[This is the full length piece the first part of which was published today in the 12sep09 Union print edition. The full length version also appears in the newspaper’s online edition. gjr]
In this recession over six million jobs have disappeared so far in the last year or so. Out of approximately 150 million American jobs that were available in early 2008, that represents about a 4% annual loss. Because of globalization and accelerating technology, not all of these jobs are coming back when the economy recovers. Some will go overseas, and some will disappear because smarter and more capable machines will be doing them cheaper. At the same time a smaller number of new and different jobs will appear. This is present day reality.
The bottom line is that fewer jobs will return, and on balance, these jobs will require smarter workers trained in new skills. This “creative destruction” of jobs will continue into the indefinite future. So what happens to the workers in developed countries, specifically in America? To attempt an answer, we have to review some Econ 101 stuff.
People work to garner wealth, which is something that they conserve and also trade for things they want/need to support a given quality of life (QoL). How is such wealth created? In any economy (or system) like a community, country, or even Earth itself, creating wealth requires some input from outside the system. A little bit of thought will quickly convince you that this input for all of Earth’s economies comes originally from our Sun, either in real time or delayed over variable time intervals. Think of photovoltaic energy that arrives about eight minutes late, to wind that takes a little longer, to planted crops, to forests, to minerals and fossil fuels, to geo-thermal. Each of these started with the original fusion burn that resulted in the sun and our solar system, and took longer intervals to become available to us.
Throughout history to the present day, wealth creation always began with tapping into such solar energy conduits and storage processes. Somewhere along the line, those who knew how to do it and do things with it got the early and big bundles of wealth. Those who didn’t tried then to get it by force, or worked in the lower parts of this energy chain as wealth ‘trickled’ down. Yes, trickle down works - always has, always will.
If this concept is hard to swallow, just try to imagine a closed community that attempts to satisfy its needs by imposing “buy local”. There’s only so far you can go with serving each other food, fixing the other guy’s plumbing, and changing the old folks’ diapers. With nothing coming in from the outside, precious little of this work will be done. And then what?
Over the centuries human progress has been measured by how readily (read cheaply) we could tap into this river of energy. Hello innovation and taking risk! The smarter among us figured out better ways to tap, and then bet their or someone else’s farm on doing it for fun and profit. The fun part was optional, the profit part was not.
At every such juncture, more wealth poured into the economies, trickled down, and life got better for all. Even the un- or mis-educated benefited from this, and began to live lives that a few generations before were only enjoyed by the very wealthy. But in the process jobs were constantly eliminated and new ones created. And at the same time a lot of the wealth began to accumulate with the smart risk takers, and also clever thieves who skimmed, as the wealth trickled through the economy. Result, the more successful innovation occurred, the more we saw wealth/income disparity. But remember, all during this time the pie was not fixed and kept growing.
Now enter the smart machines. During the last couple of generations machines have started displacing humans as well as working with them in new ways. And these machines have been crucial to tapping into the river of wealth from the Sun. Those who could build, operate, and manage these man/machine partnerships kept cutting costs to society and getting richer in the (natural) process.
At this point humans started being squeezed into a tighter corner of well paying jobs, and then along came what is known as the Great Doubling. You see, some years back, the people who didn’t believe in all this innovation and inequality decided to go in another direction that they claimed would create workers’ paradises with none of this risk and trickle down. And when they thought they had things just about right, the whole damn thing collapsed on them. The result was that in the early 1990s the 1.5 billion workers in the ‘free world’ were suddenly joined by another 1.5 billion workers who were ready to leave paradise and sell their labor in the markets opening up around the world – the Great Doubling.
These rights got to be so powerful that some car companies were even forced into “banking” the jobs of their employees. These were the buggy whip makers who had union contracts so strong that they could be neither retrained nor fired. So they showed up every day to sit in lounges and read magazines, watch TV, or sleep while drawing pay. In the meantime, the car companies replaced them with robots and overseas workers. Even our government could not afford such ‘labor relations’ after it started taking over car companies.
So where does that leave us? It should be clear from this short analysis that as technology accelerates toward what is known as the Singularity, and the poorer workers of the world continue to find their place in the sun, the mis/un-educated American worker finds herself between the rock and a hard place described above. My estimate is that in the next twenty years half of our country’s workforce will not be able to competitively sell their labor. They will not be able to generate the income required to maintain their expected QoL. The choices for a developed (or any) society are few and simple – either give them wealth or forcibly isolate them into a lower QoL environment.
