In May 2017 Ohio congressman Tim Ryan visited San Francisco to continue a dialogue with Bay Area entrepreneurs on connecting the middle of the country to Silicon Valley for growth.
Rep. Ryan joined Maker City co-founder Peter Hirshberg in conversation with Tim O’Reilly, founder of O’Reilly media and author of the forthcoming book, WTF: What’s the Future, which examines how companies, policies and incentives must change at a time of rapid technological and economic change. Below is an edited transcript of their conversation.
Welcome and background
Peter Hirshberg: Thank you all for coming. This is an extraordinary group. I think we’re all united by this core conversation of American renewal; how one creates jobs and how one approaches moving forward with the economy. Congressman Tim Ryan and I met a few weeks ago when Patrick McKenna brought 15 of us from Silicon Valley to his district in Youngstown to meet with local leaders, businesses and entrepreneurs. After the election we were all asking: what can we do to heal America, to promote growth.
When you look at the data, you realize that there are two Americas. 85 percent of venture capital only goes to three states. So on one hand you have cities that are growing, that are productive and on the other there is an America that has stagnated, that hasn’t been as productive. The America that hasn’t been as productive broke one way politically while productive America broke another way. This divide is not just a cultural thing – it really has to do with, how does one diffuse job growth and economic success throughout the nation? So after the election Congressman Ryan and Patrick invited a group of Bay area business leaders and entrepreneursto Youngstown, Ohio. Patrick’s thesis was that there’s probably an opportunity to invest all over the nation but we’re just not as connected up. As a follow up to the trip Congressman Ryan has come out here and spent a few days meeting with companies and building out connections.
One of the key realizations has been that places like Ireland do a better job of economic development and hosting the expansion of American companies than U.S. cities do. You [Congressman Ryan] are now working on having the upper Midwest and Ohio create an office in the Bay Area that can connect, recruit, and pull talent together and put your region on the growth map for companies in Silicon Valley
Why an economic development office for Ohio could be a game changer
Rep. Tim Ryan: If you don’t know, Ireland has an office here with about 25 people that make the pitch to companies that are trying to grow that Ireland is a good place to grow. Evidently businesses like not paying taxes and Ireland is a good place for that. So as I was hearing about this they literally hold your hand, make the pitch to you, ask how many square feet do you need, what does your workforce need to look like? All of those things that businesses are in the dark about if you’re moving to another country. Basically they concierge you to Ireland.
So as I heard this I started thinking, we have a lot to offer in northeast Ohio. When you look at how much it is a square foot in San Francisco versus ten bucks or eight bucks a square foot in northeast Ohio, and you pay an engineer a hundred grand a year-plus here, but you can get one out of the University of Akron or Youngstown State for 40 grand and they would be loyal to your company for the rest of their lives.
“So why don’t we have any office here?” is what I thought. We’re not here to poach. I don’t think that’s a great strategy for long-term development in the country. We’re here to answer a need that many companies in Silicon Valley and Northern California may have that if they want to grow and the costs of growing aren’t necessarily in line with your ability to do that. You’ll be welcome in Ohio to set up an office. So the mayor of Akron and myself we’re going to include other cities maybe like Toledo or Gary Indiana that are in the same situation economically as us and get some business development people here on the ground knock on some doors plug in to some networks and say this could be a real win-win. You want to grow your business. We need help. We’ve got this economic divide in the country and let’s just connect it and it’s not like we’re doing this because you feel bad for us it’s because it makes sense for you.
The importance of connecting a hollowed-out community to the Innovation Economy
Hirshberg:There’s an important point to be made here about how one region’s economy can work with another’s. When we were in Youngstown we learned that after the town lost a lot of jobs the most entrepreneurial people also moved away. What was left was an incredibly capable place without a lot of business or entrepreneurial leadership. It was also lacking connections to markets and to the rest of the country. When a place is economically isolated it feels frozen and disconnected from new ideas and investment. That’s one reason these towns keep asking, “When’s the plant going to come back? Can we just get back to what we were doing a generation ago?” And so it’s not just capital, it’s connections to markets, access to new business models, new forms of thinking, and contemporary skills. It’s about believing that this future is possible and reconnecting to people and companies that can help. In a way, the American economy always diffuses and less productive (and less expensive) areas pick up business but that’s happening particularly slowly right now with hollowed out industries, with less mobility, and talent wanting to move to major cities. This is about both forging and speeding up those connections.
