[This is Chapter
Ten of Murphey’s book The Emerging Crisis of Economic Displacement.]
Chapter
Ten
CAUSES
OF THE DISPLACEMENT
Free-market economist
For the typical
American firm, competition has become far more virulent than it was in the
past. Three powerful forces account for
that: (1) the rise of foreign competition due to the increasing globalization
of markets; (2) the rise of domestic competition due to the deregulation of the
transportation and communication industries and soon the banking industry as
well; and (3) the growth of new products and production processes as a result
of an accelerated pace of technological advance.[1]
The preceding chapters have traced a
sequence that matches this closely. It
is a sequence in which each thing leads directly to the next:
.
A vast expansion of science, leading among other things to
.
A rapid development of computerization, leading to
.
Inexpensive communication and transportation, leading to
.
The globalization of markets and of competition, leading to
.
An unrelenting pressure for lower costs, leading to
.
A flight to low-cost
.
Unemployment or the marginalization of labor, leading to
.
A crisis for the market economy even in the midst of vast potential for affluence
unless a way is found to allow the great mass of people to share in that
affluence.
To complete the discussion
of causation, this chapter will, first, revisit some of these elements. As I prepared my notes on displacement, I
couldn't fully separate out the discussion of causation, and didn't really want
to; but I did set aside some examples that speak directly to the causal linkages. Second, we can bring into sharper focus the
fact that increasingly non-labor-intensive technology makes a concern about
low-wage competition from foreign sources short-term, even though that is quite
important in the immediate future.
Non-labor-intensive technology will be the ultimately dominant source of
displacement, since even the low-pay workers of the
The
causal forces
.
The global competitive pressure for the lowest cost. William Greider sums up this pressure and
illustrates its many facets: "Fast, lean, flexible -- these familiar
buzzwords are modern corporate management's response to the revolutionary
conditions. Rigorous contests for design
efficiency. Continuous suppression of
costs, including labor costs.
Redeploying elements of production overseas to capture local advantages,
from low wages and taxes to other political favors...Reducing the fixed
costs...selling plants and properties, shrinking middle-level bureaucracies,
converting jobs to temporary status.
Sharing cost burdens by forming alliances...."[2]
Telling about Kodak, Business
Week says "the core photography business is brutal, marked by growing
capacity and falling prices. Just to
keep profits flat, Kodak needs to cut manufacturing costs substantially every year." Kodak has identified as many as 599
competitors worldwide in the new field of optical storage technology.[3] Another article in the same magazine says
that "supermarket chains are turning to huge automated satellite
distribution centers to drive down costs," just as retailing giants such
as Wal-Mart and Toys ‘R' Us Inc. already have.
Some supermarkets are beginning to employ "automated racking
systems at the stores."[4] (These examples underscore not only the
competitive drive for lower costs, but also the work-displacing effects of the
cost-cutting technology.)
.
Deregulation as increasing competitive pressure. For twenty years there has been a worldwide
move toward deregulating industry (which has had privatization as a counterpart
in the formerly socialist countries).
Even though other regulations, such as environmental rules and
additional burdens on employers, have been imposed in the meantime, the result
has been more competitive pressure as firms struggle against each other for
survival. Talking about the bill to
deregulate the telecommunications industry that was still before Congress in
early 1996, Business Week said that even before it passed "it is
setting into motion a top-to-bottom industry restructuring that will require
years of wrenching change." When
"local phone companies, long-distance carriers, and cable-TV operators
[gain] entry into each other's businesses for the first time, [it will unleash]
a wave of creative and competitive forces."[5]
.
The competition from low-cost labor in the world market. William Anderson writes in The Free
Market, a publication of the Ludwig von Mises Institute, that "ten
years ago, Honduras had virtually no assembly plants. But... factories have sprung up all over the
country... Today, the country has 160
assembly plants that employ some 75,000 people."[6] Although Anderson views this favorably as a
free-market development that benefits the people who are employed in Honduras,
we can readily understand that textile workers in higher-wage countries are
replaced by it. A news report in July
1997 told how a plant making Swingline-brand staplers was pulling up stakes in
Queens, N.Y., where it had been in business for 75 years and paid factory
workers $11.58 an hour, and was relocating to Mexico, where "it will save
$12 million annually, mostly in cheaper labor costs."[7]
Low-wage competition from the
world's labor pool impacts on high-skilled workers in the developed countries
just as it does on seamstresses and assembly-line workers. Alan Tonelson tells how "advanced
developing countries like Taiwan and Malaysia are racing to retrain their own
workers to survive the tidal wave of cheaper competition. In this new world of huge labor surpluses and
footloose capital and technology, even high-tech jobs are flowing abroad --
which is why income stagnation is increasingly a white-collar problem,
too."[8] Anthony Patrick Carnevale says "the
quality of indigenous human capital is increasingly equal worldwide."[9] Greider tells of "poor people who dwell
in marginal backwaters doing industrial work of the most advanced
order." He says they make
"complex things of world-class quality, mastering modern technologies that
used to be confined to a select few."
