Post-Peak Liberal: The Future of Work (Part 1)

Post-Peak Liberal

....... Life on the Downslope

The Future of Work (Part 1)

The disappearance of labor as a key factor of production [is emerging] as the critical unfinished business of capitalist society.

-- Peter F. Drucker (1993)

Yesterday was Black Friday, the glorious day after Thanksgiving, when crazed shoppers comb the land for bargains and hot products, and ubiquitous camera crews search the streets for potential trampling sites. A headline from the Boston Globe today reads, "As sales ring, hands wring: Number of shoppers up, but economy dampens spirits." After all, we've all heard the gruesome holiday calculus: more than two-thirds of America's GDP is based on consumer spending, and more than one-sixth of all retail spending is done during the Yuletide weeks (Note: although the former is a disputed statistic, it is the standard benchmark, so we'll go with it). Analysts, economists, and 'journalists' are all looking at the upcoming shopping season as a main indicator of whether our economy is really on the road to 'recovery,' as the stock market seems to suggest, or if it is still in the doldrums, as the job numbers warrant. Lurking behind this whole fantastical discussion of recovery is an unutterable possibility: that what's good for business may not necessarily be good for regular people. And this points us to a much larger discussion on the nature of work itself and the long-term hemorrhaging of the value of labor in our economy and society. Are we poised on the leading of edge of a return to the 'normal' state of affairs from the 1990s and early Oughts, with heavy borrowing, spending, and consuming reinvigorated? Or are we hearing the dying gasps of a full-employment economy that has been bandaged and duct-taped together for the last 30 years, and which must now mercifully but gut-wrenchingly expire?

Let's back up and start with a quick primer on how labor productivity relates to the housing bubble and the speculative finance meltdown of 2008. This quick account is taken from Les Leopold's excellent book, The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity. Apologies for the long quotation, but he nails it, and I could do no better (from pg.178-179):

Because productivity and real worker wages diverged starting in the 1970s, income gushed to the top -- to the richest 1 percent or so among us. Tax cuts for the wealthy, deregulation, globalization, antiunion policies, reduced social programs, and the declining value of the minimum wage all accelerated that process. The productivity bonus went to the investor class instead of to workers, where it had gone between 1945 and 1973.
Some of that capital went to productive investments. But eventually it ran out of moderate-risk investment opportunities in the real economy. It became surplus capital when it could no longer find stable investments to make in the real economy.
The problem of surplus capital that couldn't find a home was "solved" by the derivative industry. CDO-type [Collateralized Debt Obligation] investments offered higher rates of return, supposedly at little risk. The casino was open for business.
Through the magic of fantasy-finance derivatives, these funds were recycled to cover risky consumer and corporate debt, and to create instruments that were leveraged again and again upon these debts. All this was enormously profitable for the financial firms that arranged, sold, and traded these products. It also made hundreds of billions of dollars available for both housing and credit card debt and for additional fantasy-finance betting. The surplus capital fueled the housing boom via the derivatives, and it led to a vast expansion of the financial sector.
Meanwhile, working families had to work harder and longer to make ends meet. More and more families needed two wage earners. More families increased their debt loads.
The bubble burst because that's what bubbles do. At some point marginal buyers could no longer buy enough houses or pay for the ones they had bought. Too many builders built too many homes because the boom had accelerated prices. American workers with stagnating real wages had reached their debt limits and could no longer fuel the boom.
When the housing bubble burst, the entire fantasy-finance edifice that had been built upon it collapsed as well. Investors and banks all over the globe were loaded with toxic derivatives based on risky mortgages that had crashed in value. The risk supposedly had been engineered out of these derivatives, but it hadn't. Many financial institutions central to the economy became insolvent or nearly so. The banking system froze. The stock market crashed. The global economy tanked.
And here we are.

Notice the genesis of this whole thing: the divergence of productivity and real worker wages in the mid-1970s. What's that all about? It sounds so innocuous, but is in fact the seedbed for all of our current troubles, and an indicator of the very different relationship that is emerging between people and their work. First, let's look at this productivity-wage divergence in graphic form (again from Leopold, pg. 14).

This innocent-looking graph tells us more about our current predicament than the thousands of hours of indignant TV punditry or the thousands of gallons of op-ed ink that we have been exposed to over the last year or so. This shows that in the mid-70s, all of the excess value that was churned out by prodigious American economic growth started to move upwards, to the management and investor classes. Workers were doing a better job, working much more productively, and yet seeing none of that gain in their paychecks, after adjusting for inflation. This simple mechanism, improved productivity but flat real wages, accounts for almost every other dysfunction in the present economic environment: CEOs making 1700 times the base worker salary, instead of 45 times, as it was in 1970; household debt at around 130% of annual income, instead of 57%, as it was in 1970; the top 1% of US households controlling more wealth than the combined wealth of the bottom 90%. etc.

