Recent Items

Robots Don’t Destroy Jobs; Rapacious Corporate Executives Do

Posted on by

By William Lazonick, professor of economics and director of the UMass Center for Industrial Competitiveness. He cofounded and is president of the Academic-Industry Research Network. His book, “Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States” (Upjohn Institute, 2009) won the 2010 Schumpeter Prize. Cross posted from Alternet

Americans are understandably upset about profits without prosperity. Corporate executives seem to be the big winners, while the middle class is declining and young people face a bleak economic future. How did this happen? It's easy to blame technology, especially the automation that supposedly displaces workers. But that's not the real story. The fact is that automation creates jobs. It's the misuse of corporate profits that are destroying them.

There was a time when high corporate profits meant bright employment prospects for most members of the US labor force. That relation between profits and prosperity was strongest in the immediate post-World War II decades when US corporations led the world in manufacturing, provided workers with career-long employment security, and reinvested profits in productive capabilities in the United States. For the past three decades, however, the pursuit of corporate profits has been at the expense of prosperity for an ever-growing proportion of the American population.

This disconnect between profits and prosperity began in the 1980s with permanent plant closings that cost production workers their middle-class jobs. It increased in the 1990s as major US corporations scrapped the career-with-one-company norm that had prevailed for salaried employees, and it became common even for college-educated people with a couple of decades of work experience to find themselves on the wrong end of the pink slip. Then in the 2000s, as US corporations accelerated the globalization of production activities, the jobs of all members of the US labor force, no matter what their level of educational attainment, became vulnerable to competition from qualified people in lower wage areas of the world.

Profits without prosperity is now starting to get attention in the mainstream press. In his New York Times op-ed, “Robots and Robber Barons” (Dec. 9, 2012), Paul Krugman seeks to explain why, with corporate profits up, labor compensation is down. As part of the ongoing digital revolution, he argues, robots are throwing American workers out of their jobs. In addition, he claims that corporations are making high profits through price gouging, and are not sharing these gains with their employees.  

Krugman is on to something important that needs to become part of the national policy debate. But he is off target in blaming a combination of automation and monopolistic practices for the disconnect between profits and prosperity.

Automation is not the problem. As part of a process that could reconnect profits and prosperity, the US economy needs more, not less, corporate investment in automation. A company that successfully invests in automation creates far more, and typically better, jobs than those it destroys. Indeed, the study of industrial history reveals that when a nation’s leading companies fail to make sufficient investments in automation its economy runs into trouble. 

As Krugman himself notes, the argument that automation is bad for workers’ employment and incomes dates back almost two centuries to the British economist, David Ricardo, who was writing during the world’s first industrial revolution. By definition, automation displaces the need for workers to perform the tasks that have been automated. If, however, automation only destroyed jobs, advanced economies such as those of Britain, France, Germany, Italy, Japan, and the United States would not have risen to positions of world industrial leadership with strong middle classes.

Some of these new jobs are created in the industries that produce automated equipment. By far Japan is the world leader in both the production and use of robotics. An original source of Japan’s competitive advantage in this capital-goods sector was the willingness and ability of production workers to cooperate with engineers in automating tasks they performed on the shop floor  Under Japan’s system of “lifetime employment,” these production workers did not fear that the introduction of robots would result in loss of employment, while their involvement in the automation process gave them experience that, post-automation, could be put to productive use in other parts of the business organization. 

Increasingly, moreover, in the age of nanotechnology, automation performs productive functions that no human being could ever have possibly done. Rather than destroy jobs, these automated processes make it possible for companies to produce all kinds of sophisticated goods and services. These products are the hallmark of an advanced economy, and open up all kinds of new employment opportunities in companies and countries in which these goods and services are produced.

Automation entails huge upfront investments. Companies that invest in automation have to build organizations to ensure steady supplies of high-quality materials, improve and maintain machinery, and capture sufficiently large market shares to achieve economies of scale. These investments in the development and utilization of automated facilities create lots of high-value-added jobs, especially for companies that, because of their investments, can grow large by producing higher quality, lower costs products than the competition.

To repeat, automation is not the problem. The three-decades long erosion of middle-class jobs in the United States is the result of, as stated earlier, permanent plant closings, layoffs of older employees, and the globalization of employment – none of which have been the result of automation. In the process, many US industrial corporations have become very profitable (for now, but by no means forever). The question that needs to be asked is why US corporations are failing to reinvest these profits in new products and processes that can create large numbers of new high value-added employment opportunities in the United States.

The problem lies in the ideology that corporations should be governed to “maximize shareholder value,” which became prevalent in boardrooms and business schools in the 1980s, and has become totally dominant since. In the name of shareholder value over the decade 2001-2010, the 500 corporations in the S&P 500 Index (representing about 75 percent of US stock-market capitalization) expended not only 40 percent of their profits on cash dividends – the normal mode of rewarding shareholders – but also another 54 percent on stock buybacks, the purpose of which is to give a manipulative boost to a company’s own stock price. Large established companies did hardly any buybacks in the early 1980s. Over the past decade, buybacks by S&P 500 companies totaled about $3 trillion, which has left scant corporate resources for investment in innovation and high-value-added job creation.

When companies do massive buybacks to boost their own stock prices, the big winners are the very same top executives who make these resource-allocation decisions. Why? Because the largest single component of top executive pay is the income from exercising stock options – which become more lucrative when the stock price goes up, even if for just a short period of time during which the options can be exercised and the acquired stock sold. 

Many corporate executives justify buybacks by arguing that they represent the best corporate investments available. How about investments in innovation and job creation? Or how about corporate support for government investments in the national knowledge base, which typically provides the foundation for enterprise innovation and profits? If top executives have been the big winners of this financialized buybacks-options game, then the big losers have been erstwhile members of the US middle class as well as tens of millions of younger Americans who will never have the opportunity of entering the middle class.

Print Friendly
Twitter50DiggReddit5StumbleUpon0Facebook79LinkedIn1Google+6bufferEmail

93 comments

  1. Jennifer

    Thank you. I appreciate the comments on automation, as technology in general tends to get blamed for job losses when the real blame lies elsewhere. Also what about copyright and patent protection which play a role in upward distribution of income?

      1. Gordon Brooks

        There is a reason the constitution granted Congress the power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries,” limited times being the operative phrase. Copyright and patent promote innovation in the short term, but stifle it in the long term.

        1. jrs

          Right. So while reasonable copyright terms might be beneficial, since their laws on copyright terms are at this point a hinderance to human progress, the only sensible thing to do is pirate.

    1. Hypothetical_Taxpayer

      It all began when they stopped making those 3ft tall home radios they had back in the 20s. Wiped out the entire vacuum tube industry. Tens of thousands of soldering jobs were lost.

      1. rotter

        People LOVE those things. I repair and build custom tube amplfiers for Home audio and for musical instruments, also vaccuum tube comporessors, leveling amplifiers. etc,etc.Some are valuable “vintage: antiques but most are new made..check the prices on this stuff They just have a wonderful lifelike soundstage and presentation that just cannot be imitated with cheap Digital and or Solid State Circuit topology, and that HI FI enthusiasts and Musicians will pay a premium price for.

        http://www.upscaleaudio.com/

        http://www.jolida.com/

        http://www.marshallamps.com/

        http://www.musiciansfriend.com/tube-amplifiers/fender

        http://www.orangeamps.com/

        Vaccum tubes are outrageouly expensive now, and people are willing to pay for the Old American German Italian and British pieces that are becoming quite rare..the Russians and Chinese (of course the Chinese) were smnart enough not to close the last Tube plants..Tube manufacturers are making money hand over fist…now what does all this have to do with the destruction by offshoring of the entire American manufacturing sector to the far east, in the search of slave labor? i forget.

        1. Hypothetical_Taxpayer

          Dunno. A friend was telling me about his friend that had a $20K home stereo with tube amp and some huge klipsh horn speakers. I asked if the speakers were hand carved. But this guy was a stockbroker – not a rock star – which explains the home stereo tube amp anyway.

    2. rotter

      The old robot-factories-will-replace-mankind trope. I love the twilight zone and they did a few episodes based on that theme…such great writers working on TV scripts back then, Ray Bradbury, Harlan Elisson, and so many others..It never happened and it never will happen becasue robots cost more than people. what they(nameless faceless shareholders and investment corporations) wanted was slave labor..and they moved to the far east to get it..”robot factories” hehehe great science fiction.

