by John MacBeath Watkins
ADP, the company that does my payrolls, includes in this promotional material a common bromide -- that automation "can cut costs dramatically and free up time for higher-value work."
And that's generally been the argument for productivity growth. It means more wealth, therefore it will make you wealthier.
Except, of course, that whether this is true depends very much on who you are, and what your prospects for participating in the new wealth are. Andrew Carnegie became one of the richest men in America by always making sure his steel mills had the best technology. He'd seen the effects of falling behind first-person. His father was a weaver in Dunfermline, Scotland, who lost his profession when the handweavers were put out of business by the big weaving mills. The family had to borrow money to move to America, where Andrew's first job was as a "bobbin boy" at a textile mill in Pennsylvania at age 13.
He worked 12 hour days, six days a week, changing spools of thread for $1.20 a week. But he was a man of great ability. Fortunately, through a family connection, he was able to get a job as a telegraph messenger boy, and his energy, ability to learn, and hard work brought him to the attention of his superiors. He was more a self-made man than any other I can think of, but he never lost sight of the things that helped him. And he never forgot that his father had been a skilled man and a hard worker, yet had been ruined.
That's the trouble with disruptive technologies. Our society gives us time in our youth to learn a profession, and expects us to make our way based on those skills for the rest of our lives. But when skills become obsolete, it tosses people aside, with little chance to ride the new wave.
And as to the higher-value work, was the elder Carnegie doing work that called on his human abilities to a greater extent as a weaver in Scotland or as a textile mill worker in Pennsylvania? Was the work less routine, more challenging, requiring more of his judgement?
Perhaps for the term "higher-value work" we should substitute "harder to automate work." Higher-value is a term that makes us think of getting a promotion, of using our judgement more. Yet the jobs created when others are destroyed are not necessarily of that nature.
Janitorial work is hard to automate. So is sex work, the ultimate "high-touch" profession. We've seen a decline in workforce participation as productivity has soared. And it has soared. Look at this graph, from my favorite magazine, The Economist (from an excellent article here, which you should read):
As a result, there is a tendency for wealth to concentrate in the hands of those who own a lot of capital. And with wealth, comes influence, and with influence, comes the
Rising inequity creates unrest, seen in the late 19th and early 20th centuries in the form of labor strife and extremist movements.
Part of the problem here is that the distribution of wealth depends in part on politics. In the U.S., decisions at the federal level have moved the tax burden from those who make their money by owning things to those who make their money working for wages. Wages were already declining as a percentage of the GDP, as you can see in the chart from this site, which has several other charts that may interest you:
I have a book to recommend on this subject, The Shareholder Value Myth, by Lynn Stout, Distinguished Professor of Corporate and Business Law at Cornell Law School. Prof. Stout makes a compelling argument that the pursuit of "shareholder value" -- a term with difficulties of its own -- has been bad for investors, corporations, and the public.
The problem is that we've seen this movie before. It was a bit more direct when federal troops killed 30
Now, it's done through legal maneuvering, outsourcing, or moving work to right-to-work states (where a worker has a right to not belong to a union in a workplace where unions have won the right to represent the workers.)
But consider the effect on the companies involved. Consider, for example, Boeing, the local giant in Seattle's economy.
In 1966, Boeing got a launch customer for the largest passenger aircraft built at that time. The delivery schedule required them to design the aircraft in 2/3 the time usually allowed. Engineers were so committed to the project that they worked longer hours than management thought advisable. I've had people describe to me how managers would insist an engineer go home, walk him to his car and watch him drive away. And the engineer would drive around the block and go back to work.
That kind of dedication earned them the name "the incredibles." It was the kind of dedication I don't expect Boeing to see again, or at least as long as the CEO is Jim "the employees are still cowering" McNerney. The company's culture has changed too much, and not for the better. And work is moving from the Seattle-area plants were the expertise that made the company great has historically been located to South Carolina, a right-to-work state.