Rep. Ryan: Definitely, you know there are so many issues… We’re isolated in a lot of ways and Mayor Horrigan and myself will talk about some really positive things that are happening in our communities. The universities are great. We’ve got burgeoning little tech incubators and accelerators and the Bits and Atoms program we’ve got going on in Akron. These are really positive things, but they’re still very isolated and it’s not until I come out here and I see the activity, the sharpness, the speed and tempo of how business gets done in the tech sector and the needs it’s trying to fulfill. And then I see it happening in Youngstown. There is a big disconnect.
I said earlier 75 percent of what kids learn is through modeling. In our communities we lost those mentors that would show you how to be creative, how to innovate, how to be OK with risk taking, how to evaluate risk taking. So I think it could be a very tangible investment in money and jobs. But it’s also the intangibles that we’ve lost over the years that tapping into communities like this [Silicon Valley] can help shift the culture. It’s like me, Peter, Tim, Patrick, and one of you are playing basketball. Take one of us out. Michael Jordan comes in. We all get a little bit better… That’s how I see this if we get good talent to come into our communities. It’s going to raise the town and everybody else who is there.
Retraining as a broken promise
Hirshberg: Your district, which includes Youngstown is in a state that broke for the other candidate whose vision of the future was actually looking through a rearview mirror. It was kind of about bringing back the past. I think one thing that freaks us out or makes us so curious out here is we keep thinking and looking to future industries and it’s almost like there’s a nostalgia that drove this election.
Yet when I come to Youngstown there is a lot of suspicion about new industries and new work. It’s almost like a broken promise when people talk about retraining or about the future… there’s a lack of belief because they’ve not seen new models work well there.
Ryan: Yeah, we have had 30 years of presidential candidates coming to Akron and northeast Ohio saying “what you need to do is get retrained, start community college or go to Eastern Gateway Community College and get retrained and then we’ll get you hired. That’s been like 30 years. And it was total bullshit.
And so after 30 years of that, a candidate comes along and says, “what we’re going to do is open these coal mines back up and open the steel mills back up and we’re going to get you back to work”. And after 30 years of hearing both sides the voters said these candidates were all full of it. He’s rich at least. Let’s give it a shot. What’ve we got to lose?
Unfortunately we Democrats were talking about NATO. Someone in Youngstown doesn’t care whether or not NATO is upended. That has nothing to do with their lives; they are worried about getting some meat and potatoes on the table. At the end of the day we have got to provide an adequate vision for the future that is very aspirational, that people can believe, that is realistic, and that will put money in their pockets. To me that’s the top line, we’ve got to have a hopeful message for people.
Economic transformation and what it means for capitalism
Hirshberg: So Tim O’Reilly, we’re going through probably the greatest economic transformation since Reconstruction or the Great Migration. And this has been an obsession of yours and Silicon Valley’s. You have a new book coming out and a lot of your premise is that the way we do capitalism or the way that the rules work that favor automation or the elimination of work is not technological determinism, but it’s a set of rules that we write. Here we have a democratic leader who challenged Nancy Pelosi and is all about changing the rules and putting new ideas on the table, so I’m interested in a dialogue between the two of you on what some of those ideas are and willful ways we can make the economy we’re heading into work for the rest of the nation.
Tim O’Reilly: Here is some quick background. There’s a lot that we learned from tech and one of the things that we learned from tech is that our entire economy is ruled by algorithms. It’s not just Google and Facebook. It’s our financial markets in particular and those algorithms have been told what to do. You know just like Google says, “let’s make search results relevant”. Facebook said “hey let’s make results engaging”, and we saw that led them down the wrong path with fake news. Stock markets and all the incentives we have built into our economy from tax policy through executive compensation and corporate governance have been built around the idea that there’s one thing and one thing only to optimize for in corporate America, and that is shareholder value.
