The Great Decoupling of Corporate Profits from Jobs
robertreich.org
robertreich.org
The problem is this:
Say a company is going to sell 1,000 of a particular heavy assembly per year and profit $1,000 from each. There's no way they can afford to build and maintain an automated assembly line to support that product. Each individual robot might cost $50,000+. Robots are really only feasible for high-volume, high-profit products, or where one line can make several closely related products (e.g. a tractor plant that makes front loaders and dozers.)
I know this doesn't fit with the techno-futurist ethos around here. Maybe in another 50 years robots will be cheap and flexible enough to truly automate manufacturing.
Untrue. Many low profit consumer products are made using robots.
Currently human labour can still compete with automation, and companies seek the cheapest labour costs by outsourcing. But there will come a point, which has already been reached in a few niche areas of manufacturing and agriculture, where no human labour, however cheap, can compete against automation in terms of productivity per unit cost.
Regarding the article, if GM is selling and making more cars overseas, then maybe just owning 60% of the company and profits is the best outcome. Structurally, they were never going to employ 500,000 American workers again.
It means that eventually a society where life and status is not defined by mere employment emerges. Currently we have few reasons to be unemployed that are acknowledged as okay: for example students and pensioners, maybe some others.
When the illusion that mostly everyone ought to be employed somehow, it means that it becomes ok to not do things that are seemingly productive in the short-term, like work. It will allow more acceptance for production of human values that can't be done under the traditional employer—employee relationship, like arts such as writing, composing, painting, and hacking.
The only reason to think everyone ought to have jobs is to be in a position where you benefit from it. Like manufacturing and selling things to people. But when production is efficient enough and/or people decide that they have enough, the bubble breaks and you will find the society with lots of unemployed people.
So instead of looking ass-backward at economics, it might be better to ask yourself the question a million entrepreneurs are now asking: What do all those companies sitting on all that cash want? Because it's not savings either: companies are not in the business of savings.
Perhaps the companies are dumping all the profits to investors. Fine. What do they want? Money got to go somewhere. And whoever's got it wants stuff.
Instead of a sad-sack, belly-button-gazing lament at how GM actually gives Chinese folks jobs, it might be a better use of time to continue to find where value can be added. That's what the smart folks are doing. (And those smart folks are more and more in small businesses and would really appreciate it if you didn't lump them into some big bucket with Ford and GM just so you can slide in your partisan tax barb, Bob)
The value-to-customers part is the truth, but not the whole truth.
If a government's economic policies don't result in jobs being provided to neighborhoods, then three things are inexorably going to happen:
1. A non-trivial number of (usually) young men with too much time on their hands will do things that we really wish they wouldn't but that we have a very hard time suppressing, especially when they can use communications technology to their benefit: Street gangs. Drug cartels. Jihadist groups.
2. People will blame their governments because they perceive that Bad Things -- unemployment, drugs, crime, terror -- aren't being fixed;
3. Disruption will result, because people won't passively accept Bad Things indefinitely:
(a) In a democratic society, the government will be thrown out and policies will be changed -- possibly not for the better -- and with switching costs in any case;
(b) Even in a non-democratic society, there will eventually be unrest as people get mad as hell and refuse to take it any more (cf. the Honda strike in China, but then there's North Korea as an apparent counterexample);
I'm a life-long moderate Republican, but it's only been in recent years that I've come to appreciate that, unlike some conservatives, liberals 'get' these fundamental truths of human nature.
I wish these truths were otherwise, but to paraphrase Lazarus Long, you don't argue with the weather, you deal with it. (That's one reason I'm encouraged by the favorable reports I've been reading about the educational policies that the Obama Administration is pushing.)
ISTM that some liberals have unrealistic views of how we should deal with these truths -- some of them likely would be happy having a thousand people making a boiler -- but that's another debate.