      1. Mark P.

        Why would robots always cost more than humans? Why even think in terms of the mid-20th century’s obsololete industrial-era ideas of robots?

        Picture, instead, AI delivered as needed over global electronic networks, utility-style, just as electricity or telephony/Internet are already delivered.

        Picture the likes of Google twenty years from now.

        1. rotter

          Im talking mainly about manufacturing..for instance, the CNC router replaced the huge warehouse shop full of 30 or 40 man operated lathes, back in the 70′s and 80′s but CNC machines still need to be opreated by humans..they arent all centrally controled by a robot high overlord in lunar orbit…machines also need lots and lots of service..they also need to be repaired and they have to be programed again every time you change what ever it is they making – toothpaste tube caps with a left hand thread instead of a right hand thread- just for instance..and they themselves have to be manufactured, and delivered…cost cost cost on top of the “huge up front investement” of buying them in first place..automation hasnt destroyed US manufacturing the financilization of the economy and every useless, valueless thing associated with a financialized economy is what destroys jobs on the mass scale we are talking about..finace adds nothing of value to the economy..rent collectors didnt make the thing they are collecting rent on and they arent using it.they stand between the makers and the end users and charge a fee.. they are worthless middle men.

          1. rob

            I agree.
            automation may have taken a factory of a 1000, and turned it into a factory of 200.But, add to that the five other factories now making parts for the first ….and so on.
            it is the owning of these corporations by people who only want it to “make” money,regardless of what it actually does.
            There is a movie called”The Corporation”, they run periodically on LINK TV…I liked the standardized psycho-anylitic test for determining if a person is a “psychopath”.They run thru what a corporation is by history and law as well as practice…and these things that are called “persons”, are on every count a textbook “psychopath”.
            Why do americans allow “psychopaths”, to control our country?…now that is a good question.

  2. Gordon Brooks

    Another component that cannot be ignored is the disconnect between executive compensation and the long-term health of an individual corporation. Hostess is a great example of this: the executives were highly paid for running the company to ruin, even at the very end.

    As an economist would say (or should, at any rate): it’s all about the incentives.

  3. craazyman

    When you had to pump your own gas and pay with your credit card at the pump it started going downhill.

    Then they fired all the subway token booth attendants and if you have a question at 2 a.m. about how to get home you have to ask the machine. It doesn’t answer. Or if it did have some kind of automated speech recognition software it would say something so stupid you’d feel utterly defeated by your gullibility. An now you can’t even find a cash register operator in some stores.

    If this is automation, it’s like having a part-time job, feeding the machines.

    Do you know what a pain in the ass it is to buy a subway card these days? You have to push 30 different buttons on the automated screen. And then you don’t know how much money is left on your card when you walk to the bus in the morning.

    When will it end? When will summit the hill and gaze in rapture at the automation promised land? Maybe if they could automate automation CEOs we could start all over by deprogramming them. That might work.

      1. craazyman

        whoa! that dude needs some make-up and a wig and I might let him clean my bathroom.

        Maybe robots can work after all.

        But the robot maker would probly charge far more than I’d be willing to pay.

        I’d never pay anybody to clean my bathroom. Some things a man should do for himself, if he doesn’t have a woman around to do it. hahahahahah (just kidding ladies)

        1. craazyman

          Not that anybody cares, but I meant a butler’s wig and male makeup, not a woman’s wig and make up. I’d never pay a woman to clean my bathroom, it would have to be purely voluntary. When I think of somebody’s little sister or mother having to clean my toilet to make ends meet, it makes me feel like Che Guevera. I cannot participate in that. Cooking, that’s another matter entirely. But I’ll clean my own bathroom. A robot might be good for that, but it would be centuries before it would ever have the physical and manual dexterity to get the mold out from between the tile cracks and filth off the curves of the toilet bowl. If you’re a real man, you have to clean up your own shit. Or if you have a woman that does it for you, at least you have to do something nice in return, like cook or clean the kitchen. If she’s a maid that does it for you, then you have to be especially respectful and thankful, even bow occasionally,but you’ll still go to hell, just not one of the lower rungs.

          1. Hypothetical_Taxpayer

            I automatically assumed you meant butler’s wig and male makeup. After a few decades we learn how to keep from sticking our foot in our mouth.

    1. DANNYBOY

      Dear craazyman,

      It gets better. I mean worse. The MTA is thinking of charging for the fare card itself. That’s like charging for the token that the token fares were on. Or charging for the penny that the 1 cent is on.

      It will stop when the price of the paper that the $1 bill cost more than the $1.

      I’m beginning to see the wisdom in your handle.

  4. Tom

    When the auto industry was complaining in the 80s? about how the Japanese were destroying the market with cheap imports – it was then, that the blame also went to the wrong place, as now the blame is on automation and high wage and government regulation- those claims, as before are completely dis-proven and ridiculous. The claim was made by executives that wanted to cast blame from themselves and on to unions and cheap imports – not the crap autos being produced with little choice and poor quality and the executives own direct failing. May I have a Pinto, Cordoba, Pacer please – LOL.

    A Harvard Business Review article came out at the time; It found that the Japanese were using robotic technology that the USA pioneered. Not only in autos but electronics. Where an automated plant could produce 100 variants across the line in Japan …USA were making 8 variants across the same equipment – the study also dispelled the myth about worker costs, and absenteeism – they found them equal while executives were blaming our workers costs and everything else except their own ability to run a successful company. The executives had only to look into the mirror to find out why their company’s were failing. Money is now NOT being invested into real industrial capital – people and machines. It is being extracted into the financial services industry where the ability to run any company (including their own) is lacking and, because of the stupendous incompetence of those executives running those company’s, they have resorted to bribes and cried before congress how they can’t succeed unless given the special privilege to commit fraud and steal from the government and the governed. – No wonder the average citizen is pissed to no end – frustrated into complacency.

    Yes- robotics and computers are tools used by people to accomplish wealth creation. Tools are run and used by people to expand production. The fallacy is believing that automation will lead to fewer employees.
    Last time I looked around – there are billions of people on this planet in need of acquiring things to survive on this planet – they just don’t have enough money to purchase them like, for example: Food, Clothing, Shelter, Education, Sanitation etc etc etc.
    Absolutely, it is crap to blame automation instead of mis -allocations by mis-incentivised business executive incompetents.

    A quote below from Tax Facts – publication of pamphlet from 1920s.

    “Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
    It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
    But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
    Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
    Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.”

    1. run75441

      Tom:

      I am old enough to remember and be a part of the Japanese invasion of good vehicles. While I agree with much of your thoughts, I will point out much of the importation of Japanese vehicles was subsidized by the Japanese Gov and many US companies were locked out from Japan or even supplying parts. What loomed in Japanese manufacturing was Demming’s process control techniques which took Japanese Manufacturing from producing junk to better manufacturing throughput utilizing little WIP inventory (Toyoda System) and resulting in low rates of scrap. If you crack the materials nut, you can be profitable almost anywhere. The argument is not so much Labor or Materials as it is Overhead both legislated and customary (think bennies and laws). I do agree upper management has much of the responsibility for this downfall.

      “Money is now NOT being invested into real industrial capital – people and machines.” This one sentence of yours is a mouth full and I agree completely. While invest in Labor intensive investments when the same or greater profits can be made in investing in Capital/Financial instruments sans Labor with the caveat of being guaranteed by the Gov.

      One last statement; Tom Walker has typically written about the Lump of Labor fallacy and has cited the economist Chapman in the discussion. You may want to pick up on this topic also. Productivity gains are supposed to be shared with Labor; but, they have been heavily skewed towards Capital since the eighties. As Walker has suggested, why do we need to work 40+ hours per week? Isn’t a shortening of the work week akin to the sharing of Productivity Gains?

      Friendly manufacturing throughput analyst . . .

      1. Hypothetical_Taxpayer

        We had a similar problem in our industry with the Jap Invasion.

        For one thing, direct labor cost in japan was $5/hr back then, and our IBEW rate was $15 (less bennies and “work rules”). So that can’t be ignored.

        Then GE was the elephant in our industry with 40% market share. The rest was about 6 companies fighting over the scraps – but being careful not to piss off GE about selling at a price too low.

        Then along came Mitsubishi – then about 5 times the size of GE and in many markets and product lines. They sold at about 40% below GE and put a huge amount of stock in the US when the industry had been mostly built to order. (whose JIT?) We knew they were “dumping”, especially when they could lose money in one market but make it in another, but back then you had to prove they were selling below “cost”. Which no one could, of course.

