Archive for Work & Labor

Could Uber be Collectivised?

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A provocative piece in The Nation suggests turning the so-called “ride-sharing” company known as Uber into a worker-owned enterprise. In “Socialize Uber: it’s easier than you think, Mike Konczal and Bryce Covert argue that since Uber owns only the proprietary technology that coordinates the glorified taxi rides and processes payments, and drivers own their own cars, Uber is an excellent candidate for conversion to a worker cooperative.

Collectivisation of Uber is a tempting notion, but the authors’ conclusion that it’s the “obvious transition” for Uber is hard to fathom. First, they curiously fail to note that it would be virtually impossible (in a legal and technical sense) for the drivers to acquire Uber. The company is privately owned, with equity held between the founders, many employees, and a huge array of venture capitalists, individual investors, and other firms. These shareholders have complete legal prerogative to hold their equity until the company goes public or sells off (and beyond). The only way the workers could buy Uber is if they pooled their money and acquired the company, which would cost way more than its current $40 billion valuation. Indeed, due to the special circumstances of needing to acquire every last share and option from current holders, this would constitute, by a factor, the most expensive acquisition in the history of venture capitalism.

But let’s just play make-believe and look at Uber as if the workers could assume the reins overnight. I believe in worker cooperatives, not just as an organizational model for firms, but as a transformational force for our economy. That said, Uber is not merely a bunch of hard-working drivers coordinated by technocratic drones. If Uber establishes itself as a dominant, static force in the taxi economy, it might eventually become nine parts technocracy for every one part human ingenuity. But for now, it’s a new kind of craft in very uncertain conditions; autopilot is not an option.

The authors note, “It takes an entrepreneur to start up ride-sharing, but not to run it as a firm.” In truth, it takes a handful of entrepreneurs as well as venture capital to bring a startup of this kind to scale, and it takes a team with exceptional business sense to see it through the growth stage. Even as a staunch advocate of collectivism, I am willing to concede that successfully introducing a disruptive product into a market of this kind is beyond the reach of collectives or self-funded worker-run enterprises. At the very least, they would have to seek investment capital and empower managers with extraordinary vision to navigate this crucial phase. These are two very problematic necessities.

We all know what happens when workers empower managers to use their exceptional talent—those managers demand exceptional compensation. I’m not saying capable people don’t exist who would do this for humble wages, but they’d be exceedingly hard to find. Anyone with a proven track record has far more lucrative options. So whom would workers hire or promote to steer the company? This is where CEOs and other executives command what appear to be rentier compensation packages. It isn’t the actual scarcity of talent, but the scarcity of pedigree, that they’re leveraging. Even the ones with relatively poor records exercise the terrific advantage of having a resumé that shows they know anything at all about running a big company. While it’s surely far easier than they would have us believe, it’s not perfectly intuitive; not just anybody can pick it up overnight. Leadership isn’t an insurmountable obstacle, but it highlights a major problem and a significant gamble.

And then there’s the capital. Even if they don’t need $100B in up-front cash, Uber would need regular influxes of investment capital in order to grow while competing with other venture-backed companies in the ride-hailing app market (not to mention the main competition: taxis). We’re talking no less than tens of millions of dollars on a semi-regular basis. It’s difficult for worker cooperatives in conventional industries to get loans or other traditional forms of cash infusions; this is basically impossible for venture startups in unproven markets.

You might say, why not reinvest profits as capital for growth? Besides the fact that worker-owners would have to consistently forego dividends to grow the firm (a conventional co-op dilemma) the biggest reason is really that it puts tremendous pressure on creating big margins in the first place. Competitors will meanwhile enjoy the relative breathing room of not having to scrape every ounce of profit out of their model while growing strategically. Some of these companies pay no attention to profits at all as they spend investor money improving their position in the market.

This is why venture capital exists—to take seemingly insane risks seeking commensurate returns on the rare wins. For startups, they provide the ability to grow without cannibalizing revenues. I cannot imagine a VC firm wanting to invest in a labor-managed startup, and it wouldn’t be a cooperative if such a firm did decide to invest.

But why wouldn’t an investor want to back a democratically managed startup? We know a lot of these new Silicon Valley firms are relatively flat. Here we get to Konczal and Covert’s claim that at its core, Uber is just a technocracy:

And these workers [drivers] labor individually, doing the same tasks, so there’s no need for a management class to control their daily operations. The capital owners maintain the phone app, but app technology isn’t the major cost, and it’s getting cheaper and easier by the day.

Developing successful technology isn’t just writing code, and most of the supposedly “flat” tech startups are neither nonhierarchical nor equalized in pay scales. Even if the code and the coders came with the acquisition (which they would), consider that all these years a relative handful of people at Uber have been figuring out what to make all that code do. There’s institutional knowledge and specialized skills behind that, some of which might be maintained beyond collectivisation, though that’s doubtful (why would a CTO or senior engineer or product manager stick around—why even would a junior developer who can start anywhere at $75,000 plus equity?). Could the right workers collectively do this under the right circumstances? I believe so. But not coders who weren’t hired for these propensities, and definitely not overnight.

