[This book review article was published in The Journal of Social, Political and Economic Studies, Fall 1996, pp. 307-342.  It was the occasion for the annual "American Values Award" from the U.S. Business and Industrial Council Educational Foundation the next year.]

 

 

The 'Warp-Speed" Transformation of the World Economy: A Discussion of Ten (of the Many) Recent Books

Dwight D. Murphey

Wichita State University

 

Government commission reports in the United States often seek to capture public attention by opening with dramatic and highly exaggerated warnings. I am aware that I am about to start this article in much the same "alarmist" tone. If there were a way to understate what I am about to discuss and yet relate accurately to it, I would do it.

The point will be that at the close of the twentieth century we live in the period of the most rapid scientific and economic -- and, therefore, we must understand, social, political, ideological and institutional -- change in human history. Change is taking place on a scale heretofore unimaginable and is accelerating at what science fiction calls "warp speed."

This is change full of the most astonishing promise, with goods and services soon to become available of a type and on a scale never before dreamed of. The hopeful implications of the promise are by themselves enormous. Bill Gates' book, one of those reviewed here, shows a whole new world of possibility.  Simultaneously, however, the change is chewing up and spitting out much that is central to the lives of individuals and of peoples as they now exist. Despite much anxiety about layoffs and "downsizing," Americans have just begun to feel its effects.

This radical change marks a sharply accelerated advance of a process underway for centuries. With the Industrial Revolution, hundreds of millions of people worldwide migrated from agriculture into industry (without, by the way, any slackening of the increase in agricultural productivity). As recently as the past half-century, advanced economies have seen a migration from industry (which also has nevertheless continued to grow in productivity) into service occupations. And now science and computerization are quickly accomplishing a revolutionary final step: through robotization, biotechnology and such things as the "paperless office," they are supplanting human effort in virtually every area..

The world is only at the beginning of this displacement, but it is everywhere to be seen and felt. The "downsizing," "restructuring" (which is largely a modification of organizations to match the new technology) and displacement of workers1 that are now seizing the American middle class do not mark a passing phase; although the process will no doubt be subject to many temporary offsets and may even be delayed considerably by the inertia created by existing lines of effort and of capital investment, it will continue as a powerful secular trend.

In this context, we will need to distinguish between the displacement of individuals, firms and industries that causes millions of people to search for new ways to make a living, which is a temporary or "frictional" form of displacement that is most certainly going to be a major phenomenon throughout the world in the decades ahead; and the more "ultimate" displacement that will occur because very little production of goods and even services will, as the process plays itself out, come to require any substantial amount of  human effort.

If hundreds of millions, indeed billions, of people are to be displaced, in the second of these senses, from the income-earning process by a technology that is capable of vast productivity and wind up with no other route by which they share in the productivity through a contractual nexus, the wishful thinking of countless socialist authors over the past two centuries will largely come to fruition. It is they who have downplayed the need for productivity while stressing the centrality of distribution, have thought more in terms of abundance than of scarcity, have denigrated the self-executing processes of the market economy in their preference for "rational" systems, and have generated a moral outlook that has emphasized "entitlement" over the work-ethic and personal responsibility. As a "classical liberal" (i.e., a supporter of limited government, a market economy, and a whole complex of ideas and institutions that go with "individual liberty"), I have detested the entire syndrome of socialist thought as a threat to much that I think imperative, so it is with deep reluctance rather than alacrity that I see economic realities moving even potentially in its direction. Either vast temporary displacement or an ultimate permanent supplanting of people poses a radical new challenge to all non-socialists and, as with this reviewer, enemies of socialism. If it is true, as Jeremy Rifkin (one of the authors discussed here) argues with great plausibility, that the market paradigm for the organization of economic and social life will soon cease to provide rewarding roles (and a living) for all who seek to participate, how then are economies, and even societies, to be organized? Any supporter of a market economy who fails to think this through, and think it through quickly, will within a very short time find himself talking to a world that was, not to the one that is or, most especially, to the one that very soon will be. Without unprecedentedly rapid intellectual adaptation and appropriate policy suggestions, the supporters of a market economy will come to look ridiculous – most probably even despicable -- to those who suffer during the immense displacement. That, if it occurs, will be a tragedy of Wagnerian proportions, since it is precisely the values traditionally associated with a "free society" predicated economically on the market that the world will desperately need at the heart of any redrawn social organization. Those values will be vital, also, during the period of transition; without them, the transition offers to become catastrophically explosive.

A growing literature addresses the economic and technological issues (and even some of the larger social issues, although most of the present writers address them from a socialist point of view, since such subjects have been fully in line with socialist aspirations). The ten books discussed here are just part of that literature, which I am studying in preparation for a planned book. Other than to acquaint the reader with these books, all of them valuable, and some of their implications, I won't presume at this time to offer a full analysis or solutions. Instead, it will be well to consider this discussion an invitation for more thought, and not as a commentary set in stone; if my fellow "conservatives" (in the popular American sense) and classical liberals can show that a fully market-oriented system can continue to function well (which they will predictably be more than anxious to do), they are most welcome to do so. It will be foolish of them to attempt that, however, unless they have fully considered these issues.

When things are changing at warp speed, different authors will inevitably peg their discussion to different points along the arc of change. Some look ahead a few years to its full fruition;2 others hardly seem aware of the changing paradigm, and talk in terms of the market economy as we are accustomed to thinking of it; others are somewhere in between. It will be important to notice where each author places his focus if we are to understand the context in which he is speaking.

Simultaneously, it will be important to realize that economic " proposals that might be forward-looking in terms of the problems under one state of conditions may not be at all appropriate for the conditions that will come to exist within even so few as five or ten years. Accordingly, the acceleration of change is itself one of the central points that any economic and social analyst must keep in mind.

This review will start with the recent books by Jeremy Rifkin, Paul Kennedy and Bill Gates because they look farthest ahead (although it may surprise the reader to know that, because the change portends to come upon us so rapidly, even that would seem to involve looking only two or three decades into the future). This will give them desirable emphasis, since in my opinion they are the most important of the ten. Moreover, it will serve to identify the "end-point" of the change so that the other books can be understood as occupying intermediate ground along the continuum.

 

The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era

Jeremy Rifkin

It is Rifkin's book that most graphically tells the story of what is happening to work through the technological revolution. He predicts that work (human effort) will virtually disappear from manufacturing "by the early decades of the coming century" and from the service professions within a half-century. (We will see that Bill Gates thinks otherwise.) Agriculture, in which at one time virtually all Americans were employed, already occupies only about three percent of the U .S. population, and worldwide the developments in biotechnology will displace hundreds of millions of farmers. Rifkin tells us that the first fully automated farm will be underway in about twenty years.

Much of the book's strength comes from its specificity. Rifkin isn't afraid to generalize, but he gives countless specifics, with analysis of why they are occurring. Here are just a few, which I cite to acquaint the reader with the practical substance of what is happening:

·        He tells how the mechanical cotton picker came into use in the mid-1940s, resulting in a rapid displacement of labor, mostly black..  Six percent of the American South's cotton was harvested by the new machine in 1949; 78 percent by 1964; and 100 percent by 1972. Further displacement came through the introduction of chemical defoliants to control weeds. The social effects were enormous, with this displacement being one of the main causes of the migration of five million blacks to the cities of the north and west. But the need for employees in heavy industry began its own decline, with the number of jobs eventually being cut drastically. As a result of these factors (and others that Rifkin doesn't mention), a permanent underclass came to exist in the inner cities.

·        In mining, more coal is removed from the ground now than in 1925, but with far fewer workers. In 1925 almost 600,000 were needed to mine 520 million tons; in 1982, only slightly more than 200,000 for 774 million tons; and in ten years this will fall to not much more than 100,000.

·        In the advanced economies that belong to the Organization for Economic Cooperation and Development (OECD), the production of finished steel declined by just six percent between 1974 and 1989, but jobs were reduced by 50 percent, with a cut of more than 1,000,000 jobs.