And so it was interesting. One of the stories that President Trump traded on was the closing of the Carrier factory in Indianapolis. That’s kind of interesting because I did a little bit of a back of the napkin analysis on that. And just doing a reasonable estimate, this might save the company a hundred million dollars a year.
The parent company United Technologies spent 12 billion dollars that year on stock buybacks to prop up their stock price. 12 billion dollars. And you know that is I think something that isn’t really understood enough we are no longer optimizing business to produce profits to produce jobs and we could.
We often learn the wrong lesson of history. If you go back, right after World War I the veterans all came back and there were no jobs for them. It was a huge near uprising. And you may remember there was a giant camp-out of veterans on the mall in Washington. It was put down. They were shot with machine guns by later General MacArthur, a young officer at the time. After World War II, they were worried about that. So they said we want all these returning veterans to have jobs and full employment was the target and then somehow in the 70s and 80s we kind of got off of that.
We kneecapped the power of labor to organize.
We create incentives. We create this whole idea that companies should be optimized for their shareholders. And we’re now in the end game of that instruction set for our economy.
So when I think about policy there is definitely a lot around retraining which needs to be rethought in a very deep way. One of the things that I think is really interesting is the way that we’re deconstructing the job. If you look at the On-Demand economy there’s a lot that’s really wrong with the way that’s playing out. But there is a lot that is really interesting and right. I think that’s worth talking about.
But the biggest thing that we’re doing is we’re not focusing anymore on work. What I mean by work is things that need doing in our society. Because companies are no longer incented to invest in the real economy. Why would you invest in training your workers? Why would you invest in a new speculative product if you can actually improve your stock price which is the measure of your success by simply buying back the stock? We’ve ended up with an economy where people are buying and selling these financial assets rather than taking those profits and putting it in the real economy. If you look at a company like Amazon or Tesla what’s so interesting is they’re using the financial markets the way they’re supposed to be used, which is they’re basically saying, “We’re doing this really amazing thing, trust us.” And invest in the real economy and they actually are creating jobs and they’re transforming their various segments of the economy sometimes in ways that are disruptive and challenging but at least they’re investing in making something, doing something.
Again I think the biggest thing we do is change the incentives for financial engineering.
Rep. Ryan: “What are the policy prescriptions for preventing that?”
Policy ideas consistent with financial engineering
O’Reilly: Well for me one of things that I would totally do is a financial transactions tax. I’m not sure what policy interventions you need to decouple executive compensation from share price. I think obviously that those incentives were put in place originally you know by government so we can figure out how to unwind those things.
I think some of it is also in the narrative, we have to stop talking about who are the heroes of our economy. This is something even in Silicon Valley I think we get wrong.
I had a meeting with a White House staffer before President Obama’s Global Entrepreneurship Summit and she said, “Which Silicon Valley entrepreneur should we have on stage with President Obama, what’s your opinion?” I said, “we’re sitting here in Oakland, which is where I live, in a fabulous restaurant. It’s one of three created by this great local restaurant entrepreneur. And you know people like him are why people now say Oakland is a great place to live and we need thousands, tens of thousands of people like him; more than we need another Mark Zuckerberg. Zuck’s running a winner takes all business and not that many of them are going to win. So telling everybody, “ Oh you wanna be like Zuck” is actually not a very good message for our economy. I think we need to actually celebrate and reward small businesses. I would try to find ways to change tax policy to favor small businesses over big ones.
On disruptive ideas for government
Hirshberg: Tim last night when we were talking you made the point that America’s in a mood to disrupt things. We got rid of the platforms of both parties and then we brought a disruptor in. And you were suggesting there were ways that your party, the Democratic party, might put ideas on the table that would be quite unexpected or disruptive, including eliminating taxes on small business to recapture small business enterprises for your party.