He speaks of "graduate engineers in India [who earn] less than
$10,000 a year, compared with $60,000 to $80,000 for typical American
counterparts," and adds "the Indian engineers [are] skillful and
abundant." In China an engineer
earns $60 a month, portending a "potential catastrophe for high-wage
industrial workers in the advanced nations." Tens of thousands of the Chinese engineers
have received their training in American universities.[10]
Nothing illustrates the pressure on
skilled workers better than the news report in late 1996 about highly-paid
members of one of America's leading symphony orchestras. "The musicians of the Philadelphia
Orchestra went on strike for the first time in 30 years... The board of
directors said the musicians demanded impossible terms at a time when classical
record sales are slumping and Eastern European orchestras are driving down
record prices."[11]
In contrast, some commentators don't
see that there is significant wage-displacement caused by low-cost foreign
labor. Paul Krugman wrote in the Harvard
Business Review in mid-1994 that capital has high international mobility
and that labor does not. But even
capital flows have been small: "As a matter of standard textbook theory,
international flows of capital from North to South could lower Northern
wages. The actual flows that have taken
place since 1990, however, are far too small to have the devastating impacts
that many people envision." He says
the capital flow has been slight compared to the size of the advanced
economies.[12] The same point, according to Business Week,
is made by others: "A new analysis by economists George Borjas, Richard
Freeman, and Lawrence Katz of Harvard University concludes that trade and
immigration contributed only ‘modestly' to falling real wages for high school
graduates in the 1980s. The reason:
Immigration and trade are simply too small relative to the whole economy to
produce significant effects on wages.
Immigrants represent just 9% of the labor force, and merchandise imports
account for only 10% of the gross domestic product."[13] The Economist observed in late 1996
that "even for the 16% of American workers who make their living in
manufacturing, the overlap of production with low-wage countries is relatively
small. America's main competitors in most
sectors are other high-wage countries."[14]
The flaw here is that these analyses
are static. They look at the
globalization that has occurred so far in an absolute sense rather than in
terms of the changing situation. They
miss the movement, and that makes them of little value in understanding what is
happening. Recall the data given at the
beginning of Chapter 3 where Hans Sennhoff told of skyrocketing U.S.
imports. That data wouldn't come to
light from the static analysis.
A second problem is that the analyses
focus on certain limited phenomena, such as on the "16% of American
workers who make their living in manufacturing." We know, of course, that much more is
involved. For example, document
retrieval for law firms isn't manufacturing, but it is relevant nevertheless
that Business Week reports that "International Data Solutions scans
case and client files for U.S. law firms and transmits them in digital form via
satellite to the Philippines. There,
workers organize and index the documents so they can be readily retrieved in
the U.S." The result on employment:
"International Data employs two full-timers in Virginia -- and up to 3,000
Filipinas."[15]
This example also shows the fallacy
in the argument Jaroslaw Wieczorek makes that "since services are largely
non-tradeable, their price is not subject to pressures towards international
equalization to the same extent as is the price of tradable goods."[16] We know that a great many services, including
high-skilled professional services such as by engineers, architects, professors
and doctors, can be performed electronically at-a-distance. It is true that, as yet, relatively little of
it is (and a static view would emphasize that), but the forces at work will
soon globalize a great many services.
.
The competition from immigrants.
Kevin Phillips says that in the United States in the 1980s "the
wages of the unskilled, in particular, eroded as immigration boosted the
foreign-born share of the U.S. work force from 6.9 percent in 1980 to 9.3
percent in 1988." He says
"lower wages made such companies competitive internationally, but millions
of Americans dropped out of middle-class ranks."[17] Speaking of the 1970s and 1980s, George
Borjas and Richard Freeman cite a study they made with Lawrence Katz which found
"that the flow of less-educated immigrants and the indirect increment in
labor supply due to the importation of goods produced by less-educated workers
contributed substantially to the rise in earnings differentials across
education groups."
They add that "by contrast, the
effect of immigration and trade on the supply of more-educated workers was
relatively modest."[18] Nevertheless, Business Week carried an
article in November 1995 telling of the flow of highly-educated technical
workers into the United States, including foreign software engineers who
"do similar work for as little as a third of the $65-an-hour fee"
paid to American citizens. "It's
widely known that employers often get Labor Department approval by tailoring
job descriptions to a particular foreign candidate to make sure that no U.S.
candidate can fill the slot."[19]
The displacement of workers by
immigration has also occurred in Europe.