·        The world demand for skilled machinists is dropping. "Powderized metals are merely poured from bags into pressurized molds" and "lightweight ceramics and plastics" are taking the place of metal products.

·        Science is affecting not just industry, but is about to subject agriculture to yet another revolution, this one going far beyond anything the world has seen so far. The "biotechnical revolution" has begun..  Pest-resistant genes are "engineered directly into the biological codes of plants." Plants are restructured genetically "to tolerate drought or extreme heat and cold." Growth hormones have led to a "milk glut." "Genetically engineered hens" lay more eggs. The result? "Technological forces are fast replacing outdoor farming with manipulation of molecules in the laboratory." Rifkin tells how 70,000 farmers on Madagascar make their living raising 70 percent of the world's vanilla. But "now the new gene-slicing technologies allow researchers to produce commercial volumes of vanilla in laboratory vats...eliminating the bean, the plant, the soil, the cultivation, the harvest, and the farmer." He tells how work is progressing on a sweetener, producible in the laboratory, that is 100,000 times sweeter than sugar. Cotton can be grown "in vitro," and "the day is not far off when orange juice will be grown in vats, eliminating the need for planting orange groves." With the advent of tissue culture, "the goal is to convert food production into a wholly industrial process."

·        If those who are displaced in industry or agriculture think, as they have in the recent past, that they will be able to find employment or new business opportunities in the service sector, they will find that there, too, the displacement is progressing rapidly. At AT&T, a voice-recognition system has taken the place of 6,000 long-distance operators. Modular preassembled equipment has cut back on the need for installers and repairers. At the post office, sight-recognition machines recently displaced 47,000 workers. More than 20 percent of bank employees will be "riffed" (ousted by "reductions in force") within the next five years, and this is on top of the elimination of 179,000 tellers during the ten years preceding 1993. Still further, "the paperless electronic office has now become a goal of modern business." Business still stores 90 percent of its data on paper, but soon the printed page will virtually be eliminated "in favor of electronically stored information." In this context, "the number of secretaries has been steadily declining."

·        Wholesaling and retailing, with all that they involve by way of malls, stores and sales employees, are for the most part on their way out. "In 1992 the wholesale trade industry lost 60,000 jobs...By early in the next century most wholesaling, as we have come to know it, will have been eliminated" as producers interact directly with consumers by direct mail, catalogs, and increasingly through the Internet.3  Electronic shopping will make retail shops and malls obsolete. Rifkin tells us that "since 1989, more than 411,000 retail jobs have been eliminated." And the process has barely begun. Nor should it be thought that the food service industry will pick up the employment slack. In restaurants, orders are increasingly sent to the chef by computer, the customer's check is prepared electronically, and inventory is monitored by computer. Soon, patrons will order by "touch-sensitive screens that list the items on the menu." Even the cooking is becoming automated.  

These mark only a few of the illustrations in The End of Work. They and many others make the book a fascinating compendium of events around us. They point toward both frictional and ultimate displacement. Reading about them will help train the reader's eye to notice the continuing stream of news reports about additional displacements.

After all this, it may be surprising for me to say that Rifkin is not primarily a "futurist." He doesn't speak just of what will occur; he also recounts the history of what has already happened. And he discusses the broader social issues.

Contrary to wishful thinking, he says (in contradiction to Gates) a permanent displacement can be foreseen. The advancing technology will not for the most part create new jobs for those who are displaced, since the new technologies, when they are fully implemented, will not themselves require many workers. (We can imagine, though, major demand for certain types of workers as human effort is used in the highly creative process of inventing and then installing the new technologies.) Retraining may for at least the lifetimes of many now living be the answer for a large number of people in the world as it still is, which is a world where rich opportunities remain for those who hustle, as Bill Gates makes clear. But as the displacement continues into its farthest reaches, the question becomes "retraining for what?" Even temporary ("frictional") displacement as people retool for new careers will be tenuous, as one firm or even industry after another fails, taking down the people who have trained themselves for it.

Two issues will loom ever larger: how to handle the social cataclysm and personal hardships arising out of vast frictional displacement; and how ultimately to organize an economy (and a society) that is no longer centered on work.. A market economy may be able to continue as central if it eventuates that there are a large number of highly-paid jobs and business opportunities and if there are a great many people who are stockholders who thus share in the income from the immense productivity, with all of these people in turn spending in a way that provides employments, on at least a part-time or short-workweek basis, for the millions of others.  But surely this is problematic, and for many societies, such as perhaps Madagascar in the example Rifkin cited, it will not describe the situation. Nobody knows with certainty where the whole process will lead and how any given country, people, industry, firm or individual will be impacted upon.

For anyone other than a traditional socialist, these things raise profound ideological and moral issues, since the market will include growing numbers of people about whom it will no longer be accurate to say that "they are not doing well because they lack the work ethic." (There is an ideological tendency on the part of those like myself who embrace the work ethic to write off people who fail as "just being lazy" even though the failure is attributable to vast forces beyond the control of the individual. My parents used to point to members of WPA work crews in the 1930s as slackers, totally overlooking the fact that there was a depression on. For conservatives, classical liberals and libertarians to think through the new realities, they will have to become much more sophisticated in their judgment about when failure is the individual's fault and when it must be laid to the door of systemic problems. This is exceedingly important, because history tells us that the extent of people's willingness to "write off' even millions of other people out of a lack of sympathy knows no bounds).

Inherent in my comment about this is the fact that I see the theory of a free society in terms of a “systems analysis,” and not as simply a series of deductions from a few over-simplified premises. Those who hold to the latter, which is a very common way of thinking, will find themselves rooted in modes of thought that the world will find more and more unrealistic. Forty years ago, I took time off before going to law school to attend Ludwig von Mises' classes and seminar at New York University, precisely because I was concerned about whether economists had really found the answer to the trade cycle and such crises as the Great Depression. It seemed to me then, and continues to seem apparent to me now, that a market economy will forfeit the allegiance of people in general if it is structurally deficient and is subject to any major inability to serve the needs of all who are willing to work. Looking on it as a system is essential.

Taken just by themselves without projecting an ultimate displacement, the problems of frictional displacement will need to be addressed as society experiences the process of change. But the manner of meeting those problems at any given time may take us far afield if we don't, all the while, have some idea of what the problems will be in even so short a time as five, ten or fifteen more years. A longer view will be needed to inform the shorter-term understanding. Here, I am thinking of Ravi Batra's book, one of the ten under review,  which proposes a high tariff wall while we break all large firms into many small ones. For reasons we will discuss, his "competitive protectionism" is intended to address the deterioration of American income as we've experienced it; but may be ill-suited, at least in part, to meet changes that will come quite soon.

In common with the majority of authors writing on the subject so far, Rifkin's own orientation is socialist, although that seems to have played a negligible role because he is recounting facts (although necessarily with considerable speculation about the speed and ultimate thoroughness of change), not ideology. The Foreword is by Robert Heilbroner and there are several references to the likes of Marx, Engels, Marcuse, Theobald, Sismondi and Bellamy (along with one to Milton Friedman, who is of course a champion of the market).

Before we leave The End of Work, three additional implications should be discussed in some detail:

First, the scenario of near-total displacement of workers in an economy of hyperproductivity will tend rapidly to put into question almost all features of current economic and fiscal discussion. This is a point that will come up in varying degrees in our review of the other books.

Concern over growth of a nation's Gross National Product, say, might well become meaningless (although military preparedness will always have to be looked to) in a situation where the world is awash in goods and services. Sometimes we read that the growth of U.S. GNP has been "sluggish." There is much, however, that GNP doesn't take into account, and there is little question but that productivity in all advanced countries will skyrocket once organizations, infrastructure and capital investment have more completely made the transition to the new technology.

A smaller point is equally illustrative. We hear much concern about how the Social Security System in the United States will come under impossible pressure when there are only three workers for every retired person. Our need to redirect our thinking, often to the diametric opposite of our current opinion, is brought home if we  realize that, in light of the rapidly advancing near-workerless economy, three workers may be too many.