Okay, so forget Uber (seriously, Uber is awful). What if all the Uber drivers wanted to set up their own competing co-operative? Maybe even do something innovative and offer regular customers shares in the company! Unfortunately, the above problems would persist.

There’s that pesky problem of the technology and infrastructure. The overhead costs for such a venture are not trivial, but replicating the model is conceivable. Uber’s trade secrets would be pretty hard to obtain, protected as they are by nondisclosure agreements that could keep even sympathetic insiders from aiding the dissident worker-owned venture. Still, I think most of the model is in plain view. So they’d have to get the right developers working for the right reasons. It’s theoretically possible, but I’d rank it as highly difficult.

It remains harder still to figure out where the capital would come from, and how the organization would work such that drivers, technologists, and business development workers would be on the same page at equitable wages and equal stakes of ownership and control. The irony, of course, is that this company would be competing with Uber and all its infrastructure and those piles of venture capital. My conclusion is precisely the opposite of Konczal and Covert’s: Uber is among the worst candidates for the cooperative model on a large scale.

Now, all this being said, if someone were to create open-source software for the ride-hailing industry, I bet small collectives of highly motivated driver-owners could perhaps eek out nice livings in the right markets. I would love to see that, and in fact I’d lend my expertise to such a project. But this sadly isn’t the place we’re going to kick capitalism’s ass.

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Robots Will Waste You

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I couldn’t really run a blog called Future Economy if I didn’t love talking about robots. Well, over the last several days, my RSS feed was like Shark Week for radical econ geeks.

Humans as Wasted Capital

First up, Frances Coppola with an interesting commentary on “The Wastefulness of Automation”. If it’s just dawning on you that the perpetual automation game is rigged against working people, you can go through some of the phases of grief with Coppola (though, to her credit, I think she doesn’t make it past “bargaining” here).

It starts out on an odd note for someone as highly schooled in economics as Coppola:

But what if capitalists DON’T want a large labour supply? What if automation means that what capitalists really want is a very small, highly skilled workforce to control the robots that do all the work? What if paying people enough to live on simply is not cost-effective compared to the running costs of robots?

First thing’s first. A large labor supply means lots of people willing and able to work. The more of them available, the cheaper they’ll sell their hours. Of course capitalists want a large labor supply — they get to pick and choose from that supply which ones can come off the 95% unemployment list.

But Coppola struck on the core conundrum — the contradiction hopefully keeping the worst-conceivable future off the table. Do capitalists want a large, active workforce?

If only a small number of people can afford to buy the products produced by all these robots, then unless there is a vibrant export market for those products – which requires the majority of people in other countries to be doing rather better than merely surviving on a basic subsistence income – producers have a real problem.

Okay, well, phew — capitalists will always need us workers. Problem averted, right?

Coppola notes the current trend of automation happening in middle-skilled office jobs, where labor is costly enough that automation is most attractive, while automating the lowest-skilled jobs is of lesser priority to the cost-cutting capitalist happy to pay slave wages for picking and skinning, maybe even lifting and sorting.

But we can’t lose sight of the reason “white collar” jobs pay more; it is because the people in the market for those jobs have comparative bargaining power. It is not because the jobs themselves are more valuable, or have a marginal advantage to the purchase of labor, compared to lower-paying jobs. They’re just more costly due to irrational market forces.

Therefore, such jobs are worth spending more to eliminate.

If the future is that the majority of people will do unskilled, insecure jobs for very low wages, then this amounts to a shocking waste of human capital. And if the more distant future is that even these jobs will eventually be automated, and working for a living will become the privilege of a few, then it is an even bigger waste.

Well, no. Under capitalism, human resources are only “wasted” if they could otherwise be put to better use. There has to be an opportunity cost to their disuse. In the dread scenario Coppola lays out, it’s not clear all this excess potential could do anything the capitalists would value. And since capitalists in the scenario have nearly all the demand power (not just an insanely disproportionate share, as now), who else would capitalism dictate has the prerogative to be valued? Who would a skilled worker be to argue that her talents and passion are being “wasted”?

In these conditions, a “waste of human capital” would be someone who could outwork a robot for wages amounting to less than the cost of the droid’s inputs but who, by some accident, doesn’t get put on the assembly line working shoulder-to-shoulder with X9-5R112. What a shame, the capitalist would think if he ever learned of the case. But someone who can make great art or engineer a way to feed the poor is of no value in this scenario if they can’t do it in a way that makes money for capitalists.

That skilled worker withering away in a tomato patch is only a “problem” if you’re unfortunate enough to possess morals that suggest human suffering is somehow wrong, per se. It is demonstrably not something markets can be bothered by.