        Sherman Anti-Trust was the thing that kept GE from going for 100% market share and putting all of us out of biz. But I think a major problem with globalization is they decided huge multi-nationals are competing so everything is OK. And of course we got all the take overs, mergers and such since everyone went for “economy of scale”. That explains a good part of the job loss there, I think.

        1. run75441

          Hypothetical:

          Direct Labor = 10%
          Overhead = 20 – 40%
          Materials = 50 – 60%

          of the cost of manufacturing. The only reason why you whack labor is it is easy. Most of the reason companies go overseas is to avoid the legislated and customary Overhead. Labor can be ignored in the 21 first century and has not been a major cost actor since the seventies.

          1. Hypothetical_Taxpayer

            I know how it works. In one of my jobs I had to figure out what my stuff costs and what to sell it for.

            Lots of stuff in overhead.

            They have been whacking this past decade in a big way. $3 chinese labor vs $50 US labor(with benefits including heathcare) could be a big reason still. And once they have deployed the capital in Asia – or bought into a Joint venture there – there is a lot of cost to reverse that. Which is why I think we need import tarrifs to supply some neccesary motivation to either stop the flow out or reverse it.

    2. Hypothetical_Taxpayer

      And thousands of welder and painter jobs were lost once we had to make body panels fit together and look as good as the “cheap japanese” imports.

      And electronics? MY GOD MAN ! Makes Auschwitz look like child’s play! Surface mount components, wave soldering, automatic test equipment that does a hundred QC checks on a circuit board in a few seconds…the job loss staggers the mind!

      1. run75441

        Hypothetical:

        SMT and TH wave soldering has been around for decades. Nothing special either. Again it is Overhead companies are avoiding.

        1. Hypothetical_Taxpayer

          I know. I toured lots of plants. One of our markets was “factory automation”. Just making fun of the “robots took our yobs meme”.

          As far as overhead, yes, we’d try and cost reduce anything we thought made sense.

    3. Buzz Meeks

      Honeywell invented both autofocus technology for cameras and videotape. Their MBA’s didn’t see a use for either technology. Minolta claim jumped AF and the resultant 35mm camera boom. Look at what happened with videotape-home entertainment, filmmaking, tape rentals, etc. And Honeywell couldn’t see a thing.

      Kodak produced the first digital camera in 1970 or 71. Held the majority of digital patents. EK now bk and ALL digital patents up for sale for $528 million dollars.

      You can certainly blame US business/MBA class for the loss of manufacturing debacle. They were going to screw the unions no matter what. I consider them and their bankster scum relatives to be a major part of the US Fifth Column.

      Buzz Meeks

  5. Peter

    Professor Lazonick asserts that automation need not result in the loss of jobs, in fact, it creates more jobs than it destroys, and the reason we’re not seeing more and better jobs is because companies aren’t reinvesting their newly increased profits. I hope I have this right!

    I don’t see any rationale for this assertion. He produces nonsequiturs such as the lifetime employment that Japanese workers used to receive, and the fact that some processes (e.g. nanotech) can only be done by machine. All right. But, however you measure value, fewer and fewer people are needed to build, program and maintain the robotic systems, so the increased value is produced by fewer people. Why would the fact that more “value” is being created necessarily lead to more worthwhile jobs, unless at the same time consumer demand is artificially increased so production has to increase at an even greater rate?

    Not to say there aren’t plenty of necessary things to do that could become decent jobs (e.g. rebuilding infrastructure, improving education, …), but I don’t see any connection between them and automation. And, where good jobs exist, why assume they would not be shipped overseas and become the high-tech analog of working for Nike?

    What seems to be happening is automation is simply one more way that concentrates more and more “wealth” – whatever that is – in fewer and fewer hands. Once all the “wealth” is concentrated – then what? What would any of that “wealth” be good for?

    1. Tom

      No offense at all to you Peter but, your statement below is non-developed and because it is, it misses the human requirement.
      and the fact that some processes (e.g. nanotech) can only be done by machine.

      Those processes have a heavy element of human labor to produce nano-tech upstream and downstream. Nano-tech is used in end products, the machines used to produce nano-tech are required, research and development was required, base precursors were needed a to be brought to a location, scientific endeavour, then the distribution of the nano tech component to the end users and new uses, etc. etc. etc.
      Man made a market to meet man’s needs. I don’t think we have developed anything along the lines of – Machines create a market for machine’s needs or machines create a market for man’s needs. However, we somehow believe that the man made invention “A free market” will meet the needs of man without man’s intervention or The oligarchs will create a market to benefit the common man. Wishfull thinking but history should have taught us better.

    2. Tom

      Nano tech may have another employment addition in the medical field. some of these nano-particles may have negative consequences to human health that are not fully known – think asbestos. They have found that nano-particles can enter into the human cell – we know not what implications that has but, I would imagine – not good with the history of new materials being rapidly exposed to human interaction.

      1. hunkerdown

        The “broken window” theory? Charming. Also: “Machines create a market for machine’s needs” describes derivatives to a T.

        1. MyLessThanPrimeBeef

          It sound like another science-created problem waiting for science to address.

          That’s why we need science.

      2. neo-realist

        Considering the deadly prospects of nano-particles entering the human cell, where will these bright employment prospects in the medical field be that you speak of? Mortuary Science?

  6. joecostello

    The inability of economics to come to grips with anything is sublimely dumbfounding, faith vs reality I guess. To say technology doesn’t destroy jobs, lets see where’s a the cotton picker, blacksmith, the horseshit shoveler, the chimney sweep, or more recently the computer punch card makers, travel agents, record executives or book store employee…the list over the last century is unending.

    What technology creates after its destruction is another story, whether those jobs “replace” what was destroyed is another. How any given society’s “wealth” from technological infrastructure is distributed is a question very much dependent on technology, though not solely.

    That there has been a hard push down on wages for the last three decades in this country is also beyond dispute, that the majority of jobs created have been low wage is also true, but dismissing technology’s role is simply inane, even the Nobel numbnut at the NYT has finally begun to understand it.

    Here’s a better question, how many less jobs do you think there’d be if we stayed at a 60 hour instead of a 40 hour work week? How about cutting the work week as one plank of economic reform?

    1. Nathanael

      VERY important point.

      What automation SHOULD do is to allow all of us to work fewer hours per day.

      As far as I can tell, only France has made a serious effort to require this.

      Raise the minimum wage to a living wage for *30 hours a week* work, require triple pay for overtime, allow professions to be “exempt” only if they have salaries of over $100K / year, and you’d see a nice revival in our economic system.

      But the robber barons don’t like that.

      I guess I’m saying that every problem the robots cause could be solved by working fewer hours — except the robber barons won’t let us do that.

      1. jake chase

        The solution is to limit executive pay to a reasonable multiple of the lowest company wage and outlaw executive stock options. The sole reason Birkshire Hathaway has been absurdly profitable as an investment is that Buffet has consistently done both. He would co-sign loans to enable company executives to purchase stock, but insisted they pay full value. No heads I win tails you lose executives at Birkshire.

        Once you impose these rules through Federal legislation (independent of state laws which are easily rigged), executives no longer have the ability to loot their companies and no incentive to strip mine them. They have every incentive to increase wages rather than lower them. This would return production to America and help recreate a high wage economy.

        1. neo-realist

          We need to elect Congressmen that aren’t funded by the people who loot the companies to enact such legislation.

        2. joecostello

          To simply put forth there are some universal laws of economics that dont include technology is inane, but that is economics. Technology is the foundation of modernity, not economics, the technologies themselves determine to high degree how wealth is distributed, and just as importantly how to distribute wealth. To simply put it as wages, jobs, and taxes is lets say archaic, we need a lot better thinking.

  7. ebear

    Danger! Danger! Will Lazonick!

    Are these thoughts illusions?

    http://www.youtube.com/watch?v=r-qhj3sJ5qs

    The morning of machine civilization
    Red pretext, shadow doubt
    clad in mourning clothing of blue.
    Ryhtm captured in the morning,

    Always the same instant.
    Don’t stop the production line.
    Something broken,
    In the twilight of machinery.
    Where’s the world going?
    Won’t somebody tell me?
    Are these thoughts illusions?
    Are we all one?
    This world will be changed…?
    This heart an illusion?