I think this issue is only part of a larger group of related problems that seemed to start metastasizing 30 years ago. In a nutshell:
scientific management ->
manufacturing process and profit margin optimization ->
manufacturing outsourcing to low-cost countries ->
decreased product costs + planned obsolescence ->
increased volumes ->
increased profits ->
rising pay for management ->
decreasing skilled labor 'making things' jobs ->
wealth of the country (and the world) becomes more and more concentrated into the hands of a small demographic ->
corporate personhood granted by Supreme Court (not sure exactly where on the timeline this goes, but it's part of the story) ->
significantly more political influence for a smaller group of people at the top of pyramid ->
Democrats join Republicans in courting this small, wealthy, influential demographic ->
financial deregulation driven by that demographic, either financiers looking for more ways to increase returns, or m/billionaire management looking for better returns for their un-FDIC-insurable cash piles ->
Less than 10 years after the last protections of the Great Depression era dismantled (Graham-Leach-Bliley '99), we have a similar-in-nature debt-driven financial crisis ->
This time the small wealthy demographic that caused it has the power to 1) avoid punishment for it (for example, compared to the 1980 S&L crisis that saw thousands jailed), 2) transfer all the losses to the US Government ->
The final result of which could be any/all of 1) monetary inflation and defacto dollar devaluation, 2) further debt deflation, 3) rising interest rates on baseline Treasuries leading to rising interest rates across the board and decreased corporate investment (and hiring), all of which will hurt the fading middle class more the wealth owners.
This is just a cursory summation of observations of correlated events that I suspect are more than just correlated. It's still taking shape in my mind, and I'm sure someone could write a PhD dissertation on how all it all fits together, I just don't have time for this atm.
But I do wish our politicians/media/pundits/economic book authors/people like Robert Reich/etc would look more at this big picture of how and why we got to this situation we're in, and how it might be possible to reverse it.
Increasing concentration of wealth is a major problem, as you point out. It has been a cause of not only social unrest, but even revolutions. Definitely not a road a country wants to find itself on.
http://www.theoildrum.com/node/5309
That article talks about some more complex ideas related to demand limits to growth, but there's also a really obvious demand limit to growth: humans have fewer children when they get wealthy... often to the point of dropping below replacement level. Nothing limits demand like demographic collapse.
Economics, being a "science" that does not believe in thermodynamics, believes both potential supply and potential demand to be infinite. In reality in a finite world both must be finite.
Impossible. If the businesses don't want anything, as another poster noted, they'll distribute earnings to shareholders. Surely, those shareholders, even if they want for nothing physical, don't want to die. Therefore, they would like better healthcare innovations. Do they really want like all the fiddling required just to watch internet-based video on their home theater systems? Do they like running errands? There's plenty of room for innovation and the sales that will come with it.
http://www.businessinsider.com/22-statistics-that-prove-the-...
So what do the remaining 99% do, if they can't get a job and they're not holding the stock that pays out the benefits?
Not to mention "distribute earnings to shareholders" sounds a lot nicer than "pay myself as CEO and owner of a bajillion options".
Assuming that all of them are smart enough and have skills to do so.. who do they sell stuff to, if 99% of everyone is broke? Where do they get initial capital?
They could sell to the others who where starting businesses, and to the 1% who would have to buy what they want from the 99%. It would also be the 1% whom they get their initial investment from, given that they would want their monies to grow.
Let me guess. Too much "big government"? We just need to cut taxes on rich people a little more and we'll be in capitalist utopia?
"The reality is this: Big American companies may never rehire large numbers of workers. And they won’t even begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won’t start buying against until they know they have reliable paychecks."
I'm not sure they is any link between hiring US workers and what US consumers are buying. I mean plenty of stuff is made my Chinese workers that is purchased by American consumers. Why couldn't it go back the other way?
"When consumers in the U.S. finally fall off the edge of the cliff, where will demand come from? The reflexive answer is always “from consumers China and other emerging economies.” There are a few problems with that: (1) workers in China and other low wage countries don’t make very much and, therefore, have less to spend. (2) Those low wage workers have a very strong propensity to save, rather than consume. (In China the saving rate may be as high as 30%, and consumer spending is only around a third of GDP v. 70% in the U.S.) (3) It would be extraordinarily naive to think that the Chinese government will not manipulate things to insure that the vast majority of sales in China go to Chinese companies (in many cases companies using technology transferred from the West as part of China’s industrial policy.)
The fact is that we are very far indeed from a place where consumers in countries like China are going to pick up the slack when consumers in America and the rest of the developed world finally fail to get the job done. And there’s yet another problem: While China has benefited from globalization, it is by no means immune to the impacts of automation. In the long run factories and other business in China will also automate, and unemployment will become a serious problem. In fact, this is already occurring in industries like textiles where automation has been progressing at a rapid rate."
I was wrong to say Chinese consumers, but it's not to say there aren't things American could produce. I mean Chinese use Google/Facebook/Youtube/Starcraft.
I mean in manufacturing, if you look in Chinese factory often their machines will have been made by Japanese and German companies.