Uh Oh ... Boring 9

Productivity

As the LA Times analysis indicates, companies are producing more without needing more labor. That means they are more efficient, that productivity is increasing. A lot of that productivity increase is due to the use of computers and automated systems, but a lot of it also comes from paying attention to the details of production.

Until recently, only large corporations were practitioners of Taylorism - efficiency studies - but now everyone does it. Overall national increases in productivity were limited because only the largest corporations improved processes in detail, but more than 2/3 of all workers (labor) are employed in small-to-medium size businesses. Small companies usually did little to improve production details, either assuming the old ways were best or that just having a computer would somehow, automatically raise productivity. What's different these days is that small and medium size companies now specifically figure out how to integrate new methods into their processes. They are willing to pay the technical experts for the required knowledge (usually on a one-time basis), or they learn it themselves, whereas before they would not This has led to the markedly reduced labor input we have seen in the last few years across the board,

Now, increasing productivity is exactly what we need to solve problems like the alleged Social Security shortfall 4 or 5 decades hence. The presumption is, if those working are sufficiently efficient, they should be able to produce all the goods and services needed by the whole population. Today's market fundamentalists are touting privatization of Social Security as the solution to the shortfall, because they assume economic growth due to increased productivity will be insufficient to support everyone. (Conservatives invented the shortfall problem, by assuming productivity increases 1.7% annually.) If conservatives are wrong, and the economy performs according to its long run average of at least 2.7% (probably over 3%), then the Social Security problem should disappear.

A simple example should clarify the importance of productivity. Suppose today it takes 1 person on the assembly line to make 1 can of soup per second. Further suppose that there are enough production facilities to make more than enough soup for everyone, and the excess soup is stored in warehouses. Now, as people retire or in any way become unemployed, they still need to eat, so they still buy soup. If the production line is unchanged, and if there are fewer workers making soup, then the soup people want has to be taken out of the warehouses. In a perfect world, maybe enough soup could be made and stored during normal times to cover a temporary economic downturn, or an increase in unemployment (including retirement). But, in an imperfect world, warehouses burn down, soup spoils and periods of high unemployment outlast the warehoused supply. Sooner or later, there won't be enough soup to go around unless production increases. When there is surplus labor and surplus factory space, this problem can be solved by investing capital and hiring labor. But, if either added facilities or labor are unavailable, the only way to solve the problem is to speed up existing production; i.e., increase productivity. One worker will have to make more than 1 can of soup per second.

The advantage of increased productivity is that neither new capital nor labor are needed in direct proportion to output; i.e., output increases more than proportionally compared to input. Highly efficient plants can have the further advantage of requiring less warehouse capacity to buffer changes in demand. Thus, as in the foregoing case of soup, a more productive soup factory won't have to store as much to meet future increased demand. That saves capital (the warehouse space) and reduces spoilage (interest and other expenses). A great enough increase in productivity can meet future increased demand during times of high retirement (unemployment). No one is the worse off for the arrangement, if the output due to increased productivity flows to the consumers.

Distribution

Now, I have tried to explain productivity and its impact in the simplest possible terms, because there is a further possible problem. What happens if output - the soup - is not distributed fairly to consumers? It is perfectly allowable for an economy to produce soup in abundance, but not provide the soup needs of most of its citizens. This is the problem of distribution. According to neo-classical economists (conservatives, market-fundamentalists), the soup will always be distributed fairly when the market clears. Their belief is that market clearing is the signal of fair distribution. The difficulty with that view is it does not answer the problem: there are many ways a market can clear without meeting all needs. For example, underproduction will raise prices and producer profits, but not meet all needs. Scalping, monopoly and other techniques used to corner and control the market can result in some people being more than fulfilled, while others starve. So, market clearing is not a sufficient proof of the fair distribution of product. There is a difference between any old distribution and fair distribution.

Fair distribution is the raison d'etre of the Welfare State. Working backwards, State intervention in production is justified by the goal of ensuring fair distribution. "Working backwards" is not entirely based on some abstract theory; rather, it is a pragmatic strategy to deal with what actually happens in capitalist economies. There are numerous documented occasions when distribution of goods and services breaks down. They are called "recessions" or "depressions'" depending on the severity of the incident. For example, most recently, we had a recession in 2001-?. (When or whether it ended is still disputed.)