    (musical interlude)

    People find the way to be done

    People labor birds singing.
    Fell asleep dreaming.
    Waking clears the song
    Always the same gap
    This moment comes to exist
    Sometimes revolution is demand
    In the twilight of machinery

    Where’s the world going?
    Won’t somebody tell me?
    Are these thoughts illusions?

    are we all one?
    This heart will change…?
    Always smiling at the dream.

    Are these thoughts illusions? [repeated]

    Where’s the world going?
    Won’t somebody tell me?
    Are these thoughts illusions?

    are we all one?
    This heart will change…?
    Always smiling at the dream.

    break through
    paradigm
    in your mind
    revolution
    desire
    science
    ascension
    thirteen
    white shirt
    white shirt
    white shirt
    black shirt
    black shirt
    singularity
    we are all one
    are we all one

  8. jrs

    Technology is not the reason things suck economically for many, the crony crapitalistic system is the reason. In a different world even if technology reduced the need for work, then that would be a GOOD THING, that leisure could be widely distributed to everyone through a shorter work week, which would unleash a lot of human potential (for absolute brillance for a few, but for most maybe just more time for volunteering or spending time with one’s kids, simply a more humane world). But we don’t live in that world, and so I don’t see why technology can’t lead to job losses in the economic system we do have. However it is not necessarily the main cause of the loss of American jobs, that cause is outsourcing.

    Has everyone read David Graeber’s essay “Of Flying Cars and the Declining Rate of Profit”. So where are those flying cars anyway, and the robot servants? They don’t exist because technology has gone only to maintaining the existing system with ever more elaborate control mechanisms.

    essay:
    http://thebaffler.com/past/of_flying_cars

  9. Rik

    Probably one of the main reasons the worldeconomy is hardly growing is the fact that labour has a too small part of the cake. with as a consequence too little consumption.

    However labourcosts in most of the Western countries are seen from a competitive pov probably still too high. In other words the world’s labourcosts should preferably rise in EMs (and not in the West).

    Doubtful if this (the latter) will happen from a competitiveness pov. Western world is not really competitive towards China and Co and the China and Co part of the market looks completely overcrowded.

    Automation/robots will at first take away jobs and probably in the long run other, new jobs, likely in new sectors will replace the old ones. However there is likley a delay timelag.
    This timelag is made worse probably because of the slowly growing economy and the fact that a large part of the West has to catch up competitivewise (with sticky wages). Probably the situation we are in now.

    Globalisation doesnot only mean that jobs become internationalised. It also means that companies at least a lot of them are internationalised. The link between most multinational companies and its original homecountry is getting weaker and weaker.
    One of the reasons corporate tax rates (real ones) are relatively low cmpared to personal income taxrates in most countries. Corporate income tax of say 40-50% simply means a lot of international companies will simply leave or move profitcapacity oversees.
    There is a corporate social responsibility of course but this one is changing. Less focussed on one country.

  10. MrRoboto

    Economists are at least 20-30 years late to the automation trend and its consequences.

    I personally spent 20 years in high tech “innovating” and “automating” myself and millions of others out of a job until 4-10 Indian or Chinese engineers could be hired to work for what I was paid, and then I was jettisoned from the high-tech industry like a bad habit, never to return, like it or not.

    If one does not have the opportunity to work on (and overcome the learning curve and get 2-3 years of experience and competence) the next new, newer, newest techie gadgetry or platform, one’s skills perish faster than old mayo on a hot Aug. afternoon.

    Lesson to aspiring techies in their teens and 20s: If you don’t become a Silly-Con Valley deca-millionaire by age 30-35, your high-tech career is effectively over, or over the hill on the way down.

    No one can afford to spend hundreds of thousands of dollars for “education” from age 6-22 or 24-25 to become skilled in math, science, engineering, etc., to work in high tech, only to have to compete with Indian, Chinese, and Vietnamese engineers earning 20-35% of what one needs to earn to be middle-income working class or professional middle class in the West.

    Moreover, not even Asian slave labor can compete with robotics, intelligent-systems, biometrics, and nano-electronic sensors functioning 24/7/365 at the speed of light in the dark, requiring no wage or salary, vacation, medical insurance, sick time, maternity leave, and retirement savings.

    So many of us are conditioned by the experience of the past 30-40 years to think that only goods-producing and related jobs are at risk; oh, how wrong that perception is.

    Accelerating automation and the emergence of the intelligent-systems society/economy is on the verge of take-off of the next techno-economic S-curve paradigm, which will increasingly mean the replacement of virtually all paid employment in production and most services, including doctors (will become technicians reliant on handheld diagnostics, surgical robots, etc.), nurses (no need for costly union labor), teachers (instruction delivered asynchronously and at individual pace anywhere one wants, with no need for structures, property taxes, school districts, etc.), attorneys (no need when systems can do all the research, clerical, filing, etc.), programmers (software will write, compile, debug, optimize, and upgrade itself), not unlike mechanization eliminated 98% of jobs in agriculture (to be further automated with robots and vertical farming).

    Increasingly, the Internet (and the emerging intelligent-systems society) is commoditizing and homogenizing everything that appears on the medium, removing value-added premium to time, distance, capital deepening, and intellectual property at an unprecedented rate. “Free” is a euphemism for “worthless” in economic terms. (Kurzweil describes “increasing returns” to interconnectivity and computing power, but these returns are to speed and density of knowledge/information, not to economic profits and capital accumulation.)

    As the IT becomes a fixed cyclical cost to the built infrastructure, the incentive is to increase IT investment and reduce the labor component to the greatest extent possible.

    The loss of hundreds of millions of jobs and trillions of dollars of purchasing power and tax receipts from labor worldwide effectively puts an end to the debt-based, mass-consumer economy. Intelligent-systems don’t consume durable goods and discretionary goods and services.

    A radical redefinition of “work”, “money”, “income”, and the role and function of gov’t is required hereafter to avoid complete collapse of the system; yet, economists and politicians are still stuck in the thinking of the 19th- and early 20th-century industrial model’s division of labor and system of distribution of income and purchasing power. No one can compete with robotics and intelligent-systems for scarce resources, employment, income, status, and psycho-emotional well-being.

    No one can “produce” what s/he needs to subsist when pitted against robotics, intelligent-systems, cheapening foreign slave labor, and disproportionate gains from production going to the top 0.1-1% owners of the intelligent-systems capital base.

    When increasingly complex, highly efficient, capital-deep intelligent-systems robots and other ubiquitous devices and transparent systems can perform virtually all of the jobs we perform today for pay, labor productivity will become irrelevant, and most of us will be unable to secure paid employment, no matter how educated, skilled, experienced, or ambitious.

    Try to find even one well-regarded economist who is discussing the full extent of this emerging crisis for labor income and what a viable alternative would be to address the issue in a comprehensive, timely manner.

    1. Hypothetical_Taxpayer

      There is still a huge labor-consumption imbalance when you try and bring 3 billion new workers into the global labor force and the American “consumer” [the American worker and taxpayer must be someone else] is the one charged with its “consumption”.

    2. jake chase

      Brilliantly stated, MrRoboto. I wrote a paper on this in 1964, which was rewarded by a $100 first prize and deposited in some library to gather dust. Your few paragraphs are much better.

      Thinking about where all this is likely to lead, it is probable that increasing levels of Natinal chauvinism will be required to preserve bourgeois social dominance. As workers become increasingly redundant they are useful only as cannon fodder (and of course for picking fruit.) The alternative would seem to be governmental make work and concentration camps for the unemployable.

      Perhaps we can expand professional sports leagues to 10,000 teams, although playoffs would become quite complicated. Is there room on the radio spectrum for 20,000 talk radio stations? Can we use 10,000,000 psychotherapists, or will they automate that too?

  11. MyLessThanPrimeBeef

    Is that like saying nuclear bombs don’t kill, blame it on the mad men who use them?

  12. KnotRP

    You can’t add ~2 billion laborers to a ~5 billion
    global working population in a one or two decade time span
    without a significant downward impact on the global
    price of labor, robots or no robots. The problem we
    are experiencing is the consequence of the abrupt
    non-linear change in the global labor pool size combined
    with a huge push to produce products using that newly expanded pool. This is all side effects of the rapid economic reorganization (U turn) in two heavily populated nations.