The concept of "comparative advantage" has been central to thinking about international trade since Ricardo. But the new developments suggest that it will cease to apply, since it will no longer be a matter of everyone's finding a niche to produce any one part of the goods and services that are possible. The big issue might well become the sharing, or non-sharing, of technology, far more than of trade. The importance of resources and their geographical distribution will also be accentuated.

Even the concern over Americans' inability to compete with subsistence-wage foreign labor, much of it highly skilled, in a milieu of free trade may soon be bypassed, since it appears that nobody, not even the 30-cents-an-hour foreign worker, will be able to compete with the new workerless technology. As odd as it may seem, the concern over international competition and the movement of jobs abroad is in this context only an intermediate concern, soon to be outdated.

But that concern is itself "further along the curve" of such projected change than the position taken today by pro-market thinkers who say that "the market can provide good jobs for everyone if only we get the regulatory and tax load off the backs of entrepreneurs." This view, a central point in the libertarian and classical liberal view of what will be best for a market economy (and the focus of Bob Dole's 1996 presidential campaign), has no doubt been valuable right up to the present and may even continue to have considerable validity for a few years. But it is imperative to notice that it doesn't even take into account the flight of jobs to low-wage locales in the global market, much less look ahead to the rapid advance, first, of frictional displacement and, eventually, to the supplanting of most work. The pro-market concern about impediments to productivity can certainly produce results in the short-term as an offset to the longer-term secular trends, because there are a great many such impediments giving us, relatively speaking, lead feet today -- but it fails to address the secular tendencies, which are hitting advanced economies at incredible speed.

In a near-workerless economy, it will no longer be possible to center personal life around work (unless, as Rifkin suggests, volunteer work, valuable but unable to command a price, comes to be a general substitute ), a fact that forces a rethinking of human relations in every aspect..  (It has been suggested to me that "Parkinson's Law" might come into play with people becoming "busy"  with much that appears productive but is not, with this perhaps being  governmentally imposed. It is difficult to know what direction things may go in any given society.) The implications, moral, social and institutional, touch upon virtually all subjects.

Second, there is an aspect that Rifkin doesn't mention. The technological revolution will not continue, but will grind to a much slower pace or even a halt, if the displacement of hundreds of millions of workers makes those people unable to buy the products flowing from the hyperproductivity and if they are in a state of revolution (and perhaps of an understandable, though destructive, Luddite-like opposition to new technology) because of their plight. The market will not produce more than can be sold at a profit. There is enough demand arising out of today's world to carry the technology and displacement quite far, and Bill Gates believes this will continue for some considerable time; but, to the extent that millions of people fall out of the income stream, the problem described as "a lack of purchasing power" and "underconsumption" ceases to be a socialist pipedream and becomes a central inhibitor of further technological progress. The only way the arc of change can reach its culmination is if those hundreds of millions of people come to be included through a system of distribution to them that is not based on their having worked  (or, at the very least, worked very much) for what they receive.

There are various ways a broad-based distribution may come about. It is possible that a market might evolve in which young people start work later and later, the elderly become an ever-larger portion of the population (as they are) and retire at ever-younger ages, the workweek is shortened dramatically, and much of the work consists of serving those who do make incomes from the computer-integrated technology or whose stock ownership in that technology gives them a flow of income. Whether that, or something adapted from it, will be the most desirable organization of the economy for a free society will be problematical, however. The criticism that a successful market involves "trickle down" from the rich to those who are less successful has been perverse in the broadly participative economy we have known, but it would be a serious criticism of an economy in which the rewards of immense productivity go to a relatively small number of highly skilled individuals and to a limited number of stockholders, leaving the income of hundreds of millions of others to depend upon the expenditures these people make for services. Under such circumstances, the further criticism that those who reap the rewards "have not truly earned them" will also carry considerable validity, since the technology won't have been the creation of those people, however skilled, but will consist more than ever of the accumulated knowledge of world science..

Of course, much of this is obviated if the broad mass of the population consists of stockholders who share in the productivity as investors. Today, many people in the United States have major holdings through their retirement savings. Anything that will increase the breadth of ownership will help provide the basis for a future market economy. Louis Kelso wrote a book a few years ago calling for an enhancement of "free enterprise" by government's giving everybody an equal share in all property, from which each person would then reap income as dividends. This was, of course, nothing more than a disguised form of socialism, giving everybody an entitlement. Although I considered his book intellectually dishonest, those who want to retain the semblance of a "market" while addressing distributive needs, and the need for a continuing demand for the products, may find themselves forced to go to some such expedient.

Third, it will be essential quite soon for supporters of the market, who see the market (as this reviewer has) as a primary guarantor of a free society, to come to grips with the issues and to decide what is best for a free society.  This will involve the question of whether they are willing to oversee the implementation of a massive reorganization of society toward “entitlements” (something they have despised because of the moral and social, and erstwhile economic, consequences; and something that, as we have just seen, can be accomplished in several different ways).  If they are forced to choose this route, it will be for them to design a society in which living-through-entitlements does not create the state Leviathan they fear and does not corrupt and debase the population.  If this is the direction taken, they will do well to point to a new concept: one of “Separation of Economy and State.”  They will want the mechanism for production and massive free distribution to be divorced from the state (which, because of its own inherent functions relating to justice and national defense, must possess a monopoly over the use of force.).  They will not want their adaptation to the new realities to be a selling out to socialism.  To play a role, however, and even the central role, they may have to move toward ideas and policies that their outlook (which reflects the world as they have known it) has rightly recognized as socialist.  With these things in mind, can we imagine what the Republican platform might well look like even so soon as 2004? 

 

Preparing for the Twenty-First Century

Paul Kennedy

Random House, New York, 1993

Hardback, 429 pages, $14

ISBN 0-394-58443-0

 

Kennedy does not pursue nearly so inexorably the consequences of worker displacement, though he gives it more than a passing nod. For that, Rifkin's book is much superior. But Preparing for the Twenty-First Century has the merit of casting a broader net, pointing to a wide range of important secular trends. It, too, looks ahead, albeit again just a few years, to a vastly different world. Virtually all of these trends are well known to intelligent readers, and

"politically correct" and therefore deracinated and pedestrian; but there is value, especially for our purposes of putting all ten books into context, in seeing the developments enumerated together .

Here are trends he sees:

(a) The technical revolution displacing workers. Looking not quite so far as Rifkin, who sees virtually everybody's displacement, Kennedy thinks the new technology will primarily cause displacement in the lesser-developed nations. He speaks of "biotech farming" and says it "may be beneficial to a high-tech, food-importing country like Japan but potentially disastrous to developing nations like Ghana or Costa Rica that rely upon crop exports." He sees that even if African farmers, say, were to become as productive as American farmers "there would be a massive displacement of labor, with little prospect of employment by industry or services [in Africa]." As to an advanced economy such as that in the United States, Kennedy ponders "the fate of the four-fifths of Americans who are not in such international demand." Not seeing that it may ultimately be the new technology, and only temporarily the flight to low-cost foreign labor," that will produce displacement, he points to the impact of international competition and the relocation of manufacturing abroad (which are genuine concerns of the present).

(b) The accelerating growth of world population. Kennedy reminds us that "in the eighteenth century, the global population was adding another quarter of a billion people every seventy-five years; today, such an increase occurs every three years." In 1990, there were 5.3 billion people on earth. By 2025, there will be 8.5 billion. Some demographers expect world population eventually to stabilize at about ten or eleven billion, but some predict as high as 14.5 billion (and they can't be sure it won't go much higher). Some observers believe, hopefully, that affluent peoples tend to have fewer babies; if this proves true under the impending circumstances, it suggests that the new worldwide hyperproductivity, which is just taking hold, may create a standard of living that will bring about, through such choice, just such a lowering of birth rates, thereby mitigating the projected increases. (We must, however, entertain the opposite possibility, which is that relatively affluent and yet idle millions may have more rather than few children. We simply don't know).