In addition to structural problems, capitalism does not distribute goods fairly because income is distributed very unequally. In the United States, very few people (1%) receive the lion's share of the income (50%), whereas the bottom half of the population receives just 10% of the income. Think what that means: if the top 1% were deprived of just 20% of their income, that money could be used to double the income of half the population. (20% = 1/5 of the 1/2 the top 1% gets = 10% of total. income.) This maldistribution of income creates some very real shortages among poor people.

Median household income in the United States is about $41,300, so doubling that yields around $83,000. The top 1% of households have incomes exceeding $200,000. Even if all of those households received just $200,000, a reduction of 20% would still leave a $160,000 income - about double the improved income of the lower half. If such an income transfer program were implemented, poverty would be wiped out overnight and most Americans would become, by today's standards, upper middle class. On a much smaller scale (taxing less than 5% of the top incomes), Lyndon Johnson's Great Society programs attempted to do just that. National economic statistics show that poverty was decreasing until 1980, after which the programs were dismantled by all subsequent Administrations in response to conservative demands. Since 1980, poverty increased, and it increased a lot since 2001.

What this sort of analysis shows is three things:
 

1. The highly skewed distribution of income skews purchasing power. This is demonstrated by comparing the sorts of goods and services bought by the lower incomes to those sought by high incomes. This is also demonstrated by the assortment of buyers found at various stores, malls, etc. (The economic classes are segregated.)
    
2. As a result of skewed purchasing power, manufacturing is oriented in a different manner than it would be if all incomes were equal. The capitalist system produces far more luxury cars and other expensive products, because that's where the money and profit is.
3. Because the lower incomes have much lower purchasing power, many needs may go unmet. Where there is limited productive capacity and capital to invest, capitalists typically put their money in high-value, high-profit companies. (They prefer the Nordstrom stock and store to that of Wal*Mart.)

Historical experience shows that capitalism tends to favor monopoly and the rich. In fact, there is no feedback system in the "free market" to prevent that eventuality, despite claims of ultra-capitalists ot the contrary. Even Adam Smith and some of the early capitalists were worried about that tendency of capitalism to monopoly. In his Wealth of Nations, Smith suggests that government, as the impartial arbiter, would prevent unfair economic outcomes. Oddly enough, latter day neo-classicists and political conservatives refuse that mechanism.

Regulation

If the market place cannot correct itself, if of its nature it leads to undesirable results, then some outside mechanism is required to put things right. It is accepted wisdom at least since Adam Smith that the agency for this purpose is the government, although recently neo-conservatives and ultra-capitalists (all fundamentalists of one sort or another) dispute this. In the establishment of Welfare States throughout Europe during the 20^th Century, the government was seen as the logical agency to regulate markets to prevent bad outcomes. In establishing the New Deal, Franklin Delano Roosevelt was widely said to have 'saved America for capitalism.' (There was a real possibility of a communist revolution in the 1930s.)

The philosophical basis for government intervention in the economy starts, oddly enough, with the capitalists themselves. Besides the monopoly problem, Henry Ford recognized that people had to have enough income to buy the product. His strategy in making cars and paying workers depended on that idea. Inadvertently, Henry Ford invented the modern mass market, even if, later on, he hated and eschewed some of its results because of his ultra-conservative (and bigoted) beliefs. The Ford principle is at the bottom of the New Deal, although Ford's conservative descendants still refuse to recognize the ancestry. In this sense, there is nothing whatever radical about the New Deal.

There are consequences to the idea of a mass market economy. Every surviving society works because of uncounted, complex arrangements between its members. Mom wants kids, a nice house and good schools, so Dad has to work harder. Maybe Mom has to work harder, too. In order for those things to occur, there has to be a way to find and keep a job. Just in these few sentences, we have already conjured up needs for homebuilders (and all the stuff that goes into that!), school builders, teachers, transportation, food, clothes, medical care, etc & c. In the background are government agencies, taxing authorities, lawyers, doctors and skilled people, and all the training and facilities they require. In modern society, Jack and Jill's walk up the hill gets far more complicated than Adam Smith ever imagined!