    Economics promotes itself as the study of a “Baby in Bath Water”, but since even one damn baby moves too unpredictably (and there are 7+ billion of them in the macro bath water), an Economist always end up throwing
    the baby out as a simplifying assumption, but they never call what they do the study of “Nothing in the Bath Water”.
    Policy makers only want someone else to blame, so they happily accept the prognostications of these self-appointed
    experts of nothing, which is why, instead of moving to globally shorter work weeks, we’ve got Dickensian working conditions in the developing part of the world and former consumers (i.e. CUSTOMERS) being crushed between now-mispriced economic overhead and dwindling real income in the developed part of the world.

    A coordination problem, and no sign of leadership anywhere.
    But a bathtub with no baby is always at equilibrium, so of course what is happening, can’t happen.

  13. impermanence

    If technology was the cause of the decreasing number of net jobs, then we would have run out of new jobs long ago.

    1. MyLessThanPrimeBeef

      Perhaps technology wasn’t trying hard enough.

      Maybe it was just toying with humanity, before moving in for the kill.

      We don’t know for sure.

      One thing we do know – it’s still trying.

      Then one day, robots can do everything humans can, and cheaper too…everything. And they are owned by the world’s first googolaire. Then, we will all be jobless, saved the googolaire.

        1. MyLessThanPrimeBeef

          An easier, less violent way is to reduce unemployment by definition.

          Or we can achieve the same goal by amnesia.

          In either case, we simply forget they exist. Problem solved

  14. Matt

    Lazonick misses the brass ring on this one. It is not just globalization, it is outsourcing. Faced with variable technological or production demand, the MBAs are taught and execute to remove “fixed” overhead where ever they find it. Whether it is design, support, or mundane production, let someone else pay for variable staffing levels. And by the way the grade A pay and benefits disappear as the replacements work for cheap.

  15. MrRoboto

    “If technology was the cause of the decreasing number of net jobs, then we would have run out of new jobs long ago.”

    Perhaps you are not aware that in the US there has not been a net new full-time private sector job per capita created since the late ’70s to early ’80s. For males, there have been no such jobs per capita since the late ’50s to early to mid-’60s.

    The US no longer creates full-time private sector living-wage employment, especially for males. The loss of growth of real wages and real GDP per capita since peak US crude oil production in 1970-85 (60% decline per capita since 1970) and the coincident onset of US deindustrialization, financialization, and feminization of the economy and society has only encouraged acceleration of automation and returns to financial capital’s share of GDP at the expense of labor’s share.

    “Education” will not resolve this because the cumulative human techno-scientific knowledge and skills of the past 10,000+ years of human existence are being digitized, systematized, and embedded into micro- and nano-electronics and ever-smaller devices with increasing computational power and interconnectivity at cost per unit and per transaction per unit of time towards vanishingly small.

    We are effectively creating a system with a division of (non)labor and resource, goods, and services production and distribution that does not require most of us for it to continue to evolve and reward the owners of the means of production, which is not the bottom 90% of households.

    Most people respond to the above with charges of the author being a Luddite. Wrong. The replacement of virtually all paid employment and purchasing power over the next generation is inevitable; therefore, we should encourage the large-scale ACCELERATION of the process and the ELIMINATION of as many jobs as quickly as possible across all sectors while endeavoring without delay to completely reorganize the system to create sources of purchasing power per capita that are not dependent upon wage labor and its industrial-era and neo-feudal distribution scheme. This will require citizen ownership of the means of highly automated (lights out, laborless) production of goods and services, resulting in the vast majority of us receiving a profit share, social dividend, or perhaps some form of net energy credit per unit consumed for production per capita; otherwise, we face a collapse of the system.

    Call it neo-socialism, benevolent state-capitalism or corporate-statism, Technocracy, or techno-utopian socialism, whatever, but the system is evolving rapidly into one without paid employment for most of us and gov’ts that can’t afford transfer payments to support, whether we recognize it or want to accept the implied outcome.

    In the US today, the top 1-10% of households (household income of $145,000 and up and a net wealth of ~$1 million and up) hold 85% of all financial wealth ($47 trillion), receive nearly half of all income ($12 trillion), and pay ~75% of all federal income taxes. We have a system for, by, and of the top 1-10%, the best political system $6 trillion in income and $40 trillion in wealth can buy, and a system of no representation without taxation.

    Nothing will change to improve the lot of the bottom 90% of households without (1) a systemic crisis that threatens the next 9% below the top 1%, and it might be too late at that point; or (2) an enlightened response by the top 0.1-1% to reorganize the system to allow technology to serve the bottom 90% equitably. (1) is certain to happen eventually, whereas (2) could happen in the meantime to get ahead of the inevitable collapse and do something worthy of the privilege of possessing and hoarding $40 trillion of fiat digital debt-money credits to little benefit to the bottom 90% of society.

    Human nature and history implies (2) is a techno-utopian idealist’s fantasy and (1) is the only thing that will compel society and the species to action/reaction in order to attempt to adapt to the log-limt bound and pending bottleneck.

    1. Paul P

      Yes, when the system becomes so productive, the mass of workers join the reserve army of the unemployed. Unfortunately, in the coming decades, they join it forever.
      One of the crises of capitalism today is that with productivity increaing at a compound rate, fewer and fewer workers are needed to produce society’s goods. And, that means fewer consumers or human girbils to make the system go. The result is stagnation at best. See, The Endless Crisis by John Bellamy Foster and Robert McChesney. Establisment economics comes late to these issues because the goal is not to deal with problems facing the world’s population. Witness the debates between those pushing austerity and the Keynesian opposition. And, climate change gets pushed off the agenda. Nice posts, MrRoberto.

  16. Tom

    MyLessThanPrimeBeef says:
    Then one day, robots can do everything humans can, and cheaper too…everything. And they are owned by the world’s first googolaire. Then, we will all be jobless, saved the googolaire.

    If we are all out of money to purchase what the googlaire produced then by definition, the googlaire has a google of worthless markers (money) – Of course the googlaire may employ his machines to rid the planet of humans that produce nothing or can purchase nothing – maybe let them just starve. But then he would be just an asshole playing with himself.

    Currently, automation must be ahead of itself – it displaced so many workers that there is not enough demand for the less costly products automation has given us. = LOFL
    Except the planet itself seem to want to vomit our kind (humans) off the earth. Seams the titans in government and industry are to lazy to see the huge quantum of work that needs doing on this planet to enable us to live as a species far into the future. We to busy acting like tribes of monkeys that try to figure out how to kill each other rather than how to live on this most beautiful paradise.

  17. They didn't leave me a choice

    Is anybody else seriously bothered by this trend to read history as future? Historically technological development has created jobs to replace those lost to automation. Thus, jobs will always keep on being created by automation. Notice the point of disconnection? It’s the same argument as neoclassicals make when they “tune” their models to latest data by adding a few modifiers here and there, never realising that the entire construct is based on falsehood.

    This Lazonick dude makes the same mistake, not that I can blame him too much, it seems to be the order of the day. Nobody bothers to think of putting the puzzle pieces of /present/ together to take a shot at what might come. No, every argument always begins with historical data and a conclusion that future is what history was. End of argument. Then the whole shebang is expanded into feature length article with freely flowing florally floundered verbal vomit, vexingly vapid and distastefully extended.

    >Automation is not the problem. As part of a process that could reconnect profits and prosperity, the US economy needs more, not less, corporate investment in automation. A company that successfully invests in automation creates far more, and typically better, jobs than those it destroys. Indeed, the study of industrial history reveals that when a nation’s leading companies fail to make sufficient investments in automation its economy runs into trouble.

    Notice the bait and switch there? Present turns into past fluidly as the argument by history is made, augmented with the brainmelting, yet content-free non-sequitur obvious statement that if in an enviroment where technological development is required to stay on the top the system stops investing in development, there is “trouble”. No kidding.

    >Krugman is on to something important that needs to become part of the national policy debate. But he is off target in blaming a combination of automation and monopolistic practices for the disconnect between profits and prosperity.

    Notice how this writer, completely without guilt, mixes up Krugmans ACTUAL argument, that automation is bad for labour and good for capital. Instead he claims that Krugman blames automation for lack of prosperity. There is prosperity. It exists for the 1%. Which is, the Old Fool Kruggies actual argument. Now I don’t like the old fool any more than the next guy, but at least this pathetic hack of a writer could at least /try/ to present his actual argument and not the strawman that he’d prefer Krugman was.

    >Automation entails huge upfront investments. Companies that invest in automation have to build organizations to ensure steady supplies of high-quality materials, improve and maintain machinery, and capture sufficiently large market shares to achieve economies of scale. These investments in the development and utilization of automated facilities create lots of high-value-added jobs, especially for companies that, because of their investments, can grow large by producing higher quality, lower costs products than the competition.