Rep. Ryan: Yeah. I think Democrats, we shy away. You know this is all part of my mission to try and rebrand the Democratic Party, which doesn’t have a very good brand right now. So part of it is thinking about what’s actually going to solve some of these problems. And if you take the issue of taxes, Democrats always play defense on taxes, we never play offence. We can’t even come to the point where we say, “boy the tax code is really complicated. Maybe we should simplify it.” Because people get bent out of shape and say, “well that’s for the rich.” Well wait a minute it’s not for the rich. Right now we are messaging a couple of ideas with liberal economists around getting rid of the corporate tax. In many ways the corporate tax is a huge burden for small businesses, but they don’t have a team of lawyers that can figure out how to access all of the loopholes. I’m not going to get rid of the revenue. We have to find another way for capital to generate the same amount of revenue that we’re getting.
I just started sponsoring a micro-business caucus with Rep. Anna Eshoo and a couple of Republicans to help businesses from one to nine people. One of the things we’re talking about is a two to three year tax holiday for micro-businesses. If we’re trying to start up businesses in Akron and Youngstown, what in the hell are we trying to strangle them for? We want ten thousand dollars in federal taxes in the first year from that guy who wants to start the restaurant or the coffee shop next to the tech business.
Imagine if I walk into a roomful of people, as a Democrat saying, “Democrats are for getting rid of the corporate tax.” If I went on CNBC and said that or Fox Business, Barney would fall out of this chair. But those are the kind of things that are disruptive. But I think make sense. It’s not patronizing. Everyone needs to pay their fair share, but let’s do it in a way that’s going to incentivize investments into start up and small businesses to help them make sure they get ahead and create businesses.
O’Reilly: I think there are some problems not just in tax rates but also in accounting rules. I remember when I started my company we were originally a consulting shop and then we became a publisher. And once we became a publisher and had inventory we had to go to accrual and then all of a sudden we went “Oh my gosh we’re paying taxes on money we haven’t gotten yet” And that would kill us in our earlier years. Cash accounting vs. accrual makes sense if you’re a big business but the change is really painful. When you hit that that point where you suddenly have to start paying taxes on money you actually haven’t gotten in the door yet.
Hirshberg: There have been some interesting conversations in your caucus as ideas bubble up. Talk a little bit about your relationship with Ro Khanna and some of his ideas. Ro is our congressman from the peninsula, Silicon Valley, who has been out to your district and that’s becoming an interesting collaboration.
Rep. Ryan: Yeah. Ro’s become a fast friend and we sit on the House floor and while there’s people throwing stuff at each other, we’re talking about what are we going to do to help the Party? What are the new ideas? He worked for President Obama’s Department of Commerce for a few years and he’s a big idea guy. And another idea that he has is to increase the Earned Income Tax Credit to a trillion dollar earned income tax credit and that’s gonna lift millions of people out of poverty. It rewards work. It does everything that we want from our value system. That work is not just money, it’s about dignity. And all the rest that comes with it. So that’s a big idea.
Here’s another question: should we move some of Washington, D.C. into the heartland?
We are dropping a bill to do a commission to study federal government employee systems in Washington D.C. There are about 300,000 federal employees in Washington D.C. So say you take 10 percent of them, back of the envelope kinda stuff. So you take 10 percent and thats 30,000.
Say you take 1000 segments and put them in 30 different communities, a thousand in Youngstown, thousand in Akron, a thousand in Gary, a thousand in Biloxi. In the military they call it a force multiplier. You’re taking tax dollars that are hiring people and you’re putting them in a community that’s going to have the biggest bang for the buck. Now in downtown Akron you have a thousand workers that are making $60,000 a year, you rent space, you maybe lease space, you hire somebody to sell your coffee. The restaurants around benefit, so somebody now starts a restaurant, the shoes get shined, the whole ripple effect of the economy.
Here is yet another question we Democrats should be asking. A lot of times we have Republicans say the biggest problem with our deficit is entitlements, primarily Medicare and Medicaid, which account for about a third of our budget deficit; two health care programs. So Republicans have got to cut Medicare and Medicaid. And Democrats say, “no you can’t touch them, these are for poor people, these are for old people, don’t touch them!”