(c)  Mass migration of peoples. Under pressure from the population explosion and the changing economic conditions, Kennedy says that "it seems unlikely that there will not be great waves of migration in the twenty-first century," a migration that he thinks is "unlikely to be deterred.."

(d) Internal ethnic changes. Even within existing societies, not counting the flow from outside, the demographic constitution of the society points toward change. Kennedy observes that in the United States Caucasians will "become a minority" by 2050. In Russia, the Muslim population is increasing much faster than the  Russian.  Russians are already less than half the population, and "the Russian share" will "fall relentlessly throughout the twenty-first century."

(e) The supplanting of Euro-American civilization. It is an indication of Kennedy's own deracinated "political correctness" in light of the current intellectual vogue of "multiculturalism" that he considers it merely an "interesting question" "whether 'Western values' -- a liberal social culture, human rights, religious tolerance, democracy, market forces -- will maintain their prevailing position in a world overwhelmingly peopled by societies which did not experience the rational scientific and liberal assumptions of the Enlightenment." This is, of course, an issue of fundamental, not merely of "interesting," importance.

(f) The aging of the population in all advanced countries. 16.6 million Americans, he says, were 65 or over in 1960. By 1990, it was 31 million; by 2020, it will be 52 million; and by 2030, 65.5 million.

(g) The "revolution in world communications." Cultures are being brought into intimate contact through "computers, computer software, satellites, fiber-optic cables" -- to which today (even so soon as three or four years after he was writing) he would no doubt add the Internet (which is just the beginning form of the "information superhighway").

(h) The globalization of business through multinational companies and world capital flows. Many larger firms are no longer identifiable as a given country's, and webs of "out-sourcing" bring clusters of internationally diverse firms together. "The real 'logic' of the borderless world is that nobody is in control -- except, perhaps, the managers of multinational corporations, whose responsibility is to their shareholders." In international finance, "vast sums...move in and out of a country or a stock according to perceptions of that entity's prospects."

(i) Diminishing national sovereignty. "These global changes call into question the usefulness of the nation-state itself." In this context, Kennedy sees it as retrogressive for "nationalist and antiforeign political movements [to] gain ground."

(j) A widening rift between rich and poor countries. He sees the technically advanced nations becoming ever more affluent, while poverty will stalk the less developed peoples. He points to one billion people now in poverty.

(k) Kennedy devotes a chapter to the degradation of the environment. He attributes an improvement in some aspects of this to the Green movements in advanced economies. We have reason to hope, however, that the new laboratory-computer-robotic technology will do much to reverse the environmental trends (just as the city of Indianapolis, say, is a delight today compared to its smoky past).

Kennedy's own analysis of "what is to be done" is shallow and conventionally "liberal" in the twentieth century American sense of that term. On the one hand, he repeats shibboleths uncritically, such as when he says that the 1991 attempted coup by Communists in the USSR was "right wing."  On the other hand, he does not think radically in keeping with the magnitude of the changes. Economically, he favors "industrial policy" such as has been used in Japan and East Asian countries. He says we should "brace ourselves" for the changes, but doesn't spell out what that must consist of. He is strongly internationalist, and decries any people's concern over the continuity of race or culture (this, despite the fact that he credits Japan's "social and racial coherence" as a factor in its success).

For ourselves, we can look at the trends Kennedy has identified, keeping Rifkin's "end of work" projections in mind, and see that they point in a very different direction than he prefers. What will be needed for managing the displacement, and for survival in a world of upheaval, will be a reaffirmation by each people of its own responsibility to itself and its own. Even in a world of intimate contact, economic nationalism will become essential (assuming that there is no world organization fitted to take up the task of production and distribution, which seems a reasonable assumption not only in terms of practicality in today's world but also in terms of what is acceptable to the world's free societies). If 70,000 vanilla farmers are to be stripped of their livelihoods on Madagascar and can find nothing else the world needs of them, they will be impelled to think the world market no longer applies to them and that Madagascar must see to their well-being itself, using technology for production and distribution. They will see Madagascar's great need under these  circumstances as (a) a reordering of its own institutions, (b) access to technical knowledge (and to some capital, which it may or may not already have), and (c) the maintenance of order and of civilization within itself.

The "economic nationalism" to which I refer is consistent with a rich cultivation of local culture and tradition, something for which a market economy, demanding mobility and constant adaptation, has for several centuries been criticized for uprooting. Not only are the imperatives of the new technology toward economic nationalism, but a heightened world affluence will accommodate people's fashioning their lives, as cultures and as individuals, as they wish. Even if outdoor farming becomes obsolete, for example, millions may choose to live as hobbyist farmers out of sheer preference for that way of life.

It may be consistent, not at variance, with this to say that there, is plenty of need for "international" policies in the form of technical information transfer and capital assistance (which will become easier for the advanced countries to provide as they unleash the new technology to its utmost). It may be in the vital interest of advanced countries such as in Europe and America to provide technical and capital assistance, not just out of fellow-feeling for billions of other human beings but because only in that way can they prevent the migratory flows that otherwise will swamp them and obliterate their existence. Whether such assistance will help stop the human migration is hard to say; the answer may need to come through experimentation. Needless to say, any such efforts will not be a. substitute for a given government's carrying out its obligation to its own people to protect the country's borders.

 

The Road Ahead

Bill Gates (with Nathan Myhrvold and Peter Rinearson)

Viking Penguin, New York, 1995

Hardback, 286 pages, $29.95

ISBN 0-670- 77289-5

 

Bill Gates, as everyone knows, is Chairman and Chief Executive Officer of Microsoft Corporation, of which he was a founder. The Road Ahead is both a history of computers and a look into the future of "the information superhighway." Easily readable and fascinating in its detail, it has much to commend it as required reading in colleges of business for years to come.

It is important to note that Gates' discussion, as broad and as important as it is, covers only part of the current technological revolution. It does not discuss robotization in detail, or the biotechnical revolution, or even the vast displacement of service personnel. His book expresses ebullient optimism, but cannot be taken as a total discussion.

I was delighted to see a certain comment he makes early on, because it describes well the situation of anyone who writes about a process of profound change. "This is meant to be a serious book," he says, "although ten years from now it may not appear that way. What I've said that turned out right will be considered obvious and what was wrong will be humorous." That applies, as well, to articles like the present one, which "goes out on a limb" much more than he does.

One of the main values of the book is Gates' look ahead to the " immensity of the change that is coming. Before much longer, he says,  people will be able to carry on many of the activities of their lives from their armchairs. Monetary transactions will be handled by computer. Entire libraries will on CD-ROM (which for future readers I will explain is one of today's ways of storing information on computer). Even today's fiber-optic cable is astonishing: it "is made of glass or plastic so smooth and pure that if you looked through a wall of it 70 miles thick, you'd be able to see a candle burning on the other side." Laboratories are already working with transistors that are 10 million times faster than those in computers now in general use. Gates looks forward to the day, not very far off, when everybody will have a wallet-sized PC (personal computer) to serve countless purposes. Electronic books will take the place of printed books.

As to the timing of the change, he believes that the hardware will be in and everything he is talking about will be broadly available within 20 years, even though it will take longer for it to become universal. The impact won't be fully felt until various interconnections are made. The process of change will be held back, too, by the fact that many people are comfortable with what they already know.  We could add that it takes time to replace the entire capital stock of the world.

He sees the fact of frictional displacement. Some major accounting firms are already using far less office space, simply maintaining a generic office for accountants who pop in temporarily. Management hierarchies will be flattened (as is already occurring) by direct communication between top management and those performing tasks. In fact, all "middleman" professions, such as real estate agents, will have to find ways to "add value" or will be washed away. Many stores will disappear, with only those remaining that people want to patronize out of the sheer desire to shop in person. Banks and stockbrokerage houses will cease to exist physically, but will become electronic clearinghouses. Knowledge workers in all countries will compete, because of instant worldwide communications, with knowledge workers of every other country. Just the same, despite all this, Gates is found to understate the extent of displacement, such as when he says that "there will be dislocations in some business sectors that will create a need for worker retraining." Instead of seeing an urgent social necessity, he says "we've got a good number of years to observe the course of the coming revolution. . . .”