    Lots of high-value jobs? Like all those mcJobs, low value service sector crap, which is all that’s available anymore? Has this lousy excuse of an economist even looked at the data of what kinds of jobs have been created in the last few decades?

    >To repeat, automation is not the problem. The three-decades long erosion of middle-class jobs in the United States is the result of, as stated earlier, permanent plant closings, layoffs of older employees, and the globalization of employment – none of which have been the result of automation. In the process, many US industrial corporations have become very profitable (for now, but by no means forever). The question that needs to be asked is why US corporations are failing to reinvest these profits in new products and processes that can create large numbers of new high value-added employment opportunities in the United States.

    Good job masking the fact that even though now that corporations are repatriating their operations back to west after decades in the wilderness, the actual job numbers that return for any specific function are nowhere near what was lost in the first place.

    Was this fool born yesterday? Certainly, there is massive amount of bad behaviour in the system, however that does not justify ignoring very real ongoing effects just so that he can push his message. This article has been written very much in bad faith and this mr Lazonick should be castigated for his lack of attentiveness and ignorance, whether feigned or real, that borders on malice. He makes onerous arguments and dresses up his vapid drivel with inanities and non-sequiturs.

    9/10, would rage again.

    1. Mark P.

      ‘Is anybody else seriously bothered by this trend to read history as future?’

      Yes.

      We are very possibly stepping into something as unprecedented as the Industrial Revolution or, just possibly, the agricultural revolution, when humanity stopped being hunter-gatherers.

    2. Charles LeSeau

      Yes. Thank you for summing up so perfectly exactly what I was thinking as I read this.

  18. indio007

    It’s not complete automation that’s causing the displacement. It’s machine assisted functions can no be performed people that don’t even need to be able to read write or do math.

    Go buy some groceries , you’ll see. A clerks job used to be middle class. Now anyone with one arm (and little knowledge)can do it.

  19. Susan the other

    Productivity doesn’t equate with automation but automation can help to prevent labor from sharing the gains. Debt and shareholder value come first. Automation is a lot like offshoring. In the end productivity is the goal of management because it keeps shareholders happy. High productivity can translate directly to a return on investment. But machines don’t go shopping so those gains won’t last forever. Productivity can also translate directly to growth and we all know growth translates directly to the need to pay back business debt. Makes me dizzy. In the end productivity might not be the problem as much as rapacious execs, but it will kill capitalism just as fast because in the end, as in the beginning, labor and capital are one.

    1. Susan the other

      The best way to employ 28 million Americans – because that’s how many jobs we need – is to create a jobs program of that many low productivity-high social value jobs: teachers, nurses, daycare teachers, high tech too, etc. etc. If we leave it to the free market, armed with all the automation it can conjure up, we will get nowhere fast.

  20. LifelongLib

    The steelworker in Studs Terkel’s “Working” put it this way:

    “Automation? Depends how it’s applied. It frightens me if it puts me out on the street. It doesn’t frighten me if it shortens my work week. You read that little thing: what are you going to do when this computer replaces you? Blow up computers. (Laughs.) Really. Blow up computers. I’ll be goddamned if a computer is gonna eat before I do! I want milk for my kids and beer for me. Machines can either liberate man or enslave ‘im, because they’re pretty neutral. It’s man who has the bias to put the thing one place or another.”

  21. diane

    Well, for one, both the author and Krugman have made the fatal mistake of not including the algorithmic software “[ro]bots” in the equation.

    Anyone wondering what a software bot is, check out all the blogs increasingly having to spend most of their time fending off ‘invisible’ software [ro]bots.

    Cloud Computing , most certainly will decimate billions of jobs (along with absolutely everyone but the elite’s privacy), along with making it next to impossible for any remaining actual regulatory entities serving ‘the people’ (if there are any remaining that haven’t been usurped) to properly audit anything. So bleakly hilarious that for about four years, The Cloud was blatantly maliciously and deceptively portrayed on blogs as a “Cloud” of most discussed topics, versus the reality of persons personal information being violated, sold and held hostage

    Which reminds me, the migration from the innocuous NYSE name …. to the blatant ICE name (now that all are near helpless to do anything about the predation), was certainly one of the main desired by products the elite had in mind with their enormous investment in Software ™, Logic and Algorithms ™.

    1. Nathanael

      Remember, computers do exactly what programmers tell them to.

      The problem is not the programmers (you should all learn to be programmers. I’m an excellent programmer.)

      The problem is programmers working for robber barons.

      1. diane

        I guess I kind of get what you’re saying, Nathanael, though it is blatantly clear that you don’t get that the vocation some once made a living by, … was not computer programming. Do you seriously believe you have the spare time to learn their vocation while glibly suggesting that THEY MUST LEARN YOUR VOCATION to have a voice?????????

        The bailouts occurred because all the HISTORICALLY NON-UNIONIZED small fry (now Unemployable ) bean counters, who actually wanted to do the right thing, were told to learn endlessly obsolescing software and gadgetry …. before counting the fucking beans, in fact they were told it wasn’t necessary to count the beans.

        1. diane

          Honestly Nathaneal, either take a deep breath and think about things before jumping that gun, …or (and I hope it’s not the case), go back to the algorithmic bot you are …Your comment was absolutely astounding. How much time do you seriously believe people have to rise their heads above that smothering wave to take the chance at learning new things in order to pay for a roof over their head, when the things they were actually gifted at are being trashed, leaving them with no currency, or time, to learn The Momentarily Current Coding ‘Language’ …even if they could, or desired to step into that incereasingly and forever obsolescing cesspool?

          1. diane

            Thank you Charles Serrano (I saw no reply icon below your comment, so I’m hoping this comment ends up directly underneath your comment). I hope it was an effective argument, as I was attempting to point out the as yet seemingly totally unacknowledged reality that those professions which were supposed to ensure effective controls and balances which enhance humanity in any given industry have been deliberately obsolesced in favor of Robber Baron softwares (Soft ROBOTS) which have no problem with rounding down $1 billion dollars in social responsibility to $0. For instance, those well-meaning (non CFO) bean counters were informed not to count the beans, Intuit, Oracle and MS Pivot Tables (and now of course The Cloud outsourced Data Bank$ ) would take care of that. To suggest they learn programming to fix that problem is insane.

            Honestly, the arrogance of many Programmers to assume that software can so fully replace human analysis is so disturbing, …and worse: seemingly accepted by a vast majority, it leaves me overwhelmed with hopelessness for our future as human beings. I would compare it to the makers of typewriters having insisted that those who used them knew every minute detail as to how they operate in order to practise their own unrelated professions which already required an abundance of continual education.

            It is absolutely insane to believe those physical robots or software robots which are allowed (and I do mean allowed) to come into popular use have simply ‘logic’ and no human ideology behind them, when they are created by an elite group of mostly DOD funded and stunningly wealthy and powerful humans. And even if they did operate solely by ‘logic,’ what does that mean? Sociopaths use a great deal of ‘logic’ in picking out their victims …and?

          2. diane

            Very, very sorry for the above misspelling of your last name, Charles. I have no excuse, I allowed myself to feel rushed along without editing, as is so apropos of the times.

  22. HS

    As an automation engineer in heavy industry, I think I can add some meaningful insight here. For one, in a process that is running at capacity, automation rarely eliminates workers. Typically, automation is used to reduce bottlenecks–the funny thing is that the bottleneck is rarely eliminated, it simply moves somewhere else. Thus, if you replace handpacking with it’s faster robotic equivalent, now you need more fork truck drivers to handle the increase in throughput. Overall, you make rate faster, but rarely with less resources, human or otherwise.

    Secondly, there is a dirty little secret that we automation engineers rarely share with management or academic types: Reliability is inversely proportional to the degree to which you automate. There is a brand spanking new, highly automated, itegrated steel plant in Mobile, AL, which is a shining testament to this principle. I know of several “Lights Out” plants, built in the late 90′s that are idle today solely due to the inability to run anywhere near capacity. The technology simply isn’t rugged enough for the demands of high speed manufacturing.

    1. optimader

      Quality is conformance to requirements. The inability of an automated system to function at capacity is a case of underspecification/poor conception/underengineering/poor physical execution -not an inherent failure of automation technology.

      A 787 is pretty good testimony to appropriately concieved blisteringly complex “automation” technology operating reliably in a hostile enviornment at high utilization rates.

