Roll up your Sleeves

By Bo Cutter27.07.2013Economics

Governments have yet to grasp the full extent of the dramatic changes in the employment sector. Time to take matters into your own hands.

Due to the automation process, the future of work will be accompanied by large-scale unemployment. For many, full and gainful employment will therefore become a thing of the past. To keep the social repercussions at bay, the state needs to find new solutions. Re-modeling the social redistribution of income (for example through a basic income guarantee) could be a first step in the right direction.

I disagree with this premise and even more with the policy conclusion.

The policy world has not focused on how enormous a world change is happening right now. Several different streams of technological innovation – now happening at an exponential rate – will create more change in manufacturing and, more broadly, the future of work in almost any economic sector in the next 10 years than has happened in the last 30 years. The effect of these changes will be very different economies and very different “business systems” to use a term I’ve used elsewhere. But the effect will not be large-scale unemployment. However, whether or not the incomes and standards of living of many workingmen and -women continue to deteriorate will depend on the creativity and quality of public policy; on whether or not governments and other institutions – universities, community colleges, industrial training, and labor unions – anticipate the scale of the impending changes.

The Big Squeeze

The technology story is dramatic. The combination – the interweaving – of new manufacturing technologies (3D manufacturing, Robotics); dramatic increases in the power of information technologies (a doubling of core processing power roughly every two years); almost as substantial increases in the amount of digital data available to be processed (stored digital data doubles every three years), have produced not simply quantitative changes in technologies and the conditions of work, but qualitative changes. No one really anticipated the effect of this combination of fundamental changes.

The immediate effects of these changes are straightforward and big. In manufacturing labor costs – direct human labor – are being inexorably squeezed out of virtually all manufacturing. It is not much of an exaggeration to argue that labor costs in manufacturing are falling rapidly to nearly zero. In service work anything that can be routinized is equally rapidly being replaced by computer software. Once again labor costs are being squeezed out.

The longer-term effects of these technology changes will be a different “business system,” and different kinds of work. The “plant system” – an economy centered upon major manufacturing facilities offering highly paid stable direct manufacturing jobs but also bundling many other kinds of service jobs – is rapidly on its way out. All jobs will demand much more education and training; more importantly this requirement for education and training will be an imperative throughout the working lives of almost everyone. The actual work will require more value added, more creativity, and more of the mentality of a craftsman. And everyone will have to be more intentional, more forward looking, more entrepreneurial about their careers – career planning will not be, or better not be, the sole province of only the elite educated upper middle class professional.

A Barbell Future

The effect of these changes in our economic system will not be mass unemployment. But that does not mean that these effects are likely to be positive. As MIT professor David Autor has shown, there is growing evidence both in Europe and the U.S. that technological change is “hollowing out” the middle classes of industrial economies and leading to a highly polarized, “barbell” work force – a small number at the top and a rapidly growing number in low wage employment at the bottom. This could be our future.

Unfortunately the political path of least resistance – which political systems choose 99 out of 100 times – leads in precisely the wrong direction and toward that future. The budgets of all industrial nations are completely focused on paying for the welfare states we thought we could afford (but can’t), not for the economic changes the next generation requires. The political power of big existing institutions – big companies, big unions, big education – will weigh in against any real change. The most likely result is that we will be stuck: with political systems that won’t change; an economy changing underneath us; an increasingly polarized work force, all while we try to make it feel better by pursuing income support programs that can’t work.

But there is another future to grasp. If governments see the enormous importance of four big directions – encouraging high levels of company creation; reducing the costs of job creation – payroll taxes are job killers; financing advanced urban infrastructures; and changing our educational systems – then there is a real shot at a different future. Don’t hold your breath.



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