He doesn't, however, believe there will be what I've called "ultimate displacement," which is what Rifkin predicts so strongly. "Entire professions and industries will fade. But new ones will flourish." Seeming to relate only to the development of personal  computers, he says that "outside the computer industry it is also hard to find a complete business sector hurt by the PC." "Whole new markets will emerge, and a myriad new opportunities for employment will be created." He is disposed to see the computer revolution in terms similar to the automobile's having taken the place of the horse: one vast industry replacing a more primitive one. At no time does Gates discuss the tendency of computers, biotech and robotization radically to reduce, as to all tasks, the sum of human effort needed. This means that he never considers, either, the fact that there are billions of people on this earth who lack the intelligence ever to become employable among the "knowledge workers."  

 

The Competitive Advantage of Nations

Michael E. Porter

The Free Press, New York, 1990

Hardback, 855 pages, $37.50

ISBN 0-02-925361-6

 

The preceding books have stated some of the outer reaches of impending change. That allows us to understand the scope of the challenges (subject to the fact that there is much more to be said). Now it will be helpful to take the other seven books in the order that seems most natural, which is to consider them in the order of their awareness of the change, starting with the one that seems least aware and working back toward Rifkin, Kennedy and Gates. I will evaluate them in light of the extent of their meeting the new exigencies (but this perspective must be understood as tentative on my part until I have finished my study.)

Porter, who served on President Reagan's Commission on Industrial Competitiveness and has conducted a four-year study of ten major trading nations, will no doubt be surprised that I consider The Competitive Advantage of Nations as the least aware. His book is emphatic about the need to be on the cutting edge, and this gives every impression of his being ahead of the curve. This impression would be correct if the issue were simply "how can a nation's firms keep up in today's global market?"

He addresses that issue energetically by embracing a full free-trade position in which he sees the competitive rivalry of firms that shift constantly to higher-productivity niches, with either ever-lower costs or differentiated products, as the key. Successful competition in the world market, he says, must be based on quality, rapid product development, and advanced features other than price. Hardly anyone has a meaningful "comparative advantage" anymore, when compared to the need to keep running to stay at least a half-stride ahead. The point is to hold a lead by constant innovation. Government can help by providing information, education and training, but otherwise governmental intervention, including protectionism and redistribution, will lessen innovation and the needed rivalry. Anti-trust policy should insist on sharply competitive markets, assuring vigorous domestic rivalry; and firms are even aided in their cutting-edge competitiveness by laws in their home country that set high standards, such as on environmental impact, that other countries will eventually find it necessary to demand of their own firms. The book includes a number of policy suggestions, such as regarding taxation, that would help competitiveness. In all, Porter's is an excellent book for businesses competing in today's market and for its statement of an outlook that will allow them to compete.

The supreme weakness is that all of this says nothing about an economic system as a means of mass participation and mass wealth-creation. It speaks in a rarefied atmosphere of always-higher skill and quality. It makes no effort to define a role for the average fellow with a high school education and two years of college. Porter never considers displacement, either that comes from low-paid foreign workers or that will very soon come from near-workerless technology. Speaking passingly of social legislation that seeks to address workers' needs, he argues that "such restrictions erode the underpinnings of sustained national advantage" and says that "other and better approaches must be found to address the social concerns that such policies reflect."  He leaves it at that, not making it his business to think about the whole universe that those "social concerns" entail. His emphasis is on the firm and what a nation must do to provide the milieu for success on the part of its firms; this does not involve him in making an effort to see an economy as an economic and social system serving many millions of people.

Ordinarily, this would be no basis for criticism. An author may write about a selected slice of life if he wishes. But in the present context, his emphasis misses the point of the changing economic reality. Accordingly, the book's 855 pages have little to tell us. Porter is one author who is not a socialist, and his thinking fits splendidly into that of free-market theorists of this reviewer's own persuasion. With them, he faces the prospect of suffering profound disrepute very rapidly if he doesn't do some radical rethinking to meet the fact of worker displacement.

 

Manufacturing Matters: The Myth of the Post-Industrial Economy

Stephen S. Cohen and John Zysman

Basic Books, Inc., New York, 1987

Hardback, 297 pages, $9.95

ISBN 0-465-04384-4

 

The sub-title speaking of "the myth" of a "post-industrial economy" is talking about something other than  a near-workerless economy, so we run the risk here of some confusion of language. By "post-industrial," Cohen and Zysman mean an economy centered heavily on services as distinct from manufacturing. They point to the dramatic move that has occurred in the United States from industry into the service sector. "The data show a relentless decline in manufacturing employment, from about 50 percent of all jobs in 1950 down to about 20 percent now, and an irresistible increase in service jobs, up to about 70 percent of all jobs." They add that "since 1973 manufacturing has not added any jobs at all."

In response to this decline, they argue that "manufacturing matters" and that, for the nation's well-being, there must be a "national agreement" for a re-emphasis on manufacturing. They see manufacturing as the ultimate source of high technology, of military capability, and even of the health of the service sector. Their concern is broader than Porter's, since they focus on the economy as a whole, not just on cutting-edge firms. We notice, too, that they do not see, or perhaps simply are not convinced by, the prospect of vast displacement either by low-cost foreign labor or workerless technology. (It is not apparent to this reviewer why they do not see ahead to massive worker displacement, since, as we will see, they urge the United States' industrial salvation as coming from high-skilled automation.) In their opinion, if the United States develops a new consensus about the importance of manufacturing and implements a series of policies to undergird manufacturing competitiveness, the country will be back on a tenable footing.

A number of elements go into Cohen and Zysman's suggested policy of industrial competitiveness. Comparing the United States with its competitors, they speak of the United States' "radical inability, relative to them, to apply high technology to the production of traditional goods and to maintain our competitive position by diffusing technology and know-how widely throughout the manufacturing economy." The convergence of computers and telecommunications should be creating a new infrastructure for industry; and Cohen and Zysman are concerned that in the United States, unlike in Japan where it is a matter of conscious policy rather than market dynamics, this infrastructure is developing primarily to meet the needs of large firms. Just the same, despite the breadth of their concern, they say that if the United States is to maintain the high wages its people expect, it will have to center its efforts on "high value added" products. Regretfully, "there are no automatic or clear-cut answers to where high value added is to be found." They envision industry's moving to "a fully integrated system linking design to manufacturing, permitting an automatic shift from one product to the next," a system called "computer integrated manufacturing (CIM)." What will be decisive will be "the development of manufacturing skills based on the introduction of programmable automation and skilled labor."

To help with all this, government, they say, has several things it can do, although they oppose a strategy of state-led development. Government can stimulate research into generic applied science, providing technical information to industry; and "it can upgrade the quality of what goes into production, the factors of production -- raw materials, capital, labor -- and the networks and rules that affect how those factors are combined." Moreover, its policies can greatly affect the level of saving and can even lead to an opening of international capital flows (which they see as presently somewhat closed into the United States) so that it won't make any difference where the capital comes from.

They oppose what they call "defensive trade protection," thinking that American firms would thus be made less innovative and competitive. But the United States, they say, shouldn't open American markets to others without reciprocity.

If we place Cohen and Zysman's book along the “curve of change," we see that their horizons are short. They call for the automated economy without grappling with its implications.