We've already tackled the issue of how to fix inequity in my earlier essay, A plan to reduce inequity: Working versus owning. But there's another issue in an unequal society, which is that as wealth goes from being widely distributed to being held mainly by a smaller and smaller group, the kind of work available changes. What is happening as companies have reoriented from serving a variety of stakeholders to serving mainly the shareholders has been a bit like the Inclosure Acts that drove many people off the land during the British industrial revolution.
There used to be something called the Commons in many British communities, land on which anyone could graze their livestock, and which was sometimes farmed by landless peasants. The Inclosure Acts privatized that land, giving what had been a source of income to a large number of people to the local lord, who now gained ownership of it. Property is not objects or land, after all, it is the system of rights affecting how people use them, and when those rights changed, ownership changes.
The result was that people who had worked the land were now "free labor," that is, they had been freed from their previous source of income and were now free to alienate their labor in any way they wished, as the outlaw John Locke noted in his Second Treatise of Government.
The rhetoric of freedom is again being employed, along with a change in the nature of property rights, to redistribute property to the most fortunate. As Stout noted in The Shareholder Value Myth, a shareholder has never been an owner in the sense that a partner is. A partner can direct that the company sell assets to buy out that partner's equity on the company, while a shareholder can only sell whatever shares of stock they own. This, in fact, is one of the major reasons for starting a public stock company. Such demands have ruined many a business started as a partnership, while public companies have been able to take the long view.
No more. As shareholders have acted more like owners, they have forced companies to take the short view, which is why more and more companies are being taken private. The number of public corporations declined 39% between 1997 and 2013.
This trend has accompanied another, the trend to cutting taxes on inherited wealth and capital gains. Payroll taxes, which are charged only on income below the income level of the 1%, were raised in the 1980s.
It seems to me that shareholder value ideology, supply-side economics, and a shift from Keynesian economic modeling have one thing in common. They abandoned empiricism (such as how well the Phillips Curve was actually working) and a reliance on knowing history (such as the legal history of the purpose of corporations) in favor of plausible-sounding logic that appealed to moneyed interests.
And those interests are not always about the money. Sometimes, they are about positional status, and about making sure "the employees are still cowering."
This interest fit very well with shareholder value ideology, and the war on companies' own workers. It also fit well with the snake oil of supply-side economics, which promised wealth for all if we'd just let the rich keep more of their money.
Keynesian economics did nothing for the positional status of the rich. It argued the government could create full employment, and while a full-employment economy may make everyone richer, it gives workers more leverage when it comes to negotiating wages -- they can stop cowering.
So the new classical economics promoted by Robert Lucas, Jr., and Thomas Sargent, which claimed that the government can't do much about employment was bound to attract wealthy sponsors. For different reasons, it had a certain appeal to academic economists, as Simon Wren-Lewis notes:
If mainstream academic macroeconomists were seduced by anything, it was a methodology - a way of doing the subject which appeared closer to what at least some of their microeconomic colleagues were doing at the time, and which was very different to the methodology of macroeconomics before the NCCR. The old methodology was eclectic and messy, juggling the competing claims of data and theory. The new methodology was rigorous!
In short, Wren-Lewis argues, it allowed economists to leave behind a history of the dismal science as a messy social science and act more "scientific" -- even though the new method did not provide better empirical results.
Shareholder value ideology had a similar appeal for the purity of its logic. The "managerialist" view of corporations said that just as you can buy a "share" in a prizefighter, but you can't own him, a shareholder was but one of the stakeholders in a corporation. Economists, in particular, preferred the purity of the owner-agent model to the messy business of the traditional legal status and purpose of corporations.
But I cannot imagine this having as much impact as it did, if it had not suited the purposes of the corporate raiders and private equity companies that were becoming prominent at the time. If you say things that give rich people justifications for what might otherwise be viewed as pretty dodgy behavior, you won't lack for people willing to promote your views.