For America that choice should be easy – we transfer wealth. And this process has already begun for many workers with government as the employer of last resort. Such mandated workers are paid from forcibly collected monies that no private enterprise would or could willingly pay. Fortunately, not all state employees fall into this category, but in light of the above, the ‘employer of last resort’ is still destined for rapid growth.
At this point some will say, why don’t we pour some significant government funds into a massive workforce re-education program. It turns out that this is not feasible from a number of aspects ranging from available facilities, available teachers, available time, and the workers’ ability to profitably absorb the education. The state of Michigan looked extensively into this solution for their redundant workforce, and came up empty.
If you now conclude that this will be the biggest social problem facing the country in the next decade and beyond, I agree with you. Yet this labor tsunami is seldom if ever covered by the media, and is definitely a more forbidden topic for politicians than even what to do about the nation’s $110 trillion of unfunded liabilities.
The crippling of the American workforce did not happen overnight. It has been going on at least since the 1970s when the new age legislation, inspired in the turbulent 1960s, kicked in and launched education in a new direction (remember ‘new math’?). Since then, the path in teaching the young real skills has been ever downward. As a country, where we once led the world, we are now bringing up the rear.
Today in math our high school kids place 24th out of 29 of the most developed countries. Math is fundamental to all science and technology education, besides being the language of reason and critical thinking. High school graduation rates today are lower than in 1970; only 2 out of 3 American ninth graders complete their four-year curriculum. And these rates dive below 50% for many Latino and black communities. While paying the highest fees for education – more than $10,000 per student per year – we are turning out legions of uneducated young people annually.
The Bureau of Labor Statistics reports that earnings have been flat or decreasing for workers with a high school diploma or less. And the income gap is also widening between college graduates (with meaningful degrees) and non-graduates. This is consistent with the points covered above.
On a comparative level in the world marketplace, India and China pump out 3.1 and 3.3 million college graduates annually, compared to 1.3 million in the US. In 1970 the US had 30% of the world’s total college enrollments, now that percentage has shrunk to 14%, and in a globalized world it’s these percentages that matter.
More importantly, wealth creating technologies are highly dependent on the supply of science and engineering PhDs. For many years now our best and brightest have been drawn to easier and more lucrative careers that require degrees in law and administration. Consider that in 1970 the US produced 50% of the world’s technology PhDs – we were the innovators and the cornucopia of the world’s wealth – now it’s 15%, and most of these doctorates are not useful for creating wealth.
Our innovating businesses have responded to this shortage of native technical talent by importing foreigners with advanced degrees under the H1-B visa program, a program that some dim bulbs in Congress are still trying to curtail. The only alternative to importing talent for US companies has been to set up their ‘technology skunkworks’ in places like eastern Europe, Russia, India, and China. Not a sustainable strategy for retaining America’s technology leadership. “The assumption that only advanced countries have the educated work force necessary for innovation and production of high tech products is no longer true.” (Freeman, 2006)
But here’s the real punch line – today American workers of ALL skill levels have a hard time competitively selling their labor. As workers, Americans demand too much for what we can deliver. Ultimately it is productivity (output divided by cost) that determines who does what where. Our standard of living and economy will collapse, as did the Iron Curtain countries, if we try to seal ourselves off and pay more for stuff that is cheaper elsewhere.
As if all this were not enough, consider that sometime in the next twenty years a $1,000 computer will have the processing power of a human brain. And many people in the industry and academe believe that by 2050 a $1,000 computer will have the processing power of all the humans on this planet. Somewhere in there we may expect the Singularity to occur when machine intelligence comes on par with and quickly passes human intelligence. But during these pre-Singularity years, machines will marble themselves more and more into our homes, institutions, and workplaces. For example, the Japanese government is counting on home robots to be a major factor in providing care for its aging and shrinking population.
Now consider the alternative uses for such robotic intelligence in the workplace. And I’m not talking about robots just welding car parts together. Such machine intelligences will be used to drive our cars, fly our airplanes, diagnose diseases, prescribe remedies, allocate scarce resources, invest monies, … . Some of you will say that machines are already doing all of these things, and you would be right. But tomorrow they will be doing many more of these and other tasks, and doing them better, faster, and cheaper.