 

The Myth of Free Trade: The Pooring of America

Ravi Batra

Touchstone Books, New York, 1993

Paperback, 274 pages, $12

ISBN 0-684-83355-7

Batra agrees with Cohen and Zysman that manufacturing is the key to a people's prosperity, since it pays much higher wages than other sectors. And in this connection he believes that a disaster has befallen the United States. Citing Bluestone and Harrison's phrase "the de industrialization of America," he points to the fact that industry now employs only 17 percent of the workforce. "Since the 1970s, cheap imports produced by foreign workers, sometimes laboring on pennies per day, have destroyed and even exterminated industry after industry in the United States." American firms have responded by shifting high-wage manufacturing jobs abroad so that they, too, can produce cheaply. He tells us how, even before the North American Free Trade Agreement (NAFTA), 1800 industrial plants had since 1965 relocated to Mexico. Those firms might well prosper, but American jobs would be lost and wages would fall.

While economic indicators such as GNP have continued to go up, the best indicator of well-being, he argues, is inflation-adjusted average weekly earnings for non-supervisory personnel, a statistic that tells how the average person is doing. This is a better measure than per capita income or average family income, mainly because the latter fail to take into account the movement of millions of women into the workforce, a movement that has masked the decline in prosperity.

Those who have lost jobs in industry have shifted to the much lower-wage service sector, and this means Americans have experienced an overall loss of personal income.

Why have these things occurred? Here, Batra proves ambivalent. The first two-thirds of his book ascribes it, as just stated, to low-wage foreign competition. He tells how, with agriculture, productivity kept going up historically but the inelasticity of demand meant that the return to the farmer, for each unit of production, became ever lower. The same thing has happened to American industry (and to that of other major industrial countries), not because of inelasticity of demand, but because competition from low-cost foreign goods caused a low "industrial relative price." This, he says, has been happening ever since the United States ceased in the 1970s being a closed economy and shifted to a high ratio of international trade.

What seems a coherent explanation of the falling wages becomes confused, however, when Batra's argument later shifts to emphasizing that American industry is highly concentrated and that "monopolies" aren't very good about sharing their earnings with their workers. One is tempted to rationalize these two explanations by thinking that Batra believes them both to be operating simultaneously, but this is belied by the fact that he eventually recommends a high tariff level (40 percent) for industry where the firms have been concentrated, but no protection at all for industries where small-firm competition has prevailed. If undercutting by low-cost foreign labor were to him the crux of the matter, the low-price foreign competition would defeat the less concentrated American industries right along with the others, and they would need protection, too.

One gets the impression that Batra migrated intellectually as he wrote the book, and that he went from quite a sound body of analysis (about foreign competition lowering the relative price of industrial goods) to one that was willing simply to invoke whatever arguments would support his thesis. His proposed policy is that the United States should go to "competitive protectionism" -- the breaking up of large firms to allow a sharply competitive domestic market behind a high tariff wall. The "monopolists don't pay well" argument seems to have been added as extra support for the view that large firms should undergo divestiture..  My impression along these lines is reenforced by the fact that Batra concludes his book with an element he hardly considers until the end: that international trade is destructive because the transport of goods involves using large amounts of energy, which is bad because energy-use is the main polluter of the environment. If he had rewritten the book to integrate these points, their relationship might have seemed  harmonious. As it is, we have been enabled to gain the insight that one thing is simply stuck onto another.

To weigh the significance of his book, it is best to give him the benefit of his main analysis, which is quite impressive. This is the part that looks to the impact of foreign competition and calls for protectionism, but of an internally-competitive type. He skewers effectively the clichés of the laissez-faire free trade school (now reigning supreme in American ideology both Right and Left). Those clichés have always been simplistic, but their shallowness hasn't until recently caused the United States much harm (mainly because they were ignored during much of American history as the United States followed a protectionist policy). One of these is that trade is made up of contractual relations in which both parties necessarily see themselves as benefited (otherwise, they wouldn't enter into any given transaction), with the effect that in buying foreign products Americans are seeing their welfare served as consumers. The fallacy in this, Batra observes, is that "it assumes that consumers are different from workers, so that while workers suffer, at least consumers benefit." The preoccupation with consumers ignores the duality that "what matters is not just prices but wages as well." And "80 percent of Americans have seen a dramatic drop in their earnings." Another of the clichés is that, pursuant to the doctrine of "comparative cost," each country will be better off from producing what it produces best, trading for the remainder. Batra, in response, notes that "this logic does not even depend on what wage rates prevail in various nations." A country might produce more, as the United States has, because of the division of labor that international trade brings about, but the overall wages paid to its workers may fall. "Free trade may have helped Americans produce more per hour, but because of falling world demand for their products they are earning less than their 1973 salaries, and some even less than their 1950 salaries." The reason that "U.S. economists have failed to see the depredations of free trade" is that "they focus only on productivity and ignore earnings." Batra's observations are in line with this reviewer's own thinking over the years that the "theory of the transaction" contained in standard market analysis has been incredibly shallow, almost certainly out of a desire by neo-classical economists to serve ideological purposes in a much-needed defense of a market economy against its many opponents.4

Batra believes that a protectionism that allows internal monopolies to become fat and lazy is a terrible policy, but that one that assures a market to a large number of hotly-competing firms in the domestic market has much to commend it. He would cut the import share of the American economy more than in half by raising tariffs from the present average of about 5 percent to 40 percent (although, oddly, not on goods where the domestic firms have not been concentrated). It makes no difference whether firms within the United States are funded by American or foreign capital, since what counts is their employment of American workers (a view that underscores his focus on wages as a source of income for Americans, which here becomes a preoccupation that makes him forget the importance of income-flow to investors and lenders as a way to distribute the productivity to many people).  In comparison with his "competitive protectionism," Batra sees "industrial policy," where government picks winners and losers and then sponsors firms in

international competition, as "an impotent response" because it doesn't address the drop in the industrial relative price.

Our critique?  A "competitive protectionist" policy in response to a secular fall in American wages places Batra's analysis much further "along the curve," to continue the metaphor I have been using, than Porter's or Cohen and Zysman's. It has the advantage of shifting attention to the need for economic nationalism, reducing the role of international trade, under current and impending conditions. Nevertheless, it fails to come to grips with the phenomenon of technological displacement. The protectionism may be a valuable intermediate step, but the breaking up of firms may simply add much distress without arriving at an economy best suited to meet the needs flowing from the displacement of work. In addition, some products such as aircraft require massive capital investment and large firms.

 

The Political Economy of Industrial Policy

Ha-Joon Chang

St. Martin's Press, New York, 1994

Hardback, 184 pages, $65

ISBN 0-312-10294-1

 

Chang arrives at a policy of "competitive protection" by analyzing the mostly-successful "industrial policy" of South Korea. Under the influence of such thinkers as List, Schumpeter and Marx rather than of free market economists, the government there has since the early 1960s been actively involved in managing the economy, seeking to build an "independent economy" that will create an acceptable standard of living for South Koreans. Effort has been shifted from agriculture to industry, and within the latter to heavy industry. Prices have been set by law; there has been controlled entry into, and capacity of, firms within given industries; consumption has been repressed to provide saving; foreign majority ownership has been banned, except in free trade zones; quality has been closely monitored; and tariffs have been kept low on raw materials. While such interventionist policies could create a deadly sluggishness, what has made South Korea's industrial policy successful has been the willingness of government to "withdraw support whenever performance lagged.”  Chang sees the advantage of “industrial policy” over central planning as that the former uses the profit motive, which he sees as the key to innovation.

            Chang does not undertake to analyze world trends or to address the issue of technological displacement.  His book does point, however, to the fact that South Korea’s recent success has centered on its own self-regarding sense of what has been necessary for itself.  In a world founded on the new realities, South Korea will have a far less wide-reaching adaptation to make then will economies whose opinion-makers have foresworn economic nationalism and have embraced as unquestionable the concepts of laissez-faire global competition.

