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Despite seeming periods of stability, societies continually change. The pace of this change has accelerated with the intersection of technology, globalization and climate. The first two have caused large and destabalizing changes in the composition of the labor force and distribution of income in developed economies. This essay discusses the effects of these changes upon work and politics.
Due to its operational leverage and spillover effects, manufacturing has been the major contributor to the wealth of nations. But according to the World Bank, between 1997 and 2005, the role of manufacturing in the U.S. decreased from 16.6% of GDP in 1997 to 13.3% at the end of 2005. Employment dropped from 17.3MM people to 14.2MM, due only somewhat to import competition .1 In the years subsequent, the GDP proportion of manufacturing stabilized; but employment continues to drop.
We recently purchased an inexpensive credit card sized WiFi hobby computer; designed in Cambridge, England. This computer speaks sixteen languages and illustrates the effects of automation upon work.
By increasing the productivity of industrial processes, U.S. automation further reduced the amount of labor hours required to produce GDP. Between the years 2006-2013, which included the Great Recession of 2008, U.S. manufacturing increased an average of 2.2 percent per year, which is only slightly slower than the average economic growth of 2.4 percent. But during the same period, manufacturing employment further decreased from 14.2MM jobs to 12.1MM jobs, an average decrease of -2.0% per year.1a Due to automation, manufacturing employment continues to decrease.
The Internet is a network of communication computers, sending messages to each other using a standard protocol. The result has been the creation of new services and platforms (marketplaces) and the rapid creative destruction of less efficient (less profitable) ways of doing business.
To describe these two applications:
Application: Automation Servo * Internet Communications
Language: Python 2 Hypertext Markup (browser) Language
Code Snippet: rotation = float(sig) / 10.0 + 2.5 <p>Hello World!</p>
* A servo motor is used in assembly lines and robotics. This code, adapted from a simple servo library, rotates a motor shaft according to the duration of a computer-generated signal.
Computer code can run repetitively at a zero marginal cost, thus greatly increasing industrial productivity - creating new jobs for computer programmers, workers and managers trained in automated manufacturing. Also making redundant many less highly trained factory workers, bookbinders, copy editors and retail employees - as firms substitute capital for more expensive labor in simpler tasks.
Artificial intelligence is the next stage in the increasing automation of the economy, where computers can recognize patterns 3 and do more complicated tasks, placing a further premium on a highly trained and smaller work force.
However, a 12/4/16 WSJ article implies that the application of the technology is presently limited to the larger firms where:
1) There is enough data.
2) There are economies of scale.
3) There are enough highly-paid experts.
AI is likely to aid human decision makers rather than to supplant them, but requiring (even fewer) decision makers with new ideas and judgment. An expert notes, “AI is in the jellyfish stage in the evolution of biological intelligence. Real brains - and genuine intelligence - are so far in the future as to be beyond any reasonable horizon of prediction.”
Nonetheless, the 1/12/17 NYT comments on a McKinsey report, “…half of today’s work activities could be automated by 2055, That threshold could be reached 20 years earlier or 20 years later…depending upon economic trends, labor market dynamics, regulations and social attitudes.” So while further automation is inevitable, McKinsey’s research suggests, “…it will be a relentless advance rather than an economic tidal wave…” that society needs to prepare for.
In the long run, a country’s living standard is determined by its productivity, that is roughly the ratio of GDP/labor hours. We have been discussing technological advances that increase the productivity of manufacturing. The stagnation of average U.S. productivity is mainly caused by the shift of workers from the high-productivity manufacturing sector to the low-productivity, minimum wage service sector of the economy - increasing inequality.
In “The Average is Over,” economist Tyler Cowan writes, “…the new jobs being created are more likely low wage than mid-wage. In essence, the American economy is learning that - for structural reasons - it can’t afford as many mid-wage jobs as it used to.” 4 Viewing as inevitable the operation of economic forces of the invisible hand, he writes, “Rather than balancing our budget with high taxes and lower benefits, we will allow the real wages of many workers to fall and thus we will allow the creation of a new underclass. We won’t really see how we can stop that.” 5 If you have qualms about living in such a society (about which more later), consider this Elysium movie trailer.
Alternately, in his excellent new book, “Thank You for Being Late,” Thomas Friedman comprehensively describes this era. The three major forces: Moore’s Law, Markets and Mother Nature are accelerating rapidly, creating an epoch that requires some thought. He notably describes the effect of these forces upon the individual, noting:
“ Some politicians propose to build a wall against this hurricane. That is a fool’s errand. There is only one way to thrive now, and it’s by finding and creating your own eye. The eye of a hurricane moves, along with the storm. It draws energy from it, while creating a sanctuary of stability inside it. It is both dynamic and stable - and so must we be. We can’t escape these accelerations. We have to dive into them, take advantage of their entry and flows where possible, move with them, use them to learn faster, design smarter, and collaborate deeper - all so we can build our own eyes to anchor and propel ourselves and our families confidently forward. The closest political analogue for the eye of a hurricane that I can think of is a healthy community.” 6
Mr. Friedman draws inspiration from his upbringing in St. Louis Park, Minnesota that was, and remains, a diverse community retaining a concept of the “common good.”
What facilitates the formation of new businesses and the creation of economic growth? Citing three lines of evidence, we find, surprisingly, that it is the same conditions that lead to civil society: Self-starting entrepreneurs, who are free to imagine doing things a better way. Diversity, as the founders of the United States valued. 7 Social trust, as exists in the culture of Silicon Valley.