So What Do We Do?
So what happens with, say, 70 million American workers and their families, or about 150 million of us. They cannot competitively sell their labor in a globalized, pre-Singularity world, yet they are able to do many jobs that provide human-to-human services and care. The problem, as we have seen, is that these are wealth consuming, not wealth generating jobs. As a compassionate and predominantly religious nation, we must (continue to) transfer wealth from those benefitting most from its generation.
In America, the Democrats have always had plans for wealth redistribution and continually demonstrate how effectively they can sell their plans to those who don’t or can’t. The Republicans have been in perennial denial of this need as a national policy. The problem has been that the Democrats’ standard approach has been to liberally apply nostrums leading to innovation killing collectivism, reduced freedoms, and a smaller pie for everyone. Until the advent of the Great Doubling and rush to Singularity, the Republicans’ principles of personal responsibility, initiative, and individual liberties have worked well, and been a successful counterweight to the Left’s siren songs of socialism.
Of course this abbreviated view has its shortcomings, but you get the general drift. I believe that the Democrats’ solutions for wealth redistribution are fundamentally flawed and ultimately lead to tyranny. Moreover, I also believe that the Republicans don’t have a clue about the new need for wealth redistribution. (Many Republicans have recently advised me to come up with another phrase for ‘wealth redistribution’ that doesn’t instantly invoke apoplexy in the conservative listener. But why change what works, apoplexy is an excellent attention getting device.)
If you accept that even more wealth redistribution will be mandatory from here on out, then the remaining question is – how do we redistribute wealth in such a way as not to kill the geese that lay the golden eggs, while providing its recipients fulfilling and meaningful jobs?
The liberals’ answer to this is always a bigger government that increasingly robs Peter to pay Paul. But we all know that big government is the least efficient and effective institution for performing most functions in a society – by its very nature it cannot implement the needed corrective feedback mechanisms for almost anything it does. And the bigger government gets, the poorer the country grows.
I suggest that a possible starting point for a solution is to consider the Non-Profit Service Corporation. Under a revised tax code – which everyone agrees needs fixing – such a new class of corporations would be established to supply most of the services now provided by governments at all levels. Here’s a quick overview.
• Establish a new kind of wealth-consuming, non-profit service corporation (NPSC) under a revised tax code;
• NPSCs can only be owned by for-profit private corporations paying US taxes;
• For-profits will set up, (jointly) own, and fund the various NPSCs while get favorable tax treatment as a result. (Their overall tax-plus-funding costs will be lower than paying increasing taxes to an inefficient government.)
• NPSCs will gradually take over government service functions - prisons, schools, universities, healthcare, eldercare, youth services, land and forest management, park services, …
• NPSCs charter is to benefit both the servers (their employees) and service-receivers (‘customers’);
• Government will charter NPSCs, and retain certain NPSC performance auditing and rating functions
• NPSC customers would get tax credits and/or vouchers for the use of certain NPSC services. This would force certain NPSCs to compete.
Many will ask, where would all the money come from to fund such NPSCs. It would come from the same place it comes from now – corporate and personal taxes. The key argument here is that, with a revised tax code, the same monies would go directly to pay for the operation of each NPSC. And since these NPSCs would be owned and operated as cost centers by for-profit corporations, they would be run more efficiently by organizations that are expert at getting the most productivity out of every dollar they spend.
Finally, I don’t claim that the NPSC is the only or even the best answer to the uncompetitive American worker problem. This modest proposal is just an example of the kind of solutions that would address the coming crisis that no one wants to acknowledge.
[update] Today’s headlines –
• Dr. Larry Summer’s, President Obama’s chief economic adviser, announced that the nation’s unemployment rate will stay “unacceptably high” for years to come.
• Former Speaker Newt Gingrich and the Reverend Al Sharpton announced that they have joined forces on a nationwide speaking tour to highlight the nation’s public education crisis, and fight for education becoming “the fundamental right of the 21st century”.
• President Obama announced today that he is imposing a 35% tariff on all tires imported from China in an effort to stem the loss of American jobs to the 5,000 manufacturing jobs that have already been lost in America’s tire industry.