At the 1994 Jackson Hole symposium, Frans Andriessen said "the
European Union is confronted with massive immigration. Besides being low-skilled, many of these
immigrants have other handicaps that reduce their ability to integrate into the
labor force. They reinforce the pressure
on the low-income workers, low-skilled groups, and the low-income unemployed."[20]
.
Displacement by labor-saving technology. Bryon Higgins at Jackson Hole in 1994 spoke
of the labor market of the preceding twenty years and said that the
"decline in the demand for low-skilled workers [has been] caused mainly by
changing technology."[21] Ken Ducatel says it is one of "the key
features of Information Technology in the workplace, that the skills upgrading
comes at a considerable cost in terms of the number of jobs, particularly
amongst the unskilled, semi-skilled and many craft workers."[22]
The late William Winpisinger of the
International Association of Machinists told how his perception of technology's
effects had changed: "As long as Machinists displaced by robots could move
upstream and find work in the manufacture of robots, then we had only to worry
about retraining for those upstream jobs.
Robots, I used to say, cannot reproduce themselves. That was in the 1970s. In the 1980s, robots have been
reproducing themselves." He pointed
out that "robots aren't the only form of new technology displacing human
beings in our workplaces. Other advanced
technologies including new materials, metal composites and alloys,
computer-aided design and manufacturing equipment and ‘unmanned' flexible manufacturing
systems combine with robots to create what the Air Force calls the ‘workerless
factory.'" He gave an example from
the aircraft industry: "A typical aircraft engine requires hundreds of
small metal air foils, each with fifty or more tiny pinpoint perforations. Four or five years ago, those foils were
individually cut... Today, the foils are
cast to net shape from powderized metal and the perforations are made all at
once at the speed of light by a laser gun."[23]
Kevin Kearns tells of the impact on
Chilean farmers and fishermen: "As agriculture becomes technology
intensive, thousands of Chile's 600,000 agricultural workers will be forced off
the land, only to create new slums on the fringes of Chile's cities. The 250,000 small farm owners are also likely
to disappear altogether in competition with U.S. and Canadian farmers. The Chilean government estimates that at
least half of the farmers will be displaced.
The same is true of the fishermen who own their own boats. Already thousands have been idled by over
fishing and by the large factory ships, which very efficiently vacuum the
sea."[24]
As we have seen throughout this
account, Business Week is a leading source of information about these
developments. In its discussion of
"21st Century Capitalism," it said that "tomorrow's factories
will be smaller, with fewer but smarter machine tools that need only token
human care -- yet they'll turn out a far richer variety of goods. So, shop-floor employment is heading the way
of farm labor."[25] And in mid-1995, it said "twenty years
after computers began infiltrating the workplace, efficiency gains are finally
starting to be realized, reducing the need for live human beings to perform
millions of repetitive tasks."[26]
One hundred forty five oil
refineries closed in the United States between 1980 and 1997. One recent report tells of how Koch Refining
Co. announced a possible cut of 450 jobs, or 25 percent of its workforce at two
refineries, in July 1997. The article says
"the jobs span the spectrum of the two refineries--from high-paying
managers, engineers and chemists to refinery workers." The causal link to technology is indicated
when the report says "the new processing and information-management
equipment will make the refineries among the most technologically advanced in
the world." One hundred sixty three
refineries remain.[27]
We saw above how low-cost foreign
labor is undercutting even high-wage workers in the advanced economies. Technology will increasingly do the
same. Rifkin says "much of what
high-status professionals -- architects, engineers, doctors, lawyers,
accountants -- do can be performed by software."[28] Forbes ASAP reports that
"companies are firing their programmers and using visual
programming," which allows users to do their own programming, citing
Bankers Trust, Sun Hydraulics and Harley-Davidson.[29]
Associated with this is work in the
service sector. In The End of Work
in 1995, Rifkin told how "AT&T has announced that it is replacing more
than 6,000 long-distance operators with computerized voice-recognition
technology." He says
"installers and repairers ...have been laid off as a result of recent
technological innovations," which he details as including "modular
preassembled equipment [that] makes for easier repairs and requires less
maintenance"; "plug-in phones [that] have eliminated the need for
constant installation visits"; "buried cable with ‘quick connect'
functions [that] means fewer and faster repairs"; "digital switching
systems...." Further, he reports
that the Postmaster General announced in 1991 that "he would replace more
than 47,000 workers by 1995 with automated machines capable of sight
recognition."[30] As long ago as 1986, Leontiff and Duchin
spoke of automation's displacement of cashiers, sales workers, typists, office
staffs, secretaries, operators of conventional office machines, keypunch
operators, bank tellers, cashiers, payroll clerks, stockroom labor, and
hospital workers.[31]
In mid-1996, an Associated Press
report told about stores that are "experimenting with self-service
checkout. Instead of looking for the
speediest checker, you head to the lane with only a computer and an empty
bag. You scan your groceries and pay
with a bank card."[32] Writing in a European context, Senker and
Senker say "self-scanning has been predicted to have a revolutionary
effect on retailing in the 1990s. It
reduces the need for check-out assistants...."[33]
The same authors mention how
computers in warehouses have in one case cut a staff of 80-plus down to 16.[34] Unmanned weather monitoring stations are
coming in to replace "costly human weather observers."[35] In the U.S. Marine Corps motor pool, Marines
wear voice-recognition computers to inspect 600 items on a vehicle, using 40
percent less time.[36] Electronic Data Interchange (EDI) cuts down
on what it takes to process purchase orders, so that, as Andy Kessler tells us
in an article entitled "Fire Your Purchasing Managers," "R. J.