Crucially, this isn’t some “Egads! There’s a flaw!” aberration of capitalism. This is one of the market’s more elegant features, if you set aside the hardship blah blah blah. It’s what you get when you put your faith in a system that values people precisely for their ability to (1) invest capital, (2) consume products, or (3) produce valuable goods and services at market rate. What else would you expect?

If you have no money and can’t compete with robots, according to capitalism you’re not a “waste of human capital”; you’re a waste of carbon and water. Coppola can’t seem to get over this shocking notion that capitalism has this built-in anti-sanity attribute:

A labour market that is skewed towards unskilled jobs when the workforce is more highly skilled and educated is malfunctioning. People who are in the wrong jobs are less productive than they should be: therefore, when most of the workforce is in the wrong job, we inevitably have an economy that is less productive than it should be.

No. What you’re actually seeing is that markets don’t care about your skills. And they’re not supposed to. That’s not their job! You either outwork a robot while matching its obedience and loyalty, all while asking for less… or you can go rot in a gutter. At best, you can go do something that’s not yet cost-effective to automate. Oh, and don’t forget, the capitalist gets to keep the robot’s wages; you’ll probably get all selfish and only give your wages back to him in exchange for some kind of commodity or service.

Now, the quote above about the labor market “malfunctioning” if it is “skewed towards unskilled jobs when the workforce is more highly skilled and educated” is true about an economy if and only if you believe an economy’s mandate is to take care of human needs. But it is not true of a market, which has the mandate of moving products to sources of demand. You ask for an invisible hand, you don’t get to whine or call it a “malfunction” when it predictably turns into a fist and squashes you and everyone you love the way it’s been abusing so many for so long.

Robots don’t eliminate jobs; markets do.

Cartoon by Carol Simpson - Robots gather for employee empowerment seminar

Coppola’s revelations continue:

Looking ahead, the only way in which such extensive outright subsidy of wages can be sustained in the longer term is through heavy taxation of profits and wealth – which rather undermines the purpose of forcing down labour costs, from capitalists’ point of view.

Exactly. The capitalists’ only choice would be to pay people just to buy stuff. As neat as that might be for a dystopian novel setting, there’s a flaw in the concept: it would be way more sensible for them to pay robots to buy stuff. Why bother with consumer markets when you can program demand? (Everywhere you look, those damn robots…)

Anyway, we know this isn’t a practical scenario. So Coppola tries to bring us back to reality:

It seems to me that providing people with a reasonable income while they find or create for themselves the right job (not just any job), or to enable them to do creative and/or socially useful things that are currently unpaid, or to study and develop new skills, might be a good investment for the future, improving the productivity of human capital which over the longer term benefits the economy.

This is certainly the right general attitude to have about the future. But then you have to stop using the term “human capital”. As long as humans are capital, their “productivity” will be measured by the value of their output in the market. Only sounds about two-thirds insane… until you remember: robots. And then continuing to advocate markets sounds three-thirds insane.

You also have to rethink what it means to serve an economy. If the mandate of the economy is to produce goods and services for anything with demand power, there’s no way that “benefiting the economy” means “benefiting society”.

How They’ll Do it to Us

Martin Ford of EconoFuture blog is on a similar tip, but he’s been thinking hard about this issue for a very long time, and is probably the leading harbinger of the very real possibility that hyper-automation will create structural unemployment, with predictable shock waves throughout economies. Ford’s latest contribution is a primer on just how contemporary automation may encroach more permanently on the workforce.

Of course, people have cried wolf about technological developments throughout the modern era, yet from prior periods of egg-cracking disruption, omelets have usually emerged. So what’s different now?

Well, what if innovations started targeting more and more costly lines of work, as Ms. Coppola noted above? What if they started doing creative work? What if they start innovating, even upgrading themselves? Would that be fundamentally different from the steam engine? (Yes. Yes it would.)

Ford notes that the trend of automation is to replace routine functions carried out by workers. We see this everywhere. Workers welcome it when it means making their job a little easier — sometimes to their own peril down the line. Now innovators are seeking to automate more complex forms of routines.

Our definition of what constitutes a “routine” job is by no means static. At one time, the jobs at risk from automation were largely confined to the assembly line. … Machine learning … is in essence a way to use statistical analysis of historical data to transform seemingly non-routine tasks into routine operations that can be computerized. As progress continues, it seems certain that more and more jobs and tasks will move from the “non-routine” column to the “routine” column, and as a result, an ever-increasing share of work will become susceptible to automation.

So what are the implications for you and me?

Rather than simply acquiring new skills and moving to another routine job, workers will have to instead migrate to an occupation that is genuinely non-routine and therefore protected from automation—and they may have to do this rapidly and repeatedly in order to remain ahead of the advancing frontier.

Okay, but my job can’t be automated, you say… Well,

Lawyers and paralegals have been displaced by e-discovery software that can rapidly determine which electronic documents are relevant to court cases. More routine forms of journalism—such as basic sports and business writing—have been successfully automated.