      “It’s the misuse of corporate profits that are destroying them (jobs).”

      I would also point out that it is the abject failure of our educational system (and society more generally) to prepare a large segment of the labor force appropriately. we are being set up for a systemically unemployable segment of the labor force because they will not have economically viable skills to complete and support themselves.

  23. commenter8

    Quoting J.J. Goldberg at forward.com:  
      
    [...] Eisenhower inherited a top marginal income tax rate of 92% from his predecessor Harry Truman when he entered the White House in 1953. He quickly lowered it to 91%, where it stayed until Lyndon Johnson lowered it again to 77% in 1964 and then 70% in 1965.  
      
    During his eight years in the White House, Eisenhower managed to reduce the federal deficit by 75% — down to a quarter of the size he inherited — while building the Interstate Highway System and launching America’s space program. GDP growth averaged 3% per year. Unemployment averaged just under 5.5%.  
      
    Reagan, entering office in 1981, inherited Johnson’s 70% top marginal income tax rate and immediately lowered it to 50%, then to 38.5% and finally to 28%. His theory was that high taxes stifle economic growth, while lowering taxes unleashes growth and creates jobs. It was a great national experiment, and the result was conclusive: It didn’t work. Growth averaged 3.4% per year during Reagan’s presidency, hardly better than Eisenhower’s, while unemployment averaged a shocking 7.43%, far worse than Eisenhower’s and hardly better than the much-maligned Obama record. [...]  
      
    So the next time you listen to a presidential debate, remember that nobody up there is taking the Democratic side. The debate we’re having today is between a robust Reaganism and a faint, timid echo of Eisenhower Republicanism. In fact, when you get down to it, the Democrats can’t even bring themselves to take Eisenhower’s side with any conviction. We’re all touting variations on a flimflam theory that’s been tried and proven a colossal failure.

    ——–

    How To Cut Spending: End Corporate Welfare!!!     
        
    As Rex Nutting of Marketwatch noted in his 12/18/2012 article “Why isn’t Obama demanding corporate welfare cuts?”, “$2.6 trillion could be saved [...] It’s possible to achieve all the budget savings we need for the next 10 years simply by cutting the fat out of discretionary spending programs and tax expenditures [removing all of the corporate welfare] without raising tax rates on the wealthy or cutting the safety net at all.”     
         
    Oil and gas companies, which are raking in record profits, certainly don’t need $4 billion a year in subsidies, and even the oil company CEOs admit they don’t need it!     
         
    Why are cuts to Social Security and Medicare even being discussed while literally billions in corporate welfare are constantly spilling out of the Treasury? 
        
    White House petition to End Corporate Welfare: http://wh.gov/Qa6f   

  24. Timothy Gawne

    It’s about time!

    And then there are those pundits who claim that the problem in the labor market is not too many people, but rather automation removing the need for labor. A generation ago many high tech goods were made on semi-automated assembly lines in the high-wage United States. Today they are assembled by hand in vast hangars where 40-cents-an-hour workers are jammed side by side like battery hens. Just look at the world: the factories in Asia are not automated, they are operated by vast numbers of poorly paid people doing the work by hand. Overall we are seeing more handwork and less automation in the production of most industrial goods. Saying that automation is the problem is like standing in the middle of the Pacific Ocean and claiming with a straight face that boats can no longer float because they have run out of water. How much do you have to get paid to utter this nonsense, anyhow?
    There have been times in the past, for example when automated looms were first developed, that automation had a big impact on the labor market, but that was a special case and a long time ago. For some commodities, like nails, automation is so efficient that nobody will ever mass-produce nails by hand no matter how cheap labor gets. There are also some processes, like precision welding, where human labor is just not accurate or repeatable enough. But as a general rule, automation does not lower the value of labor, rather, automation is a reaction to expensive labor. Because automation is so expensive, it typically does not depress the value of labor to any significant degree.
    Suppose you have a business making shirts. If you want to make the shirt in an automated factory, you will need to invest a vast amount of capital in automated machinery. Even if everything works well, you will have to wait years before you have recouped your investment and you start making a profit. And there is a lot of risk: the factory might not work, or the need for the factory might change leaving you with an expensive white elephant. If labor is dear, factory owners will put up with automation, but it’s not their first choice. If labor is cheap enough, you can rent a big shed, hire a bunch of people you hardly need to pay more than subsistence, and have them sewing away. There is minimal investment, you can make a profit almost on day one, and if things go wrong you just close up the shop!
    If a million dollar automated shirt-sewing machine breaks, you need to get it fixed and that can be expensive both in direct costs and also in lost production. If a sweatshop worker gets sick, you just throw them out the door and replace them with someone else. Easy! Cheap! More profitable even than slavery! (You can’t just throw sick slaves away, because you would have to buy new ones). Almost risk-free! What’s not to like?
    As more and more of the world moves to low-wage low-capital investment high-labor content production, we will continue to have notable pundits blaming automation for poverty. I envision that while blaming automation they are filmed in front of a Bangladeshi carpet factory where young children chained to the wall weave carpets by hand for 12 hours a day. OK, maybe that’s too extreme a logical disconnect even for today: I envision them begin filmed in front of an archival video clip of an automated factory from the 1970’s that has since been closed and where the work is now done by hand in Malaysia. Or maybe they will blame sunspots. Or the music of Barry Manilow. For a professional flack paid to deflect attention from the real causes of poverty, reason doesn’t matter, just filling space with anything so long as it is not the truth. It’s like jamming a radar: it doesn’t matter if the false images created by the jammer don’t make sense, there just have to be so many of them that you can’t separate out what’s real from what’s false in time.
    Prediction: more nonsense ahead.

    1. Susan the other

      By your argument too, automation is the culprit. Because Asian factories are a form of automation. “Automation reacts to expensive labor.” So automation is the problem if it is employed to replace more expensive forms of labor for the sole reason to become more efficient. To enhance shareholder value, etc. Productive efficiency. And in every effort to introduce automation, whether human or machine, that efficiency is never shared with labor, labor never gains. Except for Henry Ford. Only capital profits. Yes, of course the “capitalists” are the job creators – they do it solely for their own benefit.

  25. Manofsteel11

    1. NOTE that Krugman points to Robots.
    He does NOT mention automation even once – it is besides the POLITICAL point he is trying to make.
    It is a cute political narrative/exercise as we were nearing the fiscal cliff.
    The focus on “capital” and “robber barons” and “CEOs” is supposed to LEGITIMIZE certain taxation schemes and implicitly hint that “barons” and “robots” are of the same domain.
    2. Krugman does NOT mention automation exactly because he is not serious about entering the technology vs. labor debate.
    Naturally, nobody who is involved in politics would want to implicate APPL, our great symbol of success, in destroying many thousands of job across the media industry, creating wealth for the few while propelling people in debt to consume fancy game devices and creating small mostly unprofitable projects for the developer masses.
    Moreover, no politician (sorry, economist) in support of bailing out banks would want to remind us that such huge banks use super computers to feed off retail investors.
    3. Neither article would mention the role of government. The same government is NOT regulating the lobbyists sent by the “robber barons” and is NOT taxing corporate offshore gains and is not acting to automate itself.
    4. Some countries (Luxembourg and Switzerland come to mind) have done very well by shifting from nature resources to labor to capital. They just spend more on spreading the profits around. Oh, and they do focus on fiscal and monitory discipline.

  26. Bob Goldschmidt

    The advance of technology, as predicted in Martin Ford’s book “Lights in the Tunnel”. Is upon us and the exponential growth of the computing power behind it has no historical precedence. As Martin has presciently stated, outsourcing and offshoring have themselves been enabled by technology [such as containerized freight and global fiber-optic communications], but they too will be subsumed by automation. Within the last year Foxconn, the largest manufacturing employer in the world, announced that they will be purchasing a million robots over the next few years [to replace their Chinese employees].

    Here.in the US worker wages have been flat since 1972 while productivity has doubled.

    See: http://krugman.blogs.nytimes.com/2012/07/18/compensation-too/

    The resulting stress on our society is becoming ever-more apparent while corporate earnings reach record highs. Take for example the housing bubble which was created by the Fed to add rapidly rising home equity based credit to insufficient wages in order to keep our economy afloat.

    Fortunately there are several constructive steps that can be taken to correct this.

    Most important is to tie the growth of payrolls to increases in corporate stock value. For example we could impose a corporate excess profits tax of 100% on any reportable income which exceeds half of US payroll.

