Smart People Should Build Things by Andrew Yang

The allocation of top university graduates in America is extremely lopsided. More than half of Ivy League graduates go to established big companies in finance, law, or consulting; the finance industry in particular has grown rapidly in recent decades. Top graduates also overwhelmingly cluster in a handful of cities, most notably New York, Washington DC, Boston, Chicago, San Francisco, and Los Angeles. Entrepreneurship is declining more steeply for the 18-24 age group than for anyone else.

Such an allocation is bad for the country’s long-term economic growth and vitality. Talent allocation is inherently a zero-sum game; today’s big losers are growth-producing and value-creating industries like energy, retail, biotech, consumer products, healthcare, transportation, software, media, and education. The finance-law-consulting complex mainly engages in zero-sum rent-seeking rather than value creation; it extracts value from the production economy while also being dependent on the production economy in order to function. It’s troubling when a biotech expert can make more money analyzing biotech stocks than by working at a biotech company.

The finance-law-consulting complex depends on having bright and hard-working employees, so their recruiting strategy is often to hire every high achiever in sight. The typical Ivy League student is someone who is good at school, has been conventionally successful their whole life, has little real-world experience outside of school and school-like settings, has a vague desire to do something good for the world, and has an intense fear of failure. The two are a perfect match. Wall Street’s university recruiting pipeline is slick, well-funded, well-structured, and pervasive. The job application process is transparent and well-defined, closely resembling the process of applying to universities. The Wall Street giants market their entry-level jobs as a way of opening lots of doors in the world of business without closing any. Lastly, the salaries being offered are high and the experience requirements tend to be low. Going to Wall Street is the path of least resistance, highest prestige, and lowest risk of failure. Students and universities alike bemoan Wall Street’s dominance, though everyone acknowledges that everyone is responding rationally to the incentives in front of them.

After starting work, many Wall Street graduates later find themselves more specialized and pigeonholed than they hoped. Once the initial thrill wears off, many workers become disillusioned with their jobs and start viewing them as socially worthless for society. Many workers want to transition away into other roles in business, but most other jobs want people with operational and execution skills, whereas Wall Street jobs tend to be analytical in nature. Many workers become curious about entrepreneurship but don’t know how to get started; a few people start boutique versions of their former big employers, but rarely anything more than that. Many more people become addicted to the high-income-high-spending-high-prestige lifestyle; even if they don’t like their jobs, the prospect of leaving is too scary. In the end, the world ends up full of accidental investment bankers who joined the profession because it felt like a low-risk thing to do and stayed there because leaving proved to be too difficult.

Unlike many markets, markets for human capital are slow to self-correct and often never self-correct at all. For instance, there are well-known gluts of law school graduates and research PhDs relative to the relevant jobs available, but the prevalence of underemployed graduates hasn’t stopped younger students from applying. Universities have no incentives to cut back on programs that produce economically underperforming graduates. Students choosing their majors have too little information to make rational decisions. The career advice they get from their parents and schoolteachers is often decades out of date. The ideal role model is someone in their late 20s or early 30s who can give a complete and honest account of what their post-graduation life looks like, but students rarely have such figures in their lives. Lastly, decisions about majors and professions are often not made for rational reasons at all, but rather for emotional or identity-related reasons.

Top students are often interested in entrepreneurship and often view it as a path to a more authentic or meaningful career. However, they tend to drop the subject because it’s too daunting and because they don’t have a good business idea. Entrepreneurship is not the same thing as being a founder; there are far more openings and there is much more potential in being an early employee at a pre-existing growth company. Success in business is usually more about successful operation and execution than about a good starting idea. Most entrepreneurs learn the ropes of business and build their professional network by working in an existing startup, then later break off and found something of their own. Since entrepreneurs tend to be serial and since even failed startups are a huge learning experience for their workers, the talent pool’s growth becomes a virtuous cycle. Departing from the usual cookie-cutter career path has many advantages both for workers and for the economy at large, but few people will take it if it’s too difficult to get started. Most growth companies work in obscurity and cannot compete with the sophisticated university recruiting pipelines of bigger companies.

Here are some ways to reduce the incentive gap and the information gap:

• Create organizations that train aspiring entrepreneurs and do the legwork of matching them up with lesser-known startups. The author is the founder of Venture of America, a nonprofit that places its graduates at growth companies in lower-tier cities like Providence, Cincinatti, Detroit, New Orleans, and Las Vegas.
• Expand gap year and cooperative education programs at universities so that students graduate with a more realistic sense of what the work world looks like.
• Governments should track and report statistics on human capital allocation with the same rigor with which they measure educational attainment.
• Force university programs to publish transparent data on the employment prospects and indebtedness of their graduates.
• University career services offices can do some more legwork in identifying and attracting attention to growth companies, such as by inviting founders or early employees to give presentations.
• Startup incubators and regional innovation hubs can devote more of their resources towards helping startups with recruiting. Early non-founder employees are increasingly recognized as having an enormous long-term impact on a company’s competence and culture.