Reynolds Tobacco Co. figures that purchase orders that previously cost between
$75 and $125 to process now cost 93 cents."[37]
Reflux: how technology will bring back
functions going to low-cost foreign labor
We have seen how technology rivals or even
exceeds competition from low-cost foreign labor as a cause of worker
displacement. What we need to see, too, is
that the growth of inexpensive non-labor-intensive technology will increasingly
undercut even that low-cost labor, sending the productive functions to whoever
possesses the technology. (This is the
second instance we have seen of what I call "reflux." Earlier I mentioned that the current trend
away from national sovereignty might give way to centripetal forces of local
and national identity as people find it necessary to use political mechanisms
to deal with a disastrous polarity within the market economy.)
Paul Krugman of Stanford University
and M.I.T. already discounts the effect of foreign labor, saying that it is
mostly technological change that has lowered the demand for low-skill workers.[38] Rifkin says "the cost advantage of cheap
third-world labor is becoming increasingly less important in the overall
production mix."[39] This is so for two reasons: because the
technology uses so much less labor per unit of production, thereby cutting
labor costs enormously just by the decrease in quantity; and because when it
requires so much less labor, the wage paid to the little labor that is used,
even if it is substantially higher as it is in the advanced economies, hardly
makes any difference as a percentage of the total costs. As Lester Thurow says, "if you're
building a $30,000 machine with 11 hours of labor, it doesn't make much
difference whether you pay the workers $40 an hour or $4 an hour."[40]
Paul Strassman gave a startling
example as far back as 1985: "At a recent congressional hearing..., a
great deal of concern was expressed about the fact that a large keypunching job
was contracted for completion in a foreign country. I explained that the work was exported
because the fully allocated cost of keypunching in the United States is
close to $20 per hour. The equivalent
cost of doing the same work in very low-wage countries is about $3 per
hour. But it costs even less -- the
equivalent of $1 per hour -- to perform the same kind of keypunching in the
United States by means of a Kurzweil omnifont scanner" [emphasis
added].[41]
The Associated Press reported
another example in August 1997. It told
how "much of the broomcorn production has shifted to Mexico [from the
United States] in recent years, where the labor-intensive harvest of the plant
is cheaper." But University of
Illinois researchers are working to develop a mechanically harvestable
broomcorn by growing a plant small enough to allow machines to do the
cutting. When this succeeds, workers
with machetes will no longer be needed.[42] Remember what happened to blacks who picked
cotton in the American South; they were replaced after World War II by the
mechanical cotton picker. That itself is
an example, though forty years old, of technology trumping even low-pay labor.
Alternative views
of what's happening and why
There are several explanations of the global
economic situation that miss the mark even though they talk in terms that for
most present purposes will seem entirely sound.
· Explanations that don't look far enough
ahead. It isn't surprising that
most of the discussion of contemporary economic and policy issues is rooted in
the present and in the concepts that have been appropriate in the recent
past. By no means are the views totally
misplaced for current realities, which are for the most part still those of the
world as it has been. This is subject,
however, to the important proviso that their failure to see the massive forces
at work and to look a few years ahead could lead us to meet the changes poorly
as they occur.
The changes that are now impacting on the
world will come on quickly, but in stages that will seem imperceptible to those
wrapped up in them, since we now embrace change so nonchalantly. Many of the analyses, even if they look ahead
and seem very much on top of things, see only the beginning stages, and we need
to understand that they are merely transitional perceptions. An understanding of how differing views stand
along the "curve of change" will clarify a lot of today's
discussion.
. That Big Government, excessive regulation and
taxes are at fault. American
conservatives and libertarians wanted for many years to limit the power of
government for several reasons, a principal one being to realize the full
benefit of a dynamic free market. They
have seen vast government spending and excessive regulation and taxes as
roadblocks impeding economic well-being.