    I realize that this is not politically feasible now, but if these exponential developments continue to ever more rapidly unfold, then we may quickly reach a point where our economic/political system is at great risk. Then we will be forced to allocate our fixes between massive extended unemployment, the government as employer of last resort or forcing added payroll within existing corporations. I far prefer the latter.

  27. Hannibal

    Know what happen when self defense of your life and property is illegal.

    Let Feinsein know she is in dishonor of her congressional oath to defend and protect the US COnstitution.

    http://www.popvox.com

  28. F. Beard

    The problem is how the automation was/is financed – with loans from the government backed/enforced counterfeiting cartel, the banking system. Else the workers/ex-workers would be part-owners of the automated plants and share in the profits or at least have received honest interest rates on their savings and profited thereby.

    1. Susan the other

      Hi Beard. My comment just got zapped. Put too fine a point on it. Whenever I start to channel Lenin that happens. Even tho’ I’m goofy. So anyway, glad to see you are back and I like your brief comment.

  29. damian

    Ms Smith:you said

    “The problem lies in the ideology that corporations should be governed to “maximize shareholder value,”

    NO – the problem lies in the construct of the WTO – only – the goods have to get in this country to make money

    it could have been set up with only comparative wage countries as members – without tariffs – USA, EEC, Canada for example – these countries have relatively same regulatory systems, benefits and wages – all other countries could have had tariffs @40% – which would rachet down as wages went up

    the truth is the USA government as enabler of Fascist corporate interests created the decision to leave since there was no penalty for moving the jobs – ie: tariffs

    you should do a piece on the WTO decision originally conceived and how it could have been different

    corporate objectives would change with the right restrictions and incentives immediately

    1. Susan the other

      If you have to maximize shareholder value you cannot compete with a gigantic state-run economy. This is where we left off in 1945 and it exploded in 1965 and we more-or-less lost. We will lose again unless we can distribute the gains democratically.

    2. jrs

      I always maintain that the politicians knew what they were doing when they signed the various trade agreements. It’s not the prevailing narrative, which is things just happened as in “it’s unfortunate American jobs were lost, but global economy etc.”. No, THEY KNEW, there had to have been studies on the likely effects etc.. And they chose.

  30. William Neil

    Readers who would like a fuller discussion of automation and the loss of industrial jobs are invited to visit my long essay, broken into four parts, called “The Costs of Creative Destruction: Wendell Berry vs. Gene Sperling.”

    Please note, as Krugman did not, that in 1963 a full page ad was taken out in the NYTimes calling the President’s attention to automation via cybernetics, and signed by J. Robert Oppenheimer, among many others. It led to a commission report in 1965 – thanks to Jeremy Rifkin’s book “The End of Work,” for pointing this out.

    Readers should pay attention at how paradigms shift: Krugman broke ground and won his Nobel Prize based on challenging the trade concept of “comparative advantage.” So when he writes as he does here, he is saying something new is afoot, and quotes the authors of a recent assessment which says automation has a sweep and power greater than ever before. It’s a real pressure on jobs, and I do question the old assumptions but we will have to wait for the quantitative studies to prove a net loss of jobs from these developments. Please also be aware that the essay I consdier to be the finest compact summary of our global and US troubles came from Nouriel Roubini and two other authors in the fall of 2011: “The Way Forward” – it also cites automation in addition to the tidal wave of entrants into the workforce from the newly industrializing nations as creating enormous new pressures on wages – downward pressures. “A Glut of Labor and Capital” was the description of our condition.

    Additionally, Krgumans’s column’s title “Robots and Robber Barons,” closely tracks Wendell Berry’s very condensed description of the chief direction and goals of capitalism – delivered in his April of 2012 Jefferson Lecture – the Nation’s highest honor in the humanities. Berry said, and I’m paraphrasing, that the two main goals of capitalism were the elimantion of human labor and monopoly. Knowing a bit about the commentators at this site, I don’t expect many to swallow that entirely whole, yet…the more one considers current trends… My essay is a close examination of Berry’s speech and other essays he has written as they drift to thoughts about our broader political economy, not just the state of agriculture.

    Here’s the links to Parts I and II: http://www.ourfuture.org/stories/2012052231/costs-creative-destruction-wendell-berry-vs-gene-sperling;
    http://www.ourfuture.org/blog-entry/2012062202/part-ii-costs-creative-destruction-wendell-berry-vs-gene-sperling

    1. KnotRP

      “we will have to wait for the quantitative studies” is boiler plate economist-speak for “can we defer this matter for a moment? [your winnings, sir!] Oh, how I regret the piles of money that accidentally landed in my pocket due to the lack
      of sufficiently compelling data that a crime was ongoing when I was holding the door open for the nice gentlemen with weapons and masks. Oh, woe is me, for having been a patsy to their scheme. Who could’ve seen it coming? No one, assuredly.”.

  31. Paul Tioxon

    We do not owe 8 hours a day, 5 days a week, as an unchangeable structural feature of the economy. Not any more than we owed 10 or 12 or more hours a day, 6 days a week, just one hundred years ago. We need to reclaim our lives, by reclaiming the amount of the time of our lives sacrificed to someone else’s financial gain, for a temporary paycheck. The 3 day work week, 6 hours a day, at the same pay and benefits as today would be good start. I might not need as much day care or have to shove grandpop into the old folks home. A little history from the labor movement is in order:

    MAYDAY, 1886: THE EIGHT-HOUR MOVEMENT

    “ONE HUNDRED THOUSAND MEN STRIKING FOR EIGHT HOURS,” screamed the headline May 1, 1886. For twenty years working people had watched with growing anger as machines had displaced them in almost every industry and craft. Their bosses had not shared the increased productivity of those machines with them, nor passed along the profit to them as consumers in lower prices. Across the land they organized in independent unions, locals of national craft unions, and Knights of Labor assemblies.

    A depression in 1884 left two million (24 percent) out of work. The unions fought back desperately against wage cuts and agitated for shorter hours to put those two million back to work. The 1884 convention of the Federation of Organized Trades and Labor Unions (forerunner of the American Federation of Labor) resolved that eight hours “shall constitute a day’s work from and after May 1, 1886.” People in most trades worked ten hours, and those in factories longer.”

    http://www.ilwu19.com/history/mayday.htm

    1. p78

      This 1st of May American strike is the one we commemorate in Europe on Mayday. But the US has its Labor Day in … September. They are scared to death of unions. What kind of people are the Americans? Brainwashed.

    2. William Neil

      Good points Paul. I believe the power of Roubini’s article was to match the two waves – automation and a vast increase in the needy newly arrived workes from China, India, Brazil…other Asian nations…soon Egypt…it is hard to grasp that every point where new products are always arriving, new jobs are created even as others are phased out by automation. But the new development is that the factory that produces the robots(ics) may be automated itself, and some of the intellectual work in the design behind these layers as well. Across the board replacement of people by machines, including throughout the distribution and warehousing systems…and the power to deploy or not is in managements hands…I quote from Yale economist Wm. Nordhaus on the loss of American industrial jobs…he says that even tough miner leader John L. Lewis bought the line that technological innovation – creative destruction, if you like, which usually goes along with increased automation although not synonymous with it – would not cost miners jobs in the coal fields. How wrong he was; the number of miners has dropped like a rocket over the decades; the amount of coal mined has continued to increase even as it has been eclipsed by other fuels (thank heaven all the way around for that…)some of the new steel plants written about in the NY Times, new plant expansions in the US due to the gas fracking take-off – are almost entirely automated and create few jobs…So the potential for a brave new world of “not needed” is here, the pace and pressures, like so much else spiraling out of the control of popular forces, is in the hands of management.

      Although I don’t think most of Yves reader’s will buy this, Wendell Berry’s sweeping comments in his lecture – the Jefferson Lecture – can make serious economic eyes roll – Nordhaus’ most certainly – yet I believe Berry’s speech entitled “It All Turns Upon Affection” – delivers a better summary of what we have just gone through…including the deeper causes of the mass shootings…than any purely economic analysis can…including a protest against “the inhuman pace of technological change” – something that any mainstream economist must reject out of hand – I cite Gene Sperling’s elevating creative destruction to a near religious status: unquestioned good. But there it is, Berry said it and I agree, as I toted up the “costs of creative destruction.” Something very major is afoot, you sense it, and mainstream economics wants to carry us back to the good old days of what…neo-classical 1880′s-1890′s? God help us all.

Comments are closed.