If you’re starting to wonder if anybody is safe from the rise of the robots…

Not Brain Surgery, Right?

I imagine if I were a brain surgeon, I’d have trouble believing I could be replaced by a machine, even as I bragged about the jaw-dropping technological innovations being made in my field.

So I’m going to excuse the limits of Dr. Garnette Sutherland’s inability to see the writing on the wall as he regales us with stories of new and near-future technologies that are revolutionizing neurosurgery.

My favorite line is this:

What robots lack is the human brain’s executive capacity. Given that comprehending – and reacting appropriately to – the immense number of variables that can arise during surgery would require enormous computing power, surgical robots aim to integrate human experience and decision-making ability with mechanized accuracy.

Yeah, good luck with that, Doc. Neurosurgery will be a prime target for automation. Of course computers have an executive capacity; try playing one in Backgammon, Chess, or Texas Hold’em. If in the middle of a surgery, a not-yet-programmed decision needs to get made, the on-call surgeon will be able to cover several robot surgeries at once. Maybe several hundred. From across the Internet.

And talk about high-cost routines! Before the good doctor knows it, robots will be explaining how the human brain utterly lacks the capacity to aggregate the compound experiences of multiple units (in real time, no less!), and how its error rate is N times that of robots, and how it can only perform one surgery at a time, and how it needs to sleep and play golf, and go to conferences, and… you get the point.

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Hierarchy on the Defensive

Mug reads: Boss, You're Fired
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You might expect capitalism-centric media would react negatively to the recent buzz around Valve Software‘s innovative non-hierarchical structure. I was actually a little surprised about how un-reactionary the broad response was. The problem for industry media is, it’s really hard to defend hierarchy with actual research. Most behavioral economics research has uncovered big holes in the conventional workplace structure, which is of course maintained in order to foster and perpetuate class divisions, keeping a tiny owner class, a minority coordinator class, and the largest possible share remaining as fundamentally disempowered, disenfranchised worker bees.

I was actually wondering where the reaction to Valve’s novelty revelation of its innovative structure and policies was hiding. So much industry reportage had just treated it as a lark to note and move past. (Probably the wiser strategy.)

Then I saw Inc. magazine’s apologetics piece purportedly defending the virtues of hierarchy. I couldn’t wait to see what kind of contortions would be needed to try to undermine what is becoming more and more obvious: that workers thrive under conditions of empowerment, and that class divisions and disparities of wealth and income are causes of anxiety and dissatisfaction.

But I thought the establishment press would be able to come up with something a little better than this, at least.

Titled “Your employees like hierarchy (no, really)”, the short Inc. piece squirms for a minute then ends up praising Valve. The title addresses you as if the author knows who the fuck you and your employees are. It assumes they’re just like the subjects of a laughably conducted study that proves conclusively that people prefer the way a hierarchy looks on paper. Of course, the study purports to show that people appreciate being in a pecking order. But in fact, it does nothing of the sort.

Let’s not pick on the poor journalism in the Inc. article. The study’s own press release is shoddy enough.

The researchers apparently did not actually test whether their subects would like to work in a hierarchy. Not only did the study fail to examine actual workplaces of various structures and compare them, it didn’t even put the subjects in the hypothetical perspective of employees.

(c) 2006, Carol Simpson

In one of the five experiments used in the study, researchers had subjects react to pairs of photographs of people’s faces that had been independently analyzed for dominant vs. submissive features.

The results indicated that subjects consistently responded more quickly to the pair of photos consisting of a “dominant” face and a “submissive” face — what they termed the “hierarchy condition” — than to any other pair. They concluded that because people process pictures of hierarchies faster than pictures of equalities, hierarchies are easier for people to perceive.

Taking the results at face value (pun intended), what’s the point? I honestly don’t know. Ease of perception is supposed to correlate to preference, let alone actual validation? Nice try.

What’s next?

The second experiment sought to prove that people have an easier time remembering hierarchical relationships than equal ones, and therefore like them better.

To be fair, judging from the abstract, the researchers apparently surveyed the participants on their preference; they didn’t just infer it from ease of memorability of a seating chart (sometimes PR teams get a little carried away in relaying findings). But still, who cares if it takes someone slightly longer to learn the structure of a collective vs. a hierarchy? Has ease of memorability been independently correlated with long term appreciation? Is it even conceivable that you would list “how long it takes to learn the workplace structure” among your top 100 factors in choosing an employer, given you’ll likely spend years there after the few days or maybe weeks it takes to figure out who’s who?

The third experiment involved testing whether subjects more quickly memorized relationships of power hierarchy (boss/worker) over differentials in friendliness. Again, how could we possibly extrapolate a livelihood preference from such an exercise?

“The symmetric-orders condition, where people could give orders to the same people who gave them orders, was extremely hard for people to learn,” the study concluded. “This is interesting because sometimes organizations try to create equality by producing more symmetry; that is, by empowering people to give orders to one another and to take orders from one another. Yet, this kind of structure was confusing to our participants, and some even complained that these relationships did not make sense.”