 

Postindustrial Possibilities: A Critique of Economic Discourse

Fred Block

University of California Press, Berkeley, 1990

Paperback, 227 pages, $15

ISBN 0-520-06988-9

 

Block's book is based on research done during the 1986-7 academic year, and hence is a decade old. Just the same, he was able to foresee much of the 1990's radical economic change, except that he did not foresee, as Rifkin does, the impending cuts in the number of workers needed in the service economy, which Block relies upon to absorb those who have been displaced from agriculture and industry. With that ingredient missing, Block is essentially grappling with the traditional economic and social issues. He is a socialist of the nineteenth century decentralist school, adopting the frame of reference of the Left on a number of conceptual issues and referring frequently to such thinkers as Marx, Comte and Jencks. He points toward "the democratization of work" and a guaranteed minimum income. For a non-socialist or even anti-socialist, his book would seem like "more of the same," unless it is correct to think that there is an impending disappearance of work and this forces us all to consider a national economy from a pooling standpoint.

What were the changes he foresaw? "As technology displaces human labor..., the size of the factory labor force shrinks ...and computerization can also reduce the amount of labor devoted to process-control operations." Although the use of robots was already far advanced, Block foresaw that, with greater capital investment, industry could go, as the Japanese already had in many areas, to "flexible manufacturing systems," where the entire manufacturing process is "under the control of a central computer." In clerical tasks, he looked ahead to "trends in office automation" and the elimination of data-entry personnel by "more sophisticated data-entry systems" such as the optical scanner. The movement toward temporary workers and part-time employment was already apparent. Despite these factors, he thought "service-sector employment seems likely to continue to expand."

Addressing the issue of employment, Block says "the most basic prerequisite is...[individuals' development of] their intellectual skills." By way of criticism, we can't help but notice that gearing up to be "knowledge workers" cannot fit an entire population, in which the median I.Q. is 100, not 130.

This fails to take into consideration large numbers of people's needs, even without taking into account Rifkin's projection that work will tend to vanish in the service sector. But if such a diminution occurs, there will be a lot of educated, highly skilled people, who relied on his (and others' such as Robert Reich's) advice about what to do to prepare themselves, with little income-producing potential. Perhaps Block feels, from his own point of view, that his call for an increased government provision of collective goods (not through a central mechanism but through multiple centers and through business firms that have been made instruments of public purpose) already anticipates the response that is needed, so that it doesn't matter greatly whether, from ten years back, he foresaw as much as might be foreseeable today.

Postindustrial Possibilities, then, was fairly far advanced in anticipating the curve of change. Its prescription of "more training" makes sense in the short term, but isn't adequate ultimately. Neither is his call for "workplace democracy," since that may quickly become outdated if a near-workless society eventuates. He sees the failure of centralized socialism, however, and is not a totalitarian. We can well imagine that, from the Left, he will have something to contribute to the dialogue that must now begin to include conservatives and ' classical liberals.

Before we leave him, it is worth mentioning that he points to some important insufficiencies in much economic data as it is compiled today. Capital accounting, he says, becomes problematical when it doesn't take into consideration such things as organizational factors, the money spent on human capital, and such "intangible expenditures" as spending on research. If capital is valued at its original cost, "there has to be some kind of adjustment for changes in price levels and procedures for assessing the value of older capital relative to newer capital in light of technological advances." An example that comes to  mind is that I paid $2600 for a computer in the early 1980s and another $2600 in 1996. The price was the same, but the one in 1996 is immeasurably better. This is the phenomenon that Block calls "capital savings." The increase in productivity and well-being is there, but doesn't show up in statistics measured in dollars.

Another statistic he questions is that of GNP, which no longer tells us much about the economy: it doesn't show capital saving, how property or income is distributed, impacts on the environment or on life expectancy, work done at home, the value of leisure, and such "externalities" as peoples' sense of economic security or insecurity. These criticisms show that an assessment of relative economic well-being requires more than accepting customary data at face value. In addition, it will be important to look at a number of elements and to be wary of arguments based on selected factors.

 

The Work of Nations: Preparing Ourselves for 21st Century Capitalism

Robert B. Reich

Vintage Books, New York, 1992

Paperback, 340 pages, $12

ISBN 0-679-73615-8

 

Reich has much in common with Block, in that The Work of Nations is strong on what has happened and will be happening economically, but makes policy suggestions that bear little relation to the problems. He, too, stresses skills training as though that will fit the needs of the great mass of the population. More than any of the other books discussed here, Reich emphasizes how business firms are losing their national identity. "There will be no national products or technologies, no national corporations, no national industries." The reality is that "the core corporation is no longer even American. It is, increasingly, a facade, behind which teems an array of decentralized groups and subgroups continuously contracting with similarly diffuse working units all over the world." Capital flows to whoever can make something at the least cost. And "foreigners are coming to own an ever greater proportion of America's productive assets," while "American corporations are investing abroad at a furious pace." It is a global market, with global firms and a global workforce. His analysis is valuable because it makes us think twice about references to a nation's "firms" or "industries" or even "economy." Without looking underneath to the reality, nothing is certain to be what it seems.

Reich reenforces the other authors in pointing to a major impact on jobs in the United States. He says the top 500 industrial firms "failed to add any American jobs between 1975 and 1990." As factories became automated, jobs disappeared (in steelmaking, for example, through a reduction from 480,000 to 260,000 employees between 1974 and 1988). Lower- and middle-management production jobs were cut back sharply: "Between 1981 and 1986, more than 780,000 foremen, supervisors, and section chiefs lost their jobs through plant closings and layoffs."

He classifies workers today into three categories: "routine producers," "symbolic analysts," and "in-person servers." The routine producers are directly in competition both with robotization and low-paid workers all over the world, with nothing to insulate them. Their employment will continue to decline. Those who run the robots are well paid, but only a few people are needed for that. Reich considers even data processors and computer programmers as among the "routine producers." In data processing, wages have been depressed and jobs have evaporated, since it can be done much more cheaply in, say, the Philippines or the Dominican Republic. Computer programmers are in competition with programmers in Bangalore and everywhere else.

The symbolic analysts (Block's "knowledge workers") constitute about 15 to 20 percent of the workforce. They have thrived and have for the most part received high compensation, working in high-skill areas such as science and research and design engineering. There is a worldwide market for their services as communications and transportation have improved. But even here the exposure to competition from the over-five-billion people around the world is making their situation precarious. "The worldwide supply of symbolic analysts is growing ...Millions of people across the globe are trying to learn symbolic-analytic skills." Reich believes Americans will keep the advantage for this type of worker because of the United States' system of higher education and the critical-mass of symbolic workers already present. An "advantage," though, doesn't mean that compensation won't be undercut or that as many will be employed. It is worth remembering in any case that we are not talking about mass employment at high wages when we're discussing "symbolic analysts." Many of their jobs are threatened by computerization, as much engineering, design, artwork and other mindwork comes to be done electronically.

Because "routine producers" are in "a sinking boat" and "symbolic analysts" make up a small fraction of the public, millions of people are flooding into the "in-person server" category, becoming such things as aerobic instructors and nurses' aides. But the income of even this group "is sinking as well, but somewhat more slowly and unevenly." The supply of people seeking such work is so great that wages are sent downward, in keeping with what Batra tells us about wages in the service sector. Moreover, as technology advances, "the fiercest competition that in-person servers face comes from labor-saving machinery...automated tellers, computerized cashiers, automatic car washes, robotized vending machines, self-service gasoline pumps…." Keep in mind that we are talking about the great bulk of the public here.

What does Reich propose? He is an "economic nationalist" only in a limited sense. He wants government to spend on a number of things such as infrastructure, childcare, education, and job training; but he also wants no barriers to free trade. Foreign ownership of business is all right, provided the nation's citizens are employed in skill-enhancing functions. There should be subsidies to firms, foreign or domestic, that undertake to train or provide skilled job experience to American employees. Taxation should become more redistributionist. And the advanced countries should make a worldwide redistribution of wealth, although this bombshell [because of the enormity of the task] is brought in only passingly and without Reich's even discussing its implications. He looks askance at a federalist decentralization, since redistribution is best accomplished through central power.