In 1995 Business Week mentioned this emphasis when it said that
"so far, most of the debate has centered on Big Government and excessive
taxes."[43] Although many of us in the American
conservative movement, especially in light of the 1960s and its continuing
legacies, have emphasized cultural decline, the never-ending corrosive attack
by the intellectual and artistic subculture on mainstream society, and the
escalating loss of demographic identity as being even more important, the
emphasis among many conservatives today isn't much different than it was in the
1950s: the threat of growing government and the welfare state.
I hope that our review of the
enormous forces at work in today's world is enough to persuade my colleagues
within conservatism that there is now much more to be considered. One of my purposes is to urge these friends
to see that their antipathy to government, so justified in a setting where any
individual with energy could make his way in an economic system that was open
to everyone's participation, may actually obstruct their own ability to join in
fashioning an appropriate structure for tomorrow's market economy. Much of the rest of this book will be devoted
to showing why the body of conservative and libertarian thought that has been
appropriate until now will require change to adapt it to the new
situation. If those who support the
market economy come to see that their own principles and values will be served
only by such an adaptation, they will be exceedingly important people in
society's successful resolution of the looming disparity between affluence and
displacement.
There is no question but that many
obstacles are now in the path of both large and small business in hiring people
and competing for markets, just as these conservatives say there are. The tort system alone is a major one. It allows lawsuits that cost vast sums for
their defense and often for the payment of grossly exaggerated damages. Massive legislation such as the Americans
with Disabilities Act and the Clean Air Act put costs onto business that often
far exceed their benefits. Social
concerns other than the ability of an employee to produce have made a
social-welfare maze out of employing anybody.
Private institutions have for many purposes been made agencies of the
state. I have a file with the label
"Crazy to be an employer" to note the many instances as they come to
public attention. It is plausible to
look at the intense desire that American employers have to move toward
technology and foreign employment or out-sourcing and attribute that desire to
the frustrations and costs imposed by the legal-ideological environment in
which American business operates. It is
strange, but true, that conservatives' very understanding of this could, as we
go into the future, obscure their awareness of the other and much larger
displacement factors that are at work.
Seeing the one aspect, they find what seems to them sufficient reason to
blame government and social-welfare ideology.
It is a case where understanding one thing well can serve to veil other
truths that are even more compelling.
.
That traditional economic remedies can solve the displacement and
polarization. As I commented in the
introduction to this section, if someone approaches current economic issues
with the standard mental conception of a market economy in mind and without
considering the forces we have examined, that person will understand any
existing problem in terms of the theory and policy prescriptions that have
governed economic thinking up to the present.
Here are some points of this type:
.
That the strong dollar relative to other currencies has flooded the
United States with imports, so that devaluation of the dollar is a possible
answer.
.
That a low savings rate in the United States has lent itself to
stagnation.
.
That moral and educational decline have sapped America's energy.
.
That corporate taxation forces downsizing.
.
That the younger-age population during the "Baby Boom's" early
years explained lower wages and productivity.
.
That American business keeps its eye only on the short-term, emphasizing
quarterly earnings at the expense of longer-term planning.
.
That the advent of fringe benefits has motivated firms to cut the number
of workers.
Since the trends for change are
still small relative to what is coming, points such as these that are rooted in
the immediate past may for many purposes be valid and helpful. But they won't accurately address the
churning and growing polarization, which are based on other factors than the
ones they point to. A review of Wallace
Peterson's Silent Depression says "the first message that emerges
[from Peterson's book]... is that traditional economic policies will not be
sufficient... Simply increasing or decreasing aggregate expenditures, creating
new types of tax breaks, and so forth, will not eliminate the decline in the
economic and social conditions" of those affected by the displacement.[44]
.
That the dislocations are simply mild and temporary. Writing in the Harvard Business Review
in late 1996, Marc Levinson takes a middle position. He criticizes both "the declinists"
who overstate the problem and the "free-market conservatives [who] define
the problem away." He says
"the nation isn't in the midst of the epochal crisis of capitalism"
that Lester Thurow, among others, sees.
For the inequality problem, "the challenge for government is to
find small steps that concretely address real social problems at minimal
cost."[45]
This would be sensible if the forces
ushering in inequality were not of a sort that will continue to grow. It may even be a sensible position about the policy
measures appropriate to the current stage, pending a general recognition that
there are vital changes to be made. The necessary institutional and social
changes can hardly precede that developing consciousness, which must come
first. Most people won't even see their
necessity until conditions become severe.