In “Regional Advantage,Culture and Competition” Professor AnnaLee Saxenian (1994) notes - Boston Route 128 tech firms are large and vertically integrated. They therefore missed the personal computer and Internet revolutions. Silicon Valley, on the other hand, contains a myriad of small and specialized companies, a supportive social structure of voluntary institutions and mutual assistance, and many potential entrepreneurs working as employees of other firms.
Techstars is network of new business incubators. They specifically note the importance of talent, social density (diversity), a culture that provides role models, a regulatory environment that fosters innovation, and the availability of experienced investors that can “coach founders along their journey (see ‘Shark Tank’).” These factors together constitute a thriving ecosystem.
Finally, to tie it all together, committed local political leadership is vital because, as a bank CEO noted, “(Detroit’s) mayor had a huge set of problems, and it isn’t like he had only one thing to focus on. It doesn’t work to do one, he had to get hope back; he had to bring business back….”
It is vitally necessary to improve the economy to benefit its workers. It will also become necessary to come to terms with an increasingly automated technology, providing the means of production but not jobs with adequate purchasing power for many workers. To solve this problem government involvement, both local and federal, will likely be necessary. The conservative economist, Milton Friedman, suggested a guaranteed basic income for all adults.
As the U.S. elections of 2016, the Brexit and the problems of the EU illustrate, the political effects of rapid change are not good. The loss of a community’s livelihood causes its social fabric to unravel; the reaction is to build mental wall, causing a demand for the protection of one’s own. A 1/12/17 NYT article summarizes the feelings of some Iowa voters:
“Many were hazy on specific policy details about how, say, House Republicans were seeking to replace Medicare with a voucher system. These voters feared an outbreak of European-style terrorist attacks by Muslims in the United States…And overwhelmingly, Trump supporters did not want their hard-earned money redistributed to people they regarded as undeserving.”
Economic prosperity does not grow out of social division. It might be useful to consider how the Democratic party, traditionally the workers’ party, can deal with the effect of market forces upon local economies and become a unifying force, thinking global but acting local - for the best in America.
The industrial system that evolved in the 20th century United States provided many workers with steady incomes, secure retirements and educations for their children. Although one could attribute this solely to the bargaining power of unions, it should also be noted that providing these worker benefits was also in the self-interest of industrial employers who needed a dependable and trained work force. But the advent of globalization incented companies to move abroad to access new markets and lower costs. The result has been decreasing manufacturing employment, a continued high merchandise trade deficit and decreased overall economic productivity as U.S. employment shifts to the less efficient service industries.
An 8/28/17 Financial Times article suggests how manufacturing in Britain, and therefore the U.S., might evolve due to market forces. In 2001, the custom eyeglass frame manufacturer TD Tom Davies Ltd. had shops across London and sold to 1,000 other opticians worldwide. It manufactured its eyeglass frames in China. According to its founder, Tom Davies, the company is moving some production back to England because the average annual wage at his Shenzhen plant in 2007 was $3,225. (He thinks in pounds.) It is now $10,000. Some key people earn up to $71,000. Paying these salaries, “Many Chinese businesses I speak to are thinking beyond manufacturing in established cheaper bases like Vietnam and Bangladesh and are now looking elsewhere.” Profit maximization is the rule of capitalist economies.
“Logistics costs will be lower making glasses in London. But the biggest saving will be because the technology in industry has moved on. A computer-controlled machine tool once costing $322,000 is now a twentieth (sic) of that, he says - ironically, from Chinese makers. The software is also cheaper and easier to use. All this means he needs fewer staff, Chinese or British than he used to.”
The people employed by Mr. Davies in England will be few, can handle the complexities of customized products, and be highly trained to operate and program computer equipment. * This is a possible future pattern of developed world manufacturing – computerized versions of the workshops found in 15th century Renaissance Italy. Numerous, but maybe not a source of very wide-spread employment. This is a possible development of manufacturing in the United States, uninfluenced by government. The role of government, as it is elsewhere, is to do research and encourage new industries that will provide for the future.
* Eyeglass frame production is highly automated; the company’s website likely depicts the production of a prototype.
History professor, Jonathan Sperber (The European Revolutions...; 2010 ed.; p.p. 22-23), detailed how the industrialization wealth generating process originated in England, then spread to America, Europe and to the rest of the world.
“ One way to understand trends in the economic development of continental Europe during the first half of the nineteenth century is to place them in the context of a population that had been steadily growing since the 1750s, and whose growth had accelerated to an annual rate of 0.5-1.0 percent since the early years of the nineteenth century….While these increases may seem modest…they were unsettling to a society lacking experience in a rapid rise of numbers. How would these extra mouths be fed, these extra backs be clothed, these extra hands be given work to do?
The model answer to these questions came from Great Britain: introduction of modern agricultural techniques, so that fewer farmers could feed more people; industrialization, to expand greatly the output of consumer goods, provide work for additional people, and generate wealth to employ more in services and the crafts. It was a solution, which in the long run, worked reasonably well…”
This quote explains the recent 10/8/17 NYT article, “Global Economy’s Stubborn Reality: Plenty of Work, Not Enough Pay,” which describes economic conditions in the developed world, where wealth-generating industrialization, driven by market forces, is going away. The key question that developed economies must answer is how they can generate increased wealth (rather than increased stock buybacks) by a number of long-term and short-term measures: by technology, education, some redistribution and maybe a low general tariff – all areas of government concern.
Technology, education, some redistribution and tariffs. These are general descriptions, not directly impacting the lives of people. This 10/14/17 NYT article describes the life of a laid-off Indiana steelworker, who is caught at the intersection of a swirl of economic, financial and social forces beyond control. The main question we ask government is, “What to do?” – particularly for workers of her generation, who are also voters.
This second 1/30/17 NYT article describes the technical skills required in modern manufacturing and the German style apprentice training programs needed.