But Reich's paramount emphasis is on the need for people to gain skills, retool, retrain and stay mobile. With Porter, he stresses the need to remain at least a half a stride ahead of foreign competitors, moving to ever-higher levels of technical skill mainly in areas of customized services that can't be quickly replicated by others in the world market. Again, we see proposals that fail to address the question of how to employ millions of people. Oddly, however, Reich voices at least guarded optimism about putting the poor to work through remedial courses and job training, as though there were no problem about what work awaits them. (The same doubts must be applied to the welfare reform passed by Congress and signed by the president in the United States in August 1996, since that reform is geared toward work.. The measure is an excellent example of a policy that is most welcome in terms of society as we have known it, but that is rapidly being made obsolete by the changing realities.)

The Work of Nations, then, is yet another of the books that see part of the problems but are primarily rooted in things as they are (or still seem to be). The longer-term situation is not thought out adequately.

 

A Restatement of Economic Liberalism

Samuel Brittan

Humanities Press International, Atlantic Highlands, NJ, 1988

Hardback, 346 pages, $39.95

ISBN 0-391-03577-0

 

Brittan's book is an ideological anomaly: it invokes a certain theme in classical liberal thought to arrive at suggested policies that virtually all classical liberals would abhor, but which, as a classical liberal myself, I have said might need to be resorted to because of the impending near-workerless economy. He makes these suggestions, which are traditionally socialist, not because he sees them forced by the new realities but because he desires them for their own sake. Influenced by classical liberalism, though, he would seek to tie the socialist mechanism down so that it cannot become a Leviathan crushing individual liberty. Hence, for reasons related to but very different from my own, he arrives at a point that all classical liberals may be forced to consider seriously.

The policies he favors include:

1. A guaranteed income, which he calls a "social dividend," that would go to everyone "whether at work or not." He would keep this significantly lower than the average wage, though, so as not to dull incentive. (This reflects his not taking the new economic realities into account as the reason for his position.)

2. As with the nineteenth century American socialist author Edward Bellamy, he would give some goods away free, although at a later point he expresses a preference for making the distribution in cash..

3. Or, he says, a guaranteed income could be devised by redistributing corporate stock to everyone, thereby enabling them to receive dividends. I mentioned this earlier and related it to the socialist author Louis Kelso (who years ago attempted to sell it as a form of free enterprise).

4. Or he would welcome the growth of employee ownership of business, which would accomplish the old Guild Socialist objective. He sees, however, that the lack of diversification involved in this makes it a precarious form of investment for any given employee (a problem that could easily be overcome if the failure of a firm were made up for by payments of entitlements to the employees, which would make sense because we are talking about a redistributionist context anyway).

5. He favors more leisure even if it means fewer material goods (which it wouldn't in an end-of-work, hyperproductivity scenario). The decrying of material desires resonates with much socialist thought.

6. Communes such as the Israeli kibbutzim seem desirable to him.

7. He favors taxing land rents, but doesn't mention Henry George (a classical liberal who nevertheless adopted some views that were shared more by socialists than by most other classical liberals) as the most famous exponent of the idea.

8. He debunks national sovereignty as a myth.  

To understand how all this is made consistent with classical liberalism (which is the type of "liberalism" he is referring to in the book's title), it is necessary to understand a quirk in Friedrich Hayek's book The Constitution of Liberty. Hayek, of course, was a prominent member of the neo-classical Austrian School of Economics during the twentieth century and a leading theoretician of classical liberalism. In the book just mentioned, Hayek explained that classical liberalism centers on reducing coercion as much as possible (and in this he coincided with a concept that is central in at least one important formulation of classical liberal theory, including my own). But Hayek also went into detail about the "Rule of Law" concept, which goes back to the Athenians and sets criteria for law to meet so that the state will be tied down and rendered unable to act arbitrarily. Those criteria are that legal norms be set in advance, be clear, be known, be general, be equal in their application, and be applied by an impartial tribunal. Oddly, Hayek went off on a tangent of making these Rule of Law criteria the sole basis for judging the legitimacy of state action. This has been objectionable to other classical liberals because a given culture could exercise totally unacceptable coercion (as classical liberals see it) consistently with the criteria. For example, Calvin's Geneva could have a law that anyone who didn't embrace Calvinism would burn at the stake. That would meet the Rule of Law criteria but would profoundly violate the reduce-coercion rationale that, classical liberals generally endorse. Along the same lines, it is apparent that much that is socialist could meet the criteria. It is odd that Hayek didn't see this, since it was he who argued in The Road to Serfdom that even democratic socialism leads on to totalitarianism (a persuasive, if questionable, use of hyperbole). I should add that the Rule of Law is a valuable part of classical liberalism's striving to place constraints on the power of the state. The issue is whether such procedural criteria as it embodies are sufficient in themselves.

            Brittan wants to limit the discretion of government in following the suggested economic pooling, and favors actions that fit the Rule of Law criteria. He adds to this the classical liberal preference for decentralization, believing that freedom is enhanced if "there are not merely a multiplicity of firms within the capitalist sector [which he would see no reason to discontinue], but a multiplicity of forms of ownership -- large private corporations, state-owned enterprises, one-man firms, producer and consumer cooperatives, and so on." And he would use the price mechanism as an impersonal way to direct economic behavior wherever possible. Brittan has not thought of the concept of "Separation of Economy and State" that I suggested earlier, but such a separation would seem compatible with his simultaneous effort to have much collective pooling while at the same time building in protections against the horrors that classical liberals identify with socialism.

Thus, A Restatement of Economic Liberalism finds itself coincidentally quite relevant as a discussion of how a guaranteed income in a near-workerless economy can be made, hopefully, compatible with classical liberal desiderata. In the absence of his recognizing vast worker displacement, his suggestions can be taken as gratuitously socialist, and supporters of a market economy will want to dismiss them out of hand. But in the context of the impending economic realities, they are to be taken seriously.

 

Conclusion

These ten books merely scratch the surface of a growing literature, but they point the way toward subjects that will command ever-increasing attention.

There will clearly be vast frictional displacement of workers, causing immense social problems at the very same time as humanity is regaled with goods and services on a scale it has never before dreamed of. Whether there will be ultimate displacement to a "near- workerless economy" is a matter of some speculation and there seems no way to resolve the question in advance of seeing what happens. The normal free-market view is that "great new things will come along, as they always have, and people will be occupied in ways we can't now imagine." We can have no doubt but that great new things will come along, if nothing disturbs the flow of events.  That part of it is clear; but whether those things will involve the employment of hundreds of millions of people is not nearly so clear in light of the fact that those things will themselves be able to be done by electronics or in the laboratory with only a minimal use of human

effort.

In any case, all conservative, classical liberal and libertarian thought is profoundly challenged. A failure to consider these issues, and to do so quickly, will make their adherents' thinking obsolete at best, and hateful to much of the world at worst. Such a failure is not what will best serve the values, principles and institutions they revere, even though the rethinking will lead them into areas they have despised. Accordingly, one of the issues that needs to be pondered in the context is precisely, “What really constitutes the truest form of loyalty to conservatism, classical liberalism or libertarianism?”

 

ENDNOTES

 

1 It is important to point out that by “workers” when I speak of “the displacement of workers” I mean far more than just “workers” in the traditional sense.  The displacement extends to those who perform effort of all kinds, including management personnel, and even to firms, whole industries, and institutions.

2 When I speak of “full fruition” with regard to the change, I mean the process of the near-total displacement of work by automation.  This is not meant to suggest that the social, moral, political and economic consequences of the change will not continue to work themselves out for countless generations.

3 I hesitate to speak of something such as the Internet, which is a fast-growing worldwide interconnection of computers, because no such thing has any permanency.  What we have today is just the “first generation” of something readers in the future will recognize under a different name and that is suggested by the term “information superhighway.” 

4 See this reviewer’s analysis of the socialist theories of exploitation in The Journal of Social, Political and Economic Studies (reprinting a chapter from his book Socialist Thought), Spring 1996 issue, pp. 77-100.  Much of that analysis involves getting into considerably greater sophistication about the nature of a voluntary transaction in the labor market.