During the 19^th and 20^th centuries, various calamities befell Western societies. As a result of those experiences, specific programs and procedures were invented to prevent recurrence of those unwanted disruptions. Starting with Bismarck's Germany, a pension system was put in place because old people cannot do the work of an industrial society. Child labor was eventually prohibited because it caused a wide range of social ills. The New Deal established unemployment insurance, because people lose their jobs. The Social Security Act provided for widows and orphans, because loss of a household wage earner is a long-term family disaster. In short, as disasters fell upon the people of various nations, governments were (usually belatedly) forced to deal with the results.

The key point here is this: almost every "socialist" or "Welfare State" program represents the solution to real, serious problems that arise in modern economies and societies.

We don't have a Medicare program just because LBJ felt he had to exercise his office. We have Medicare because old people and others get sick, and the vast majority still believes we should make provision for them. It may not be obvious to younger people what happens in the absence of Medicare, but a study of history makes it obvious. For example, before Medicare, most older people died unpleasant deaths because they could not afford treatment. Families that had old relatives were forced to abandon them to the most cruel circumstances, or accept bankruptcy in their attempt to ameliorate conditions. Such a dehumanizing emotional and economic experience changes people's lives and their feelings drastically, and tends to undermine the well-being of democratic societies.

While conservatives complain endlessly and loudly about government regulations, and constantly attempt to stop them, the facts are not on their side. Conservatives allege, and may believe, the problems solved by government regulations and programs do not exist; e.g., unemployment. As a result of conservative agitation, unemployment benefits have declined since 1980 and are now taxed. Fewer and fewer workers are covered every year by unemployment insurance. Since unemployment statistics are based on the numbers of people eligible for, and actually collecting, unemployment insurance, the reduction in unemployment benefits has reduced the unemployment rate statistic. Conservatives argue that this shows people will find a job when pressed to do so by the lack of any alternative. Moreover, this sort of argument supports the further conservative argument that the unemployed are lazy work-shirkers who shouldn't be subsidized. Thus, they conclude, unemployment benefits should be further reduced. (I leave the vicious circle in the foregoing logic for your analysis.)

But, the facts are not on conservatives' side. In the case of unemployment, what has actually happened is the repression of the unemployed. They are still out there, just not recognized and counted. There are the post-schooling young people who live in their parental homes when no jobs are available. They revert to childhood status, complete with allowance. There are the older men who lose their homes, their marriages and their children, and are left to wander the open road with a shopping cart. There are the older women who wander from shelter to shelter. The lucky ones get put up in a housing project, where there are any left. Most middle and upper class Americans don't see any of this, because they live behind walls or in areas segregated by social and economic class. Of course, one could see it: for example, locally by driving under freeway overpasses near the rivers and levees. There are the damp mattresses and hobo huts where people eke out an existence at night, until rousted by the Deputy Sheriffs. Los Angeles County is going to try a unique experiment: they are going to ask the homeless to help authorities count the homeless. Up to now, it's been all guesswork. The authorities are pretty sure the homeless are grossly undercounted. (Of course, conservatives are outraged that such a thing would be done.)

Again, in modern Western societies, regulation came about as a result of actual circumstances. Teddy Roosevelt didn't invent a need for National Parks and Forests; he discovered it. The only principle of political philosophy involved in such regulation is the authority of government to intervene to ameliorate found conditions. While many conservatives refuse to accept that principle, the great majority has always accepted it. The ultra-conservative or libertarian position is either an invitation to anarchy, or total asocial (anti-social?) self-sufficiency.

In applying the principle of ameliorating intervention - by analogy, the Good Samaritan principle - the government and the people need to consider the complete ramifications of each act. It's true, as conservatives insist, that welfare programs may induce dependency. It's also true they may not. Before the 1995 Welfare Reform, about 80% of aid recipients needed help for less than 2 years. About 10% of the caseload was represented by long-term, permanent dependents. The question is, does limiting and eliminating welfare produce more harm than good? What happens to those dependents who are not "rehabilitated" after 2, 5 or 10 years?