They weren’t dealing with real people! Not even real fellow subjects, just fictitious people on paper. Of course it would be confusing. This experiment is not in the slightest way an analysis of how people behave in the real world, with real human beings.

I work every day in two flat workplaces. In both cases, team members regularly assign each other tasks. We use a project management system that’s configured to give everyone the power to do so. Sometimes we reassign tasks or even assign them back to the person that gave them to us, indicating we don’t have the capacity or we’re not the best specialist to do it. It’s not confusing. It’s empowering!

The fourth experiment was much more interesting and conceivably relevant.

Using their home computers, subjects were asked to read materials and provide recommendations for a fictitious company, whose goals included “downsize by 10 percent,” “phase out the Atlanta office,” and “increase the number of women in senior positions.” The materials contained spreadsheets of employees’ names, genders, ages, and performance ratings, as well as organizational charts showing their locations and positions.

That’s where the researchers manipulated the variable: some of the charts demonstrated little or no hierarchy, with a maximum of three levels per department, while others revealed a much more stratified structure, with highly differentiated job titles.

Next step: the participant got to do some firing! But all this experiment examined (by its own admission), is how outsiders would handle the challenge. And from what I’m able to see (I don’t have the actual model), it’s not clear that there was any attempt to actually familiarize the subjects with the way the organization worked. That said, the experiment does demonstrate the obvious: that someone from outside an organization will have a harder time analyzing a collective than a traditional hierarchy. So don’t bring in an outside firm to downsize your egalitarian workplace.

It’s also worth noting that in Experiment 4, the participants “expressed a much more positive view of the [hierarchical] firm and its employees”. This could have bearing on all sorts of matters, including prospective customer/client or partner or investor relationships for a company that eschews old-fashioned organizing in favor of a progress-aware approach.

Furthermore, it’s interesting that the charts used in Experiment 4 varied in two ways: stratification and job titles. There’s nothing about less-hierarchical workplaces that would suggest job titles can’t be significantly varied. It’s just bad methodology to change two variables when testing for one factor.

In the end, to a progressively minded person, these findings simply suggest there needs to be a shift in social attitudes towards organizations, away from judging how they’re structured, toward judging how and if they work. Indeed, if the study didn’t include outcome differentials, it’s that much more worthless. I suspect that testing four objects instead of two would have had revealing results. That is:

  • a successful collective
  • a successful hierarchy
  • a failed collective
  • a failed hierarchy

Who thinks success would not have five or more times the influence of the structure variable?

The fifth and final experiment is the real zinger. I find it frankly jaw-dropping that it is treated as anything but an impeachment of the first four experiments. Long story short, participants had an easier time recognizing — and indicated a preference for — hierarchies that were headed by a male as opposed to a female, all else being equal. That’s not very shocking, if you live on planet Earth, where sexism pervades.

What is disturbing is that the researchers don’t reject the first four subject preference equals objective superiority conclusions based on the findings in the fifth experiment. All they’re showing — at most — is that people raised in a messed-up society show messed-up, even self-defeating preferences. No duh.

The researchers were at best gleaning whether people objectively — that is, from the outside — preferred the look of a hierarchy vs. a flat structure. They found out how people who are also generally sexist (like most of us — male man, female woman, trans, whatever) perceive hierarchy. The subjects received no orientation, no special training, not even an explanation, as you would find in any halfway decent workplace, collective or otherwise. The study is a joke, and anyone using it to defend hierarchy looks very desperate.

All that being the case, I think it’s pretty obvious that not everyone would prefer a nonhierarchical workplace. Most people, understandably, are wary of change and newness. I’d love to see a survey of contrasting samples: those who work in collectives vs. those who work in hierarchies. Or, maybe tell us if participants who preferred male-dominated hierarchies are the same subjects that found hierarchy more comfortable in general. Then we’d know if people we should admire — those who did not show a recognition preference for male bosses — favor other forms of equality, too, at least from the outside.

(c) Carol Simpson

What’s funniest of all is that half the Inc. article is taken up introducing the reader to Valve Software’s alternative, horizontal structure, and is not particularly critical in its assessment. For more about Valve’s awesome bossless approach, check out this analysis and this narrative.

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The Real People’s Budget

sign in front of capitol building says democracy community
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I haven’t had a lot of time to blog lately, but I do have a good deal of stuff in the till that I’ll try to share in coming days.

I don’t know anything about the process by which this document from Occupy DC came into existence, but it’s worth reading even if it was just written by one person. It amalgamates a bunch of very interesting progressive and radical ideas. It doesn’t go far enough for my tastes, but if something like this could be popularized, I’d be thrilled to work on bringing it about. It would be a huge step in mostly the right direction.