That is just human nature. But it
poses the risk that the problems may then not be diagnosed insightfully, but in
terms of a variety of angry, recriminatory protests about perceived abusers. Paranoia, understandable but misplaced, may
run rampant. A "sensible middle
position" about what we face doesn't satisfy the need for the earliest
possible understanding of the full dimensions of the problem. Intellectually, Levinson's awareness is just
slightly "ahead on the curve" -- which unfortunately is far from
adequate.
. That recent displacements are analogous to
those in the past, and will be overridden by economic dynamism just as those
were. David Laband and John Wells make a point in The
Freeman that rings true with every free-market supporter. It has been a correct and important
observation about how the economy has operated under past conditions. They ask, "whose heart bleeds for the
virtually nonexistent blacksmith? In
1900, there were 226,477 blacksmiths counted by the U.S. Census. Today the number is negligible." Their point is that "one of the most
fundamental and positive aspects of America's market economy [is that] job
destruction for a relative few is a by-product of a vibrant economy that
enhances the welfare of many millions of individuals."[46]
Always in the past new employments
came in to take the place of the old.
Schumpeter's "creative destruction" again and again overturned
everything that was and replaced it with the new. If that is what is happening in the world
today, we can expect everybody to be occupied in the future -- and at a higher
level. In Chapter 6, however, we saw
that that isn't what is happening. I
don't need to revisit my extensive discussion of the point now; here we need
just recognize that Laband and Wells' argument doesn't see the changed
circumstances at all. Theirs is a valid
and important point if it is wrong to think that the twin assault of
non-labor-intensive technology and low-pay foreign labor on jobs in the
advanced economies poses a fundamentally new situation. But if it does, the "creative
destruction" rationale for what is happening today is obsolete. It leads us seriously astray.
. That jobs and wages are the central issue. Two of the books that are most perceptive
about displacement are those by Ravi Batra and William Greider.[47] But Batra calls for taxes on all imports,
components as well as finished goods, and believes that if they are imposed
"factories will start humming again.
Millions of new jobs in manufacturing, paying decent wages at the 1973
level, will be created."[48] Greider wants a worldwide effort to
"bring up the bottom of the global wage ladder" to address the
growing lack of purchasing power.[49] Neither of these authors fully sees the
astounding fact that Rifkin understands so well: that the new technology will
before long make the use of great masses of workers obsolete, thereby removing
work and wages from center stage. As
jobs become more and more marginalized or even eliminated entirely (depending
upon location and circumstance), work will no longer be the "center of
gravity." In the short run, we can
hope to ameliorate the situation through jobs programs and "better
wages"; but it will be like swimming against the current. As virtually all processes become
non-labor-intensive, the jobs solution will prove only temporary. This is difficult to entertain mentally
because it suggests a radical change in social and economic organization -- a
move into the unknown. Again, it seems
safer to embrace an intermediate position based on much more familiar ground at
the expense of not seeing the more fundamental realities.
Nor is it just the impact on jobs
and wages that we are reluctant to see.
For the past few years I have obtained prescriptions from a small,
locally-owned pharmacy. The owner has
several times told me that he is worried about how he can stay in business as
the industry becomes more and more consolidated into larger entities and as
insurance companies, which pay most of the bills, adapt their policies to those
large retailers and brush aside the needs of smaller outlets such as his. What he is facing, of course, is just part of
the trend that exists in all areas. A
news report on the morning I am writing this tells of "industry
consolidation [in food marketing] and mass distribution of foods." It speaks also of "the trend toward
large-scale livestock operations in which thousands of animals are crowded
together...In 1945, there were about 500 birds in a typical henhouse. By 1995, houses contained as many as 100,000
hens...."[50] Between the lines, there is a story of
displacement for countless small livestock and chicken breeders--i.e., the
average farmer or rancher. The same is
happening elsewhere. Accordingly, if the
pharmacy owner reads this book, he will find even more reason to despair for
the future of his own business.
Temporary palliatives may delay the impact, and to a given individual
that may be a godsend for a while; but the longer-term forces offer him little
hope. What is most necessary is that a
society find ways to do the seemingly impossible: to continue the Change while
transcending the tragic Churning and Displacement that concern him so personally. This means leaving intact the massive
currents of innovation that carry utopian possibilities for human betterment,
while at the same time moving quickly to an arrangement that all people can
welcome. There is no question but that
in the meantime, a great many people, firms and industries will be mauled
unmercifully.
. That productivity isn't rising rapidly. As we have seen, the economists' explanation
for stagnant wages is that productivity must have been stagnant, since the
theory says the two are tied together so that when productivity goes up wages
will, too. This predisposes commentators
like Paul Krugman to believe that productivity has been rising only very slowly
in recent years -- just the opposite of what commonsense tells us in light of
the advent of computers and other scientific developments. It is true that those innovations are just
starting to permeate economic life compared the way they will in a decade or
two, but the fact is that productivity is already rising immensely. The failure of so many to see this is partly
attributable to the type of static, snapshot analysis we discussed above that
fails to see movement, but is mainly due to gross deficiencies in economic
measurement. In Chapter 5, I noted that
"the literature contains many powerful statements about how productivity
statistics leave out much of the vastly significant value-creation that is
occurring in an information-centered economy." One economist, we saw, calls the productivity
statistics a "horror show."
