to 4.1 years⁵.  As a result, healthcare tied to employers is a crippling way to architect our system, and leads to all kinds of bad downstream effects such as lack of geographical mobility and a drag on entrepreneurialism.

Education — When we moved from the Agrarian era to the Industrial era, we increased the education levels of our workforce. In 1910, 9% of Americans had a high school diploma; by 1940, the number had increased to 50%.⁶

In the Knowledge economy, people need even more education to succeed, yet we’ve made relatively few strides to invest in the workforce via public education. In California, we’ve added only one new UC campus in the last 20 years. And when we try to increase enrollment in our existing UC campuses like UC Berkeley, growth efforts are blocked by left-NIMBYs using CEQA.

Environment — Speaking of CEQA.  In 1970 both CEQA and the EPA came into existence as a reaction to industrialism run rampant. This is predicted in Perez’ framework, as each technological era reaches a point of stagnation before a new wave emerges. In general our environmental protections are defensive in nature — they are about blocking bad behavior. But now the paradigm has shifted and many of our environmental challenges call for more building. Can we build enough clean power generation, transmission lines, storage, and grid infrastructure to slow emissions? Can we retrofit buildings and capture carbon from industrial processes like cement and steel? Can we permit advanced nuclear and other new clean technologies? Our challenge is to build quickly, but we still have a No-oriented approach to environmentalism. 

What Does It Take To Renovate Institutions? 

Changing institutions is really hard. Institutions are built to have staying power. This makes sense. We don’t want our bedrock institutions, which undergird the whole society and economy, changing often. Foundational reform work has to be done slowly and deliberately.

In the private sector, it is rare for companies to undergo successful transformations.

Source: McKinsey Report 

For every Apple or Microsoft which have stayed relevant across multiple eras, there are untold companies who are relevant in one period and then are killed off by upstarts who have a more modern way of approaching a problem.

Of course, this creative destruction process doesn’t happen with government; government has to reform itself. We haven’t for decades, and we now have creaking Industrial-era institutions that fail to cope with global Knowledge-era problems.

The Right leverages this failure politically, explaining to voters that “Government is the problem,” and by extension, taxes are the problem. But the period the Right claims America was great (the mid 20th century) is also a period in which the American government was effective (WWII, Apollo, highway system, etc.) and marginal tax rates were dramatically higher than they are today. It’s not that government is inherently a problem. It’s that our government needs to be reinvented to match the modern world.

The Left is more open to government, but due to coalitional challenges (like interest groups who are vested in maintaining the status quo), today they are not focused on reforming government to work in our current context. Per Ezra Klein, “I’ve spent most of my adult life trawling think tank reports to better understand how to solve problems. When I go looking for ideas on how to build state capacity on the left, I don’t find much.”

In particular, there are two major blindspots in the current liberal mainstream: 

1. Land Use and Building in the Physical World. In California over 50% of household spending comes from housing & transport costs. By broadening YIMBYism, we can build more housing, transit, and clean energy generation and distribution. This would lower costs for everyday Californians. 

2. Government as Deliverer of Effective Services. We need to focus our government on outcomes, not processes. In the areas of homelessness, public safety & criminal justice, and education, the California government spends billions of dollars a year but gets subpar results. Changing this is hard, institution-transformation work. But if we can even marginally improve the delivery of public services, it would have huge societal benefits. The North Star is a society where the brand “Public” means excellence, not mediocrity. 

The Left’s Elephant In The Room

What keeps the Left from tackling these problems head on? To paraphrase Upton Sinclair, it’s hard to get a political party to understand something when their financial support depends on not understanding it.

Said another way, parts of the Democratic coalition are implicated in these failings.

On land use, the Building Trades block housing production against clear public will. The Building Trades are one of the most powerful forces in Sacramento — they spend tens of millions of dollars on advocacy, lobbying, and political donations at the state & local level, and their members show up in participatory democratic settings like city council meetings. They ally with NIMBY homeowner groups in cities to make it almost impossible to build new housing.

On government service delivery, groups that execute the work of government either directly — public sector unions — or indirectly — e.g. nonprofit homeless service providers⁷ — are often blockers to new modes of problem-solving. For example, California’s teachers’ unions oppose extended teacher tenure rules although they show modest benefits for students, and many SF nonprofit homeless service providers veto any approach other than permanent supportive housing even though broader “housing first” policies seem to be working in other locales.   

A Left with new sources of power would be able to approach these vexing problems with a fresh set of eyes. 

Taking Inspiration From the Original Progressives

The original Progressives were a mix of social reformers and Industrialists who had been the beneficiaries of the transition from the Agrarian to the Industrial Age. While there were real dark sides to this era (e.g. rampant racism) and some of their core issues seem outdated (e.g. banning alcohol), they nonetheless were able to help improve living conditions for many Americans. Progressive Industrialist archetypes include folks like Nathan Strauss, who used money and skills from his successes as an industrialist and applied them to milk pasteurization, saving hundreds of thousands of children’s lives in the process. 

Building a new political power base requires money and attention. Tech leaders, and the startup community more generally, have both of these resources in surplus. And while as individuals we didn’t cause the transition to the Knowledge economy, we have certainly benefited from it in ways that most of our fellow citizens have not.  If they had, would Donald Trump have become President? Would Bernie have such a strong following? Would the 2024 election be such a moment of real peril for our democracy? We believe Trump and Trumpism are downstream of failed institutions that aren’t creating lived progress in most Americans’ lives. 

The job of reforming our institutions to solve the needs of the Knowledge era is massive. Tech leaders have both financial resources and a foundational understanding of how modern organizations can function effectively in our current paradigm. More of us should be involved in this reform work.

________________

If you liked this post, please subscribe and share Modern Power with a friend. 

1. Industrial:Post-Industrial::Horse:Horseless Carriage.
Eventually we’ll collectively settle on the “automobile” equivalent for our new economic paradigm. For now, the era is variously described based on “information,” “ICT”, “internet,” "internet software,” “network,” and “knowledge.” We’ve arbitrarily picked “knowledge” here for the sake of consistency.

2. More on left-NIMBYism from Noah Smith: "But there are NIMBYs on the political Left, and they have an outsized importance because of where they’re located. In the U.S., urban areas tend to lean to the left. So in deep blue cities like San Francisco that struggle the most with high rent, the people who oppose new housing tend to also lean to the left (as do the YIMBYs, the advocates of more housing/transit and greater density.”

3. https://www.census.gov/library/visualizations/2021/demo/p60-274.html

4. https://www.statista.com/statistics/1259275/average-company-lifespan/#:~:text=In%202020%2C%20the%20average%20lifespan,even%20further%20throughout%20the%202020s

5. https://www.bls.gov/news.release/tenure.nr0.htm

6. https://en.wikipedia.org/wiki/History_of_education_in_the_United_States#

7. This isn’t because folks in those groups have bad intentions — the Upton Sinclair quote isn’t cynical, it’s descriptive. We all have motivated reasoning, and so folks working in these organizations believe they’re on the right side of the issue and if they only did more of what they’re already doing, things would get better. But the results suggest otherwise.