Knowledge Economy Is Dead. What Is Next?

For Pittsburgh, the early 1980s dramatically marked the end of the Steel City. The decline can be easily traced back to the population peak of the 1950s. But the apex of industrial might was 1910, a century ago. It was all downhill from there.

We tend to think of the knowledge economy is still emerging. That's true for fast growing countries such as China, India, and South Korea. For the United States, the apex is the decade of the 90s. Since then, it has been all downhill. As Salon (hat tip Chris Briem) argues, the Creative Class is dead:

For many computer programmers, corporate executives who oversee social media, and some others who fit the definition of the “creative class” — a term that dates back to the mid-’90s but was given currency early last decade by urbanist/historian Richard Florida — things are good. The creativity of video games is subsidized by government research grants; high tech is booming. This creative class was supposed to be the new engine of the United States economy, post-industrial age, and as the educated, laptop-wielding cohort grew, the U.S. was going to grow with it.

But for those who deal with ideas, culture and creativity at street level — the working- or middle-classes within the creative class — things are less cheery. Book editors, journalists, video store clerks, musicians, novelists without tenure — they’re among the many groups struggling through the dreary combination of economic slump and Internet reset. The creative class is melting, and the story is largely untold.

Creative Class theory reminds me of the next hot town. Once you hear about it, the scene is over. Cool is already somewhere else. The knowledge economy (along with the rush to suburbia) starting blooming in the 1950s. The greatest physical artifact of the knowledge economy is Eisenhower's Interstate system. The Pennsylvania of the new economy was California, (hat tip Aaron Renn) which is now on the edge of a huge collapse:

All states may have been created equal, but they were equal no longer. The states that had enjoyed the biggest boom were now facing the biggest busts. “How does the United States emerge from the credit crisis?” Whitney asked herself. “I was convinced—because the credit crisis had been so different from region to region—that it would emerge with new regional strengths and weaknesses. Companies are more likely to flourish in the stronger states; the individuals will go to where the jobs are. Ultimately, the people will follow the companies.” The country, she thought, might organize itself increasingly into zones of financial security and zones of financial crisis. And the more clearly people understood which zones were which, the more friction there would be between the two. (“Indiana is going to be like, ‘N.F.W. I’m bailing out New Jersey.’ ”) As more and more people grasped which places had serious financial problems and which did not, the problems would only increase. “Those who have money and can move do so,” Whitney wrote in her report to her Wall Street clients, “those without money and who cannot move do not, and ultimately rely more on state and local assistance. It becomes effectively a ‘tragedy of the commons.’ ”

The point of Meredith Whitney’s investigation, in her mind, was not to predict defaults in the municipal-bond market. It was to compare the states with one another so that they might be ranked. She wanted to get a sense of who in America was likely to play the role of the Greeks, and who the Germans. Of who was strong, and who weak. In the process she had, in effect, unearthed America’s scariest financial places.

“So what’s the scariest state?” I asked her.

She had to think for only about two seconds.

“California.”

In American mythology, California is at the top of migration tales. Young, smart, and ambitious? Pack your bags for the Left Coast. Domestically, California has been bleeding people at least since the 1990s and the Dot Com boom. By the time you first heard about the wonders of Silicon Valley, it was over. The knowledge economy crested. Richard Florida is a historian, not a futurist.

We are about two decades into the decline of the knowledge economy. Out of the rubble of the current financial crisis will come the post-knowledge economy. What will that world look like?

China will dominate geopolitics while playing catch up in knowledge industries. Manufacturing still matters, everywhere. Expect knowledge production to be relevant, as well. But companies will need less workers for greater production. Innovation will fuel spectacular efficiency gains. Work will move to where the demand is. Get ready for America's great brain drain.

The best book I've read about this post-knowledge economy future is "The Great Brain Race" by Ben Wildavsky. We are in the midst of a shift from all the world studying at US universities to Carnegie Mellon setting up shop in Rwanda. If American knowledge workers want jobs, then more and more of them will have to go abroad.

Also telling are the seismic shifts in the energy economy. Oil is back in a big way in the Western Hemisphere. Roughnecks trained in Pennsylvania won't be working in the Marcellus region:

Up and down the Americas, it is a similar story: A Chinese-built rig is preparing to drill in Cuban waters; a Canadian official has suggested unemployed Americans could move north to help fill tens of thousands of new jobs in Canada’s expanding oil sands; and one of the hemisphere’s hottest new oil pursuits is actually in the United States, at a shale formation in North Dakota’s prairie that is producing 400,000 barrels of oil a day and is part of a broader shift that could ease U.S. dependence on Middle Eastern oil.

For the first time in decades, the emerging prize of global energy may be the Americas, where Western oil companies are refocusing their gaze in a rush to explore clusters of coveted oil fields.

“This is an historic shift that’s occurring, recalling the time before World War II when the U.S. and its neighbors in the hemisphere were the world’s main source of oil,” said Daniel Yergin, an American oil historian. “To some degree, we’re going to see a new rebalancing, with the Western Hemisphere moving back to self-sufficiency.”

Emphasis added. Did Borders lay you off? Move to Winnipeg. Or, go teach English in Brazil. California is no longer an option. Indiana doesn't want you hanging out in Bloomington on the dole.

I thought the end of the Cold War was a turbulent time. It pales in comparison to what I am seeing now. I grew up imagining that the Soviet Union is evil and that I could make a living as a knowledge worker. So much for that world view.