Services are especially difficult to measure, and are hardly measured at
all by existing techniques.
. That excelling at competitive rivalry is the
key to economic survival. Michael Porter
in The Competitive Advantage of Nations (1990) places more stress than
perhaps any other author on global competitive rivalry. Everyone's existence depends upon excelling
in that rivalry, and a nation's policies must be geared toward it.
This certainly describes the
situation as it will increasingly come to be in the world market. Competitors must scramble at an
ever-more-frantic pace, and even then may fail.
But how far ahead does an analysis based on this look "along the
curve"? Its nightmarish vision may
long remain true for competing firms.
What it doesn't see is that the resulting social crisis will force
social and institutional changes. These
will be designed to take most people, and perhaps even whole nations, out of
the competitive nexus, other than as they make it a subordinate part of their
existence. People by the hundreds of
millions, even billions, can't live the way Michael Porter postulates they
must. A competitive, driving, dynamic,
innovative market will be crucial to the full development of the new
possibilities; but social crisis will force it to be placed in an auxiliary,
not the controlling, role. Unless this
is done, the sharply competitive market won't be allowed to continue. One can make both a factual and a normative
statement about it: that people in the developed countries won't passively
accept the displacement, and that no people should.
.
That at most an increased safety net is called for for "those in
need," and that an overall welfare state is socially and economically
undesirable. The late Sir James
Goldsmith in The Trap saw much of what is happening, but he was nevertheless
able to say that "the universal welfare state cannot be sustained. Its economic costs and its social
consequences are unbearable. The
rightful purpose of institutionalized state welfare should be to supply a
safety net to those who need it."[51] Economist Melvyn Krauss, who we know is a
strong supporter of the free market, says much the same: "The growth of
the welfare state now threatens the very specialization and interdependence
that is the basis for Western prosperity in the first place. The manner in which the Western industrial
states resolve this dilemma to a large extent will determine their continued
prosperity."[52]
It is probably not helpful to
describe what will be needed as "a universal welfare state." That carries too much baggage from the time,
which has prevailed until virtually the present, when the welfare state laid a
dead hand on the shoulder of the market economy and reflected a socialist
outlook that in almost all particulars was off-the-mark in its perception of
people and of a market system.
Those who most favor limited
government must now grapple with what is for them an unspeakable truth: that
the massive forces of change offer in many ways to make the socialist outlook
correct. The market is dropping more and
more people from its income-receiving side, which means it is losing both its
legitimacy (which has to be based on its ability to serve the great run of
people) and its own ability to keep going as increasing numbers of people
become unable to buy its products. What
Goldsmith and Krauss don't see is that something akin to what they (and all of
us) have called the "welfare state" will become imperative to both
the market and to continued social order.
There are imperative reasons to structure it in a way that will continue
to give a competitive market a major role.
In no sense, however, will it be appropriate to consider such a
"shared market economy" a drag on the society, or even on the market
itself. Further, Goldsmith's remarks understate the productive potential
of the new technology. He doesn't see
that "the costs" will actually become bearable. It will soon be possible to do vastly more
than we can today. Also, by speaking of
a "safety net" he misses the full extent of the coming
displacement. "Safety net"
suggests an underpinning catching the less fortunate. It hardly describes a dispensation that
addresses the central economic support for people in general.
.
The Left's "the game's rigged" perspective. Several commentators on the Left quite naturally
continue the Left's heritage of blaming an oligarchy of "heartless"
and "privileged" capitalists for such things as displacement and
polarization.
Writing in The Progressive,
John Buell says that "just as important as technology is the way in which
our largely unregulated system of capitalism has concentrated the control over
workplaces and work processes in the hands of a few...[who pursue an]
impoverishment strategy."[53] Barlett and Steele speak of "those
people in Washington who...have, over the last twenty years, rigged the
game--by design and default--to favor the privileged." Later, "the government rule book has
become a catalogue of special-interest provisions...."[54] In a 1989 book for which, significantly,
Senator Edward Kennedy wrote the Foreword, William Winpisinger spoke of
"the deliberate exclusion of great numbers of people from access to the
opportunities and rewards of our political economy" and of "a phase
of Fascism that mocks and smiles at us and manipulates us; that divides us one from
the other... Those are all the ugly hallmarks of the dark forces of the right
wing...."[55] Bluestone and Harrison say "a concerted
attack on the rights, privileges, and standards of living of the general public
is underway. In a nutshell, capital has unilaterally
ended even lip service to the great postwar social contract."[56]
.