“The 99%’s Deficit Proposal: How to create jobs, reduce the wealth divide and control spending”

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The Generational Wealth Gap

IOU in a piggy bank
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There’s been a social storm of intergenerational conflict on the horizon for a long time. Some say it’s merely hype meant to undermine Social Security and Medicare; others believe it’s the likely battlefield of future class conflict. I think it’s somewhere in the middle, but new research suggests the real-world rupture may be more severe than most of us have feared. That doesn’t mean we’re headed for a war between the ages; it just means we should pay attention and try to avert one.

study released last week by Pew suggests there’s been a drastic shift in the intergenerational wealth gap. Under an economic system like capitalism, which permits the accumulation of wealth, it’s only “natural” that older generations would accumulate greater net worth. But these figures point to a serious shift in that ages-old paradigm.

Pew doesn’t put it so bluntly, but basically what we’re looking at is a significant transfer of wealth from young to old in a way atypical of human history.

chart of generational net worth by age group, comparing 1984 to 2009.

Make sure you take a good, long look at those figures. Occupy Wall Street folks clamoring about how the so-called 1% are the only ones to have gained as a class in recent decades might want to take note: Baby Boomers and older folks did better as a class, too. And they seemingly did it on the backs of younger generations. They’re not alchemists, so their wealth came from somewhere, and it’s no coincidence that younger generations have less relative to what their elders had when they were young. Make no mistake, the super-rich capitalist class did way better than the “elderly” class has done over these same years. But these findings are still alarming.

Pew produced few hard figures detailing what’s behind the shift. I suspect much if not most change in the gap can be accounted for by debt; mainly student loans and relatively new mortgages. The benefit of this widened predation disproportionately went to the ultra-rich, of course, but pretty much anyone with 401k or pension fund investments was likely gaining off the trend of more young people getting into more debt. (I do not have data on hand to back this up, so I’d love to hear if I’m wrong.)

During the period in question, elites among Baby Boomers and their parents, the so-called Greatest Generation, managed to undermine blue collar labor across North America, which forced more and more young people to seek college educations. These elites were meanwhile hurting their own age peers, but overall the impact was far greater on those who had little or no established wealth to speak of. They emerged with crippling debt that their degrees aren’t paying back so quickly, and now the white collar jobs and wages they were seeking are basically going the same way or aren’t as secure as promised. They bought homes to provide financial security, but a housing bubble stripped them of equity.

It has long been accepted that each generation is supposed to leave the following generation better off in every possible way; it’s supposed to be “the American way”. That trend has ended. Wealth has been shifted in the wrong direction, as has the burden.

In case the above isn’t staggering enough, look at this switcheroo.

poverty shifts from old to young over the decades

Now, the progressive line on this is that these figures are inaccurate/relatively meaningless and being spun as a case against Social Security and Medicare. (Actually, I haven’t seen much addressing the poverty factor illustrated above, but I’m talking about the more widely publicized Pew findings about net worth and income.)

Well, I’m certainly not trying to start an “intergenerational war” (talk about overhyping; folks, nobody said leftists don’t know how to use alarming language), and I’m certainly not against Social Security or Medicare, and I don’t fall for the bullshit conservative arguments against them. But that doesn’t mean these findings are not significant and illustrative of a real social problem.

My point in reporting and analyzing these figures is not to engender intergenerational animosity. I certainly don’t think this was a plot by the older generations. If anything, it represents the results of a values split that probably started during the early postwar era, when commercialism and an erosion of interpersonal class solidarity redefined what Americans care about. I’m not saying my generation has been or will be any different in this regard, which is to show a severe disregard for those coming up behind us.

I don’t even think older folks are aware of this apparent shift. More research needs to be done on it. But if it is as real as it seems (and as frankly logic dictates it would be), then it’s something that needs to be addressed along with pressing the 1%. Those in the more politically influential generations need to reverse the shift by investing accumulated wealth in younger generations. There doesn’t need to be a war; once the misplaced burden is identified, redistributing it fairly would be a way to alleviate any bubbling resentment.

photo by: Images_of_Money
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The Robot Invasion

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Okay, I know I like to talk about robots, especially to ask where the innovation/productivity dividend is for the workforce. While we’re waiting for that to pay off, check out this infographic from the Singularity Hub.

the rise of robotic labor in the workforce

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Managers Shifting Growth Gains from Labor to Capital

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Even when the US economy is technically “growing”, it is not “recovering” in any meaningful sense of the word. Aggregate demand is down, unemployment shows no real signs of improvement, and the most productive workers in the world go unrewarded (or really penalized).

Robert J. Gordon’s keen analysis of the latest figures puts this all into perspective. The key findings here, for those mainly interested in the human impact of economics, are that corporate management has favored cutting jobs over other strategies for surviving the economic downturn since ’08. This hypothesis isn’t new, but these figures offer a pretty good illustration of just how it came about, the effect it has had, and why it persists.