Well true. I mean you have to be careful. These are important programs.
But Medicare wastes 50 billion dollars a year. That’s a billion a week in double payments, overpayments, wrong payments, people cheating the system; a billion a week. So we dropped a bill to boost the budget for an agency we have to penalize people who are cheating on Medicare and hire US attorneys and put them in the States where people are cheating.
Hard to believe: Florida. Texas. Oklahoma. I think Michigan too. As Democrats let’s put U.S. attorneys in and if you cheat on Medicare we’re going to bust you. You’re going to jail. That 50 billion is going to go back in the program to extend the life of the Medicare program, extend services, preventative care and on and on. This is a way for Democrats to disrupt, and I didn’t really think of it that way till I spent two days in Silicon Valley.
Talent and Workforce Development
Hirshberg: I’d like to bring up a domain where this reinvention might be really important. This is the whole area of retraining and workforce development. You point out the fact that people say workforce development feels like a lie. Because it’s not necessarily connected to jobs or there’s a very bad feedback loop in terms of what to get trained on and how long it takes. This is an area that has to be right because we know so many of the jobs in the future are going to be more tech-oriented. So I’m interested in your experience with what works and your thoughts on what doesn’t work and how to disrupt things that might suggest a more hopeful answer,
Rep. Ryan: I’m convinced now after hearing a lot of examples coming out of tech. For example, Ro Khanna went to Eastern Kentucky to watch coalminers and moms reentering the workforce become software coders. An acquaintance from Louisville went to eastern Kentucky to start a coding business. He got a thousand people to apply for 50 jobs that would require a few months of training. 50 people showed up on day one and received a folder , which included a check for five hundred bucks. They got 500 bucks a week for three months as an apprentice to learn the coding and IT skills. 37 of the 50 completed the course and graduated; now they’re making 40 or 50 thousand dollars a year. So I think the psychology of saying there’s a job, right there are 50 jobs. I passed this test. I’m in line. All I’ve got to do is do the training. So now you’re motivated.
Hirshberg: This is the code academy model.
Rep. Ryan: Yeah.
Hirshberg: I looked video of the graduation ceremony from that and it was inspiring. These people in Appalachia were saying, “Generally no one brings us anything.” One of the guys said, “we thought it was a fraud, we thought it was like some scam” because no one shows up with a check and says “we’re paying you to learn something and go to work.” They had have such self confidence and delight when it worked out.
One of the problems with that is that still took a grant from the Appalachian Regional Commission and a grant from the federal government; it cost close to $30,000 a person, while the average Academy is far less. So it strikes me as it’s not there yet but it suggests something that is very promising.
Rep. Ryan: If I can just add a thought: a lot of Democrats say “oh yeah, you’re taking public money you’re going to give it to this corporation. That’s great. Another corporate subsidy.” And I’m thinking to myself, no. This is going to result in a job and if it’s $30,000 in training cost for 50 jobs that are going to pay 50 thousand a year in the most distressed part of the country, together with all the intangibles of that this leads to, it’s a great deal.
Now these old coal miners are going to say, wait a minute, Larry learned how to computer code? We were just making fun of them the other day and now he’s making 50 grand, where do I sign up? Sometimes we Democrats are obtuse about wanting to change because we’ll make the same old argument that we’ve made for 30 years.. But the economy has changed. Now it’s about using these dollars as force multipliers to stimulate growth. And then guess what. In two years you’re not going to have to this any more. Companies are going to be flooding in here with venture capital money and everything else and they’re going to be able to take it.
O’Reilly: One thing that I think is really worth adding is that right now we spend tax money on training that often doesn’t work. And there’s an incentive to people to game the system to sell training that doesn’t work. And many of the emerging training programs that do work can’t be bothered to qualify for government funding. You look at a place like General Assembly and I asked Jake Schwartz the CEO, are you taking any federal money? He said “No, we’re just trying to get people into the jobs.” I think simplifying the way that some of this gets paid for, reimbursed, and supported is worth pursuing.
This post originally appeared on Maker City