When considering intervention, one must think about the structure of society, especially when extreme disasters occur. For example, if one has factories, then one also has to have the logic of the factory built into surrounding communities. That means people get up and go to work at a certain time, and come home a little later. That means people do certain kinds of regimented tasks during the work day. Living that kind of life requires the corresponding support network. Factories cannot exist where labor cannot be marshaled and directed, or where communities simply have the wrong sort of education and attitudes about factory work. The early English entrepreneurs were driven to distraction by their local-yokel employees, who would quit as soon as they pocketed a weeks' hard cash wages. The early industrialists not only had to create the machine revolution, but also the people to service it. (This is one origin of the Marxist notion that the means of production determines consciousness.)

So, proposed interventions must consider the connections between things, and not take one thing in isolation. Thus, in the New Deal, Unions were explicitly recognized and encouraged, because they helped workers to improve their wages (and purchasing power) and prevent unemployment. Unemployment insurance by itself was insufficient to solve the unemployment problem. We should not resist the further consequences of regulation, once we accept the intervention principle and acknowledge the need to correct a certain problem.

The Mixed Economy

We have an economy which is modeled on the free market, but, in reality, is extensively patched up by the government to make it work. Left to itself, the capitalist economy does not work to the advantage of most people, and eventually causes its own collapse. Constant government intervention is required to prevent the collapses that otherwise would occur on a regular basis. This sort of economy is called "mixed," because it is based on both capitalist and socialist ideas. It is exemplified in the modern Welfare State, such as exists in many European countries.

If we take away the regulations and programs invented over the last century or two to solve the problems of market fundamentalism, then sooner or later the problems come back. I think that should be fairly obvious.

Since the 1980 election of Ronald Reagan, both Democratic and Republican conservatives have been the dominant political force in America. Slowly but surely, they are taking apart what existed of the Welfare State. The peak of that form of mixed economy occurred when Richard Nixon was President. Nixon even accepted the idea of the Guaranteed Annual Income. During the last 25 years, the so-called safety net has accumulated bigger and bigger holes. Sure enough, the result is the problems are coming back.

So, we come full circle to the LA Times article about disappearing jobs in the United States. There is a reason this happens. Under the new order of things, more of the profit from business activity is assigned to managers and shareholders. More narrowly, a small group of managers - the CEO and certain technical people - have gotten most of the improved profits due to increased productivity. This is reflected in national statistics showing that the upper income brackets (top 10%) have seen their incomes double, triple and quadruple since 1980, whereas the lower half of the population has at best stayed even (adjusted for inflation). The poorer a family is, the worse they've done since 1980. We've come to CEOs that earn 400-600 times the average wage in their business or industry, and workers who don't make enough to buy the product.

As the LA Times article points out, productivity has often been increased at the expense of American workers, by "outsourcing" jobs to low-wage countries. While the current beneficiaries of outsourcing are Asians, they are not the end of the line. The "race to the bottom" has at least one more open pit: Africa. As Mexicans and other Latinos found out, the NAFTA capitalists used and abandoned them as soon as Asians were available for exploitation. It won't be long before Asians are taught the same harsh lesson. The only relief in sight is this: there just aren't that many Africans to exploit whereas there are billions of Asians. So, that final step down won't last long. When the capitalists finally hit bottom, wages will stop dropping.

Asian governments - especially in India and China - have a different view about what's good for their people, backed up by a very long record of government control and intervention as required to make things work. The Chinese government, particularly, stands at the end of a long line of Emperors and Dynasties who have devised solutions to Chinese problems. While foreign investors are encouraged to bring their money to China right now, later on they will discover it is not so easy to get out from under the Mandate of Heaven. New Delhi is also taking a similar tack, based on long traditions of Indian self-rule (as several States) before the Raj.

Three Steps

You may think I've taken the very long way around the back country, simply to go around the corner to the barn door. But, there is a reason for it.

The first step in solving those and many other problems is removal of ultra-conservatives from government. As long as conservatives, especially of the Bandit sort, have the government in their grip, things will only get worse.

The second step is putting people in charge who are reasonable, and who are dedicated to helping ordinary people, not just the social and economic elite.

The third step is being aware of what elected officials do, and constantly monitoring them. It's unavoidable: "Eternal vigilance is the price of liberty."