What Are People Good For? (part 4)

4. Darkness on the Edge of Town

The wheels started to come off in the 1970's, prompted in part by several oil crises. At the same time, the United States began to face steep international competition from other nations, particularly Japan, who had developed highly-efficient, rational, and highly automated manufacturing systems based upon the ideas of American industrial engineers such as Taylor and W. Edwards Deming. To compete, U.S. factories began to automate and consolidate, a trend that picked up steam with the financialization of the American economy in the 1980's under Ronald Reagan. America began to undergo the process of deindustrialization. For the first time since the war, joblessness became a major concern. As factory jobs disappeared, politicians told an anxious public that the loss of factory jobs was nothing to fear. As American companies became more "competitive", they argued, they would create new jobs in other areas through "innovation." The capital freed up by automating repetitive factory jobs would be invested in new industries that would easily reabsorb the displaced workers, they claimed. All that was needed were low taxes and deregulation.

Manufacturing had absorbed the mass of dispossessed workers as agriculture became mechanized. With manufacturing gone, what was to absorb those displaced workers? Some touted a "service economy" where low-wage service work would absorb them. But the low status and wages of these jobs led to a downward spiral of living standards. Industrial cities like Cleveland and Detroit started to fall apart. Many white Americans got into their cars and fled to the suburbs, where they took clerical and office jobs. For many African-Americans who had lost manufacturing jobs and had no access to transportation, things did not turn out so well. The nation's urban areas became ghettos, with crime and drugs taking their toll. Many towns throughout the Midwest were founded entirely on manufacturing, converting local raw materials like wood, stone, agricultural products or metal ore into products and shipping them off via railroad or seaway. America had once been the world's factory floor. Without access to education, these towns became decimated, with only low-wage service jobs or health care jobs available. Some fled to cities to look for work while others took civil service jobs or enlisted into the military as a way out. Wal-Mart became the nation's largest employer, taking over from General Motors. Food and durable goods were cheap and plentiful, but the costs for housing, education, transportation and health care skyrocketed. Banks extended easy credit to make up for lost income, and people sank heavily into debt to pay for what they could no longer buy with their stagnant wages.

Then came the double-whammy - the Internet and globalization. China, with its billion-plus population provided an unbeatable combination - unlike many developing countries, it was thoroughly industrialized thanks to the legacy of Mao, and it had a vast, inexhaustible pool of cheap, easily exploited labor. The Internet and computers allowed vast supply chains to stretch around the world, with the coup-de-grace provided by discount retailers such as Wal-Mart putting pressure on suppliers of goods to lower prices at all costs or lose contracts to those who could. This perfect storm hollowed out American manufacturing. During the nineties, the vast pool of cheap Chinese labor substituted for automation. Due to the relative difference in currencies, even if American workers were paid a dollar an hour, they could still not compete on price. America entered what was termed the "post-industrial economy."

Eventually, American politicians no longer even paid lip-service to a revival of American manufacturing. In the nineties, president Bill Clinton told the American people that "these jobs are gone, and they aren't coming back." Clinton told unemployed workers that they needed to retrain for new "high-tech" jobs. Economists trotted out a series of buzzword-centric economic models like the "knowledge economy," the "information economy," and the "experience economy." Economists claimed that these new economic models would take the place of manufacturing and provide stable employment for the masses. Yet none of these economic models panned out. A growing wealth gap between workers and the investor class grew to obscene levels. Corporations took advantage of the vast labor pool to increase profits. Workers were increasingly left out in the cold. The jobs that were created since the 1970‘s were predominantly low-paying jobs of lesser quality than those in the past, at least for the majority of workers.

In 1996, iconoclastic economist Jeremy Rifkin published The End of Work. Rifkin contended that a combination of higher productivity and automation would eventually displace workers in every field as computers became cheaper and artificial intelligence became more refined. Rifkin provided an extensive history of labor dislocations, including an analysis of Technocracy’s arguments during the Depression years. He contended that the amount of workers had outstripped the need for them back in the Depression, and that only a series of bubbles, from the postwar consumer/suburbanization bubble to the financial bubble to the Dot-com bubble to the credit bubble (and, eventually, the housing bubble), had provided the illusion of an economy that could provide enough jobs for everyone. Yet, he predicted, the drive for automation would continue unabated, eventually destroying the purchasing power needed to sustain all those bubbles and inexorably ushering in an era of permanent unemployment for the masses. Nearly every page could be quoted as relevant to our discussion, but I will only offer this snippet from chapter 1:

"While earlier industrial technologies replaced the physical power of human labor, substituting machines for body and brawn, the new computer-based technologies promise a replacement of the human mind itself, substituting thinking machines for human beings across the entire gamut of economic activity. The implications are profound and far-reaching. To begin with, more than 75 percent of the labor force in most industrial nations engage in work that is little more than simple repetitive tasks. Automated machinery, robots, and increasingly sophisticated computers can perform many of not most of these jobs. In the United States alone, that means that in the years ahead more than 90 million jobs in a labor force of 124 million are potentially vulnerable to replacement by machines. With current surveys showing that less than 5 percent of companies around the world have even begun to make the transition to the new machine culture, massive unemployment of a kind never before experienced seems all but inevitable in the coming decades. Reflecting on the significance of the transition taking place, the distinguished Nobel laureate economist Wassily Leontief has warned that with the introduction of increasingly sophisticated computers, ‘the role of human as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the introduction of tractors’"
The End of Work, p. 6

The timing of Rifkin’s message could not have been worse; the book came out right as America was in the throes of the dot-com boom, and mainstream economists proclaimed that the Internet was the long-promised "innovation" that would provide full employment for anyone who could learn HTML or become a Microsoft Certified Professional. Newly created Internet startups attracted billions in investment, and ordinary people were starting multi-million-dollar companies in their basements. It was a time of exuberant optimism. Of course, the dot-com bubble burst and made a mockery of such predictions. Internet companies folded left-and-right, and while a few survivors remained, billions of dollars were lost, with the resulting employment fallout. More importantly the Internet also allowed office jobs to be accomplished anywhere in the world, allowing even clerical and professional jobs to be performed by low-cost labor half a world away. Outsourcing was now coming for the suburban white-collar worker.

But the nation bounced back quickly--the next bubble was just around the corner, and this one was the biggest yet. The housing bubble was built on nothing more than rising asset values, financial fraud, and easy credit. The jobs that were created were almost all related to finance, real-estate sales, and services to those who used their homes as cash machines. Then in 2008 it all came crashing down. All of the job gains over the past decade vanished, leaving a decade of no net job growth, despite an increasing population, massive immigration from Mexico, and numerous rounds of tax cuts. Unemployment soared, and even creating enough jobs for new entrants into the labor force became an impossible task. Even if job growth were to return to the levels of the 1990‘s, it would take a decade just to bring the unemployment down to the level it was before the housing crash, and no one seriously expected that to happen. Without another bubble, Americans were told that high unemployment levels were simply a "new normal" and that government was powerless to change the situation. Rifkin’s stark predictions, presented twelve years too early, were finally starting to hit the mark.

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