When the economy begins to sink […] firms begin to cut costs any way they can; tossing employees overboard is the most direct way. For every worker tossed overboard in a sinking economy prior to 1986, about 1.5 are now tossed overboard. […] My “disposable worker hypothesis” […] attributes this shift of behaviour to a complementary set of factors that amount to “workers are weak and management is strong.” The weakened bargaining position of workers is explained by the same set of four factors that underlie higher inequality among the bottom 90% of the American income distribution since the 1970s – weaker unions, a lower real minimum wage, competition from imports, and competition from low-skilled immigrants.

Gordon has been saying this for a while, so I’m eager to see if anyone can make a case that his latest analysis is somehow skewed to uphold earlier conclusions… or if he’s just been right all along.

Gordon’s analysis also demonstrates why aggregate demand and jobs have not recovered with growth. The technical causes are interesting (a “double hangover” effect rooted in the housing market — excess housing supply and excess consumer debt), but still it is the distinctly social factor of his findings that are most relevant, to my mind.

A change in labour market dynamics accounts for about 3 million of the over 10 million missing jobs in mid-2011. This shift can be traced to weakness of labour and growing assertiveness of management.

Now, if you’re thinking, “How can this be good for the capitalists in the long run?” — you’ve got a great point. In favor of fattening their short-term coffers, capitalism’s decision-makers are taking a huge bite out of domestic consumer demand, and this has an inevitable positive-feedback effect (that’s bad in this case) on the economy and thus private-sector revenues, not to mention government revenues.

This is just another failing of capitalism — it permits elites with inordinate power to make decisions that hurt working people and the economy overall, and even probably hurt themselves in the long run. Sure, capitalism allows them to not act irresponsibly, but given the nature of humans with elitist attitudes*, irresponsibility is what is to be expected, and there is no averting it without massive intervention against market forces — which won’t happen because Guess Who decides when and where the government intervenes.

* I won’t call it “human nature”, because it could be a self-selecting special “breed” that behaves this way; though I could be wrong, we’ll never find out, since capitalism will only ever allow the disproportionately greedy among us to be tested vis a vis how they prioritize constituents when setting major business policy.

Cartoon by Carol Simpson.

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The Promise of Capitalist Globalization, Predictably Unfulfilled

London-Riots-25
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I swear it’s just coincidence that right after coming down so hard on Nouriel Roubini, I’m going to praise a piece appearing in his EconoMonitor blog, this one by investment executive Walter Molano.

In “The Summer of Discontent“, Molano cuts straight to the nitty gritty, squarely placing blame for the past year’s various grassroots grumblings (China labor tension, Arab Spring, London riots) on the shoulders of market capitalism — namely, its failed promise. And he doesn’t try to sugar coat it or tack on a hackneyed stupefaction proclaiming capitalism will make it all right.

Molano basically illustrates how the global game of musical chairs that was played for the last twenty years as new markets opened up and capital flooded in has, in the end, left much of the world standing, disgruntled. It’s a short piece (with dreadful paragraphing), but let me share some highlights:

The growth spurt driven by globalization expanded the economic pie, as billions of new consumers were incorporated into the marketplace. Rising commodity prices and expanding trade flows delivered huge windfalls to the developed and developing world. However, as the rapid rise of global integration began to plateau, and the effects of the downturn in the U.S. and Europe took hold, the vast aspirations of disparate societies dimmed. Not only is the American dream looking like an empty promise and the European socialist model a distant memory, the hopes for a better way of life by billions of people across the developing world is also in doubt.

It’s hard to argue with this, adding to the account that everyday people in the “developed and developing world” did not accrue benefits equitably from the windfalls, which Molano fully understands. An investment analyst has captured the spirit of the street, and he’s going to tie it into useful, plain-English macroeconomic analysis. Observe…

The mad scramble for productive and physical assets throughout the former communist states, such as Russia, China and Vietnam, created a cadre of super-rich individuals. However, the re-allocation process is over and most of the boundless opportunities are gone. Now, these populations are stratifying into the traditional class segmentations associated with modern capitalist societies, fostering disappointment and frustration for some.

Molano then actually presents a Marxist framework within which to understand the impact these changes on class in countries his colleagues typically refer to as “emerging markets” (Molano spares us this dreadful term). I actually found this to be the weakest aspect of the piece, as Molano is trying to wedge modern concepts into an arcane (if historically useful) model. Nevertheless, it’s interesting.

But Molano’s commentary isn’t done getting better (i.e., franker). I’m going to make you read his piece for the details, though.

I can’t help sharing his conclusion with you just in case you don’t take the hint and read the original:

The blurry images of the violence in London, Hama and Hangzhou are the precursors of similar events that will take place in other parts of the world, such as Istanbul, Jakarta and Bogota, when they realize that the dream of greater prosperity was dashed by the basic principles of market economics.