The Right's "the game's rigged" perspective. In a column in November 1995, Patrick Buchanan
spoke of the "sweeping surrender of U. S. sovereignty" in
Phyllis Schlafly, whose A Choice,
Not an Echo was a bestseller during the Goldwater campaign in 1964 and who
has been a strong voice in American conservatism ever since, had said much the
same a year earlier: "WTO/
Thus we see both the Left and the
Right personifying the problems. Each
very correctly finds people and groups to blame for the parts of the problem
that seem most important to it. There
actually are villains and many abuses, especially as seen by a particular
philosophy that feels strongly about certain values, and this lends each
perspective some very real wrongs to right; but my purpose in reviewing all
these points is to allow us to be clear about one thing: that the giant forces
to which I have devoted several chapters are so enormous that they swamp out
any analyses and policies that don't fully take them into account. In the context of assessing blame, we need to
see that the forces at their most massive level have been planned by no
individual, group or class. It is
valuable to oppose wrongs as they occur or even to protest major developments
as the trends unfold; what we must not allow ourselves to do, however, is to
miss the central events that are leading into tomorrow's world.
Finger-pointing explanations, as I
have said, are bound to become louder and more broadly held unless an
appropriate understanding fills the void.
If they escalate as the displacement continues, the world will likely
tear itself apart. The ground will be so
fertile with grievance that civilization will hang in the balance.
That is why I urge those who care
passionately about society -- as the Winpisigners, Buchanans and Schlaflys do
on both the Left and the Right -- to moderate their accusations, though not
their articulateness, as we seek a common understanding of what is happening
and its social implications. Then we
need a consensus about what a free society can do under the impending
conditions. The issues are certainly of
a magnitude worth fighting over – that is undeniable. But paradoxically they are too important to
be handled that way, since fighting will destroy whatever chance we have for
understanding and consensus. I couldn't
say this if I didn't believe that there actually is "a way out." The "shared market economy" that I
will discuss later offers a new social dispensation that can meld affluence, a
continued competitive market, and a broad satisfaction of needs. A consensus about that won't prevent major
differences of opinion on a variety of important issues (such as, for example,
whether a given people choose to maintain their identity or blend into a common
world culture). But it offers to bring
together people of what are now widely differing views, figuratively "squaring
the circle" by transcending many of the issues that have separated
classical liberal individualism and socialism.
To that end, we need a longer-term grasp of the trends than any
personification, no matter how correct it may be in immediate terms, can provide.
· Free-market optimists: the denial that
the world market embodies an impending crisis of displacement and polarization.
In later chapters I will examine in
detail the strengths and weaknesses of what we might call "the pure
free-market viewpoint."
Intellectual issues need to be reviewed with great care. In this chapter on causation, however, it's
enough to see that there are thinkers who, invoking free market philosophy,
deny that there is any real displacement and polarity problem. They have serious reasons for doing this:
we'll see later that the theory of the market as stated most representatively
by Ludwig von Mises is actually a self-contained logical system; it explains
all, and it especially sanctifies all that a market does through its concept of
the "optimum allocation of resources."
In a letter to me after I sent him
my initial article, Clyde Sluhan, owner and CEO of Master Chemical Company in
Ohio and a good friend from the Philadelphia Society, wrote that "if there
were no political interferences, I believe that the ‘personal' or ‘competitive'
enterprise system could take care of all the job displacements resulting from
advancing technologies."[59] We see this optimism also when Hans Sennholz
at the Foundation for Economic Education writes that [the Cold War] "has
given way to the worldwide dominion of democracy under the leadership of one
world power, the United States. The new
order created a world of unprecedented interconnection and economic
interaction. National trade barriers
have come down significantly, which has led to a great extension of
international cooperation and division of labor. The new information technology has brought
the light of individual enterprise and the market order to all countries, and a
new transportation technology has drawn them closer together than ever
before."[60] George Gilder, author of Wealth &
Poverty, says that "change is inevitable. Change is good. The effort to stabilize is death. It's death for the economy, it's death for
job creation, it's destructive to the society."[61]
These views have the merit of underscoring how
important continued change and economic dynamism will be. That has to be retained, no question about
it. What they don't see is the enormous
downside, which must be corrected if the "upside" is to have any possibility
of continuing.
Conclusion
In Chapter 22 after I discuss the
details of going to a "shared market economy," I will revisit some of
these same issues as part of looking at what transitional steps will be
useful. Policies that "don't look far
enough ahead" may (or may not) be appropriate for the transition.