When push comes to shove, there are about 95 million people in America making less now than they made in 1973, despite the intervening decades of economic growth and improved worker productivity. The surplus value of American economic success is being siphoned off and delivered to an ever-smaller slice of the population. How can this be? Well, the usual culprits targeted by mainstream economists are globalization, declining educational infrastructure, and the collapse of unions. We all know the rough outlines on these factors, and they seem to fit together in a mutually-reinforcing structure. Overseas cheap labor and free-trade agreements drive high-paid manufacturing jobs to Asia and Mexico. As these 'high-skill' jobs disappear, they are replaced by non-unionized service jobs, which are lower-paying. To address this major change in the labor market, American education really needed to address the higher-tech needs of the newly-emerging industries -- but we dropped the ball. So we're now stuck with a highly-indebted but under-educated population, unable to compete with countries that can do things either more cheaply or with higher skill-levels, or both.

(It's a nice, neat story for a profoundly not-nice situation, and it can be dove-tailed into the Democratic and Republican master narratives fairly easily. We'll return to this subject later, but in general, liberals can use this analysis to call for more federal stimulus, especially in the educational and green job-training spheres. And conservatives can, less convincingly, continue to maintain that it is the bloated federal government itself which has prevented our post-war decades of growth from accruing to the masses. But as I said, we'll get to that stuff later.)

But right now, we need to address the deeper fact behind this uncoupling of productivity from real wages: Technological Unemployment.

In The General Theory of Employment, Interest and Money (1931), John Maynard Keynes described it thus:

We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come -- namely, 'technological unemployment.' This means unemployment due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor.

This is the classic Henry Ford conundrum. His revolutionary improvements in factory automation allowed him to produce the same number of cars with either far fewer workers or workers with lower-paying, de-skilled jobs . But how could he maximize his sales if there were less workers with enough money to buy them? In large part, this was the situation in the Great Depression as a whole. Some studies show that around half of the unemployment and underemployment in the Great Depression was caused not by bad economic conditions in general, but by huge leaps in productivity via automation; i.e., technological unemployment.

Now, the usual reply from mainstream economists is that technological advances, while closing off jobs in one sector, open up new opportunities in other areas. Sure, robots are now assembling our cars, and huge machinery is now harvesting our crops, resulting in many farm and factory workers being displaced. But these people have thus been freed up to move into the more advanced fields of computer engineering, technical writing, wind turbine manufacturing, etc. There is always creative destruction as capitalism surges and pulsates around the socioeconomic landscape, and there is much pain and suffering in the necessary adjustments. But eventually, the labor markets come around, and new generations develop different skills, allowing for the next phase of economic progress. Jeremy Rifkin calls this the "trickle-down theory of technology," the idea that advances in automation and machination will eventually accrue to the benefit of everyone (see The End of Work, 2004).

In some sense, the critics of technological unemployment are correct. Laid-off factory and farm workers don't stay unemployed forever, for the most part. They find different jobs, mostly in the service and knowledge sectors. But the key is that the ratios of value have changed. The advanced technologies capture the surplus value and transfer human skills into nonpersonal systems that need much less future human intervention. As Rifkin puts it:

The critics.. as well as a growing number of people already left at the wayside of the Third Industrial Revolution, are beginning to question where the new jobs are going to come from. In a world where sophisticated information and communication technologies will be able to replace more and more of the global workforce, it is unlikely that more than a fortunate few will be retrained for the relatively scarce high-tech scientific, professional, and managerial jobs made available in the emerging knowledge sector. The very notion that millions of workers displaced by the re-engineering and automation of the agricultural, manufacturing, and service sectors can be retrained to be scientists, engineers, technicians, executives, consultants, teachers, lawyers and the like, and then somehow find the appropriate number of job openings in the very narrow high-tech sector, seems at best a pipe dream, and at worst a delusion.

We should know this in our guts. Automation and technology make it possible to do more with less, so the resulting job landscape will be fewer people making more money, and lots more people making less money. That's what automation does; that's what improved technology means: less labor is need to produce the same amount of stuff or more. Technological un- and underemployment is what really started the great rift between productivity and real wages in the mid-1970s. And more importantly, it has become a permanent and undeniable part of our future, especially as we bump up against the limits of our natural world.

Next time, we'll look at how technological unemployment relates to the other variables in the collapse of real wages: globalization, decline of unions, and a failed educational infrastructure. We'll look at the importance of Keynes' crucial word in his description of technological unemployment: outrunning. And finally, we'll get into an analysis of how the current Democratic and Republican schemes for recovery ignore the realities of a post-full employment society, and what some sensible alternative policies might look like.