I’m not familiar with Molano’s prior work, so I don’t know what the rest of his take on capitalism is. His job title suggests he’s okay with taking advantage of it, but unlike many of his contemporaries examining the current hyper-crisis of capitalism, he seems to have some genuine understanding of if not sympathy for the people economics impacts most: workers (and the unemployed). His lens is still familiar to those of us who read economists and analysts speaking to an elite audience of investors, but he focuses it in a way Roubini and Jeremy Grantham don’t seem willing or able to. Not revolutionary, but kind of refreshing. Why can’t this become a trend?

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The Coming Second Dip

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I don’t plan to spend a lot of time on this blog writing about acute economic scenarios like our likely double-dip Great Recession, as I have my eyes a good bit further down the road. But I’ve been seeing a lot lately about us being on the verge of that second dip. I don’t do analysis on this level, but I do pay attention to it, so I thought I’d share some. The stock market is beginning to bet on that second dip, which of course doesn’t help us avert one (if that’s remotely possible).

For a light listen, NPR is on the ball with “Double Dip: Is the U.S. Headed for Another Recession”.

So how much does this matter? This report from the Economic Policy Institute suggests the mere slow recovery is having a measurably negative impact:

[T]he last six months have seen an average growth rate of less than 1%, a rate of growth that fully explains why the previously declining unemployment rate reversed course in the past six months.

So imagine what another downturn would do.

For a slightly headier review of the prospects, check out Harvard economist Kenneth Rogoff’s analysis. He notes:

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.

Which of those sounds most enticing? (I know my choice, if I can’t have none of the above.)

For true long-game insights, never miss Jack Rasmus. On the impending “dip” (plunge?), and how it relates to the recent debt-ceiling “debate”, Jack’s take is cynical but probably very realistic:

No wonder the stock market shuddered on Monday, notwithstanding all the “good news” about the debt deal. The performance of the real economy was far more important and “real” than all the huff and puff about debt ceilings and defaults by the US government. The alleged “good news” of the debt agreement was overwhelmed by the undisputable “real news” that the real economy was heading for a relapse.

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Bring on the Robots; Death to the Robots

Terminator Robot
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The subject of automation and innovation — especially their effects on labor and productivity — is one I’ve spent a lot of time pondering and researching. The issue is gaining renewed, much-deserved traction lately.

The matter boils down to productivity increases, and why in a sane economy they would be good for workers writ large, but in market capitalism they are not. As economist Tim Jackson (Prosperity Without Growth) put it recently:

We are caught in a productivity trap. While it generates wealth, productivity also generates unemployment.

We’ll hear more of Jackson’s critical ideas in the future, but for now I want to implore you to check out a piece called “Debtmaggedon vs. the Robot Utopia” from Caleb Crain’s blog Steamboats Are Ruining Everything. A taste of the brilliance:

You remember the robot utopia. You imagined it when you were in fifth grade, and your juvenile mind first seized with rapture upon the idea of intelligent machines that would perform dull, repetitive tasks yet demand nothing for themselves. In the future, you foresaw, robots would do more and more, and humans less and less. There would be no need for humans to endanger themselves in coal mines or bore themselves on assembly lines. A few people would always be needed to repair and build the robots, and this drudgery of robot supervision would have to be rewarded somehow, but someday robots would surely make wealth so abundant that most people wouldn’t need to work and would be free merely to enjoy and cultivate themselves—by, say, hunting in the morning, fishing in the afternoon, and doing literary criticism after dinner.

Your fifth-grade self was wrong, of course. Robots aren’t altruistic beings; they’re capital investments; and though robots may not ask to be paid, their owners demand a return on their investment. We now live in the robot utopia, which isn’t one.

Thanks in large part to computerized mechanization, manufacturing productivity in the past century has increased many times over. Standards of living are higher than they ever were, but we no longer need as many humans to work as we once did. Perhaps not coincidentally, human wages, in America at least, have stagnated since the 1970s. If humans made no more money in the past four decades, where did the wealth created by the higher productivity go? Toward robot wages, as it were. The owners of the robots took the money—that is, the capitalists.

Any fifth-grader can see where this leads. At some point society has to choose. Either society accepts the robots’ gift as a general one, and redistributes the wealth that the robots inadvertently concentrate, or society allows the robots to become the exclusive tools of an ever-shrinking elite, increasingly resented, in confused fashion, by the people whom the robots have displaced.

[paragraphing added]

The idea of “robot wages” collected by capitalists is brilliant, and I’m disappointed I’d never thought of it quite that way.

This is all similar to something I went around saying for a couple of years. “You know what’s wrong with capitalism? Robots, that’s what.” Why aren’t robots making our lives easier? The typical pro-capitalist response would be something about productivity increases — we’re getting more stuff. Much more. It’s everywhere. Between cheap labor and automated labor, those in privileged societies/classes are veritably are piled with crap. But “more stuff” isn’t making our lives significantly better in the short term, and it’s killing our habitat.

A sane economy would take benefits accrued from productivity increases of all kinds and parlay them into generalized gains.

I don’t know why we’d expect capitalism not to disappoint in this regard. After all, we were also promised jet packs.

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