FOUR

JOB CREATION IN THE FACE OF GROWING AUTOMATION

We want to consider not only worker well-being today (see Chapter 3), but also what the outlook will be for worker well-being in the future, particularly whether capitalism can create enough jobs for people in a future marked by growing automation. The International Labor Organization, an agency of the United Nations, estimates that the number of unemployed worldwide is now over 200 million and is likely to get worse.¹

Consider that in the 1870s, 70 to 80 percent of the U.S. population was employed in agriculture. Today, the part of the population employed in agriculture is less than 2 percent. Fortunately, manufacturing increased to supply enough jobs as agriculture declined. By 1973, manufacturing accounted for 22 percent of the American gross domestic product (GDP). But today manufacturing accounts for only 9 percent of the GDP. As agriculture and manufacturing go down, more jobs need to be created by the service industries. Can the service industries create enough jobs, and will there be enough decent-paying jobs?

THE IMPACT OF TECHNOLOGY

Early warnings about technology destroying jobs occurred during the Industrial Revolution in Britain. From 1811 to 1817, companies in the apparel industry kept introducing newly developed labor-saving machinery that threatened to replace artisans with less-skilled, low-wage workers, leaving them without work. Workers in Nottingham organized a protest movement. The protesters were called the Luddites, named after Ned Ludd, a young man who had earlier smashed two stocking frames in 1779. The Luddite movement spread throughout England, involving handloom weavers burning mills and destroying pieces of factory machinery and other groups destroying wool and cotton mills. The British government suppressed the movement by 1817. Meanwhile, skilled artisans formed friendly societies to help silk workers and weavers fight unemployment and oppose “foreign” labor entering into their trades.

Technology is clearly destroying many jobs, probably faster than it is creating new jobs. Technology has been a job killer and disrupter of several industries, including publishing, music, retail, and manufacturing. We may be losing the race against the machine. Geoff S. Jones, a forty-nine-year-old car factory worker, believes that reduced need for human workers will decrease the ability of consumers to buy products. He writes in MIT Technology Review:

Those consequences will lead to some type of economic collapse if they’re not corrected—the magnitude of change is beyond the ability of our government and financial institutions to survive. The corporate need for ever-increasing profit will accelerate the use of robotics. I believe this is inevitable and unstoppable. Sounds like a good plot for some hard-core science fiction.²

I remember reading a science fiction story many years ago about an economy that becomes so automated there is little work left for humans to do. Everything produced is available in abundance. In fact, the government requires citizens to consume more than they want in order to keep the manufacturing equipment going. A few jobs are still available, and citizens bid intensely for these few jobs. They come from a generation that grew up working, and they want to keep working because there is nothing else they know or want to do with their time.

How automatized can a factory become? The idea of the assembly line goes way back to Adam Smith saying that each worker should make only a part of the product, such as the pinhead instead of the whole pin. Workers would no longer be artisans making the whole product, but instead specialists in one repetitious act.

In the early 1900s, Frederick Winslow Taylor pioneered the development of “scientific management” to find methods to increase output and reduce labor. As labor productivity is increased, fewer workers are needed to produce a given level of output. Henry Ford applied many of Taylor’s methods in developing efficient assembly lines in the manufacture of automobiles. According to Simon Head, in his book Mindless: Why Smarter Machines Are Making Dumber Humans, this amounts to “dumbing down” workers, turning them into robots who learn to do only one thing well or at least fast enough to get it done before the item moves ahead on the assembly line.³

Advances in technology allowed companies to build machines that could duplicate the work done by employees. The machines were increasingly driven by intelligent programs to perform repetitive tasks. Soon management began to visualize the whole factory being operated by one person who would watch the dials—plus one dog to make sure this person doesn’t fall asleep.

This managerial drive to control output and reduce labor did not stop with the factory. As service industries grew, management developed “cognitive digital control systems” to increase or improve service outputs in service industries. Simon Head discusses how Cathay Pacific trained its air hostesses to smile more and how college professors in England are measured by key performance indicators (KPIs) based on “balanced scorecards” to judge whether they should be promoted. The point is, there is a drive to robotize human behavior to make it more predictable and efficient.

Can automation reduce the number of jobs in the retail sector? Definitely! This is already happening. Customers walking up to Jessops, a seventy-eight-year-old British camera store, saw an ironic sign plastered on the front door: THE STAFF AT JESSOPS WOULD LIKE TO THANK YOU FOR SHOPPING WITH AMAZON.

As more shopping moves over to digital sites like Amazon, many stores will close and join the ranks of the late Borders bookstores, Virgin Megastores (France), Comet white-goods and electronics stores (Britain), and Tower Records (America). The fact is that the prices of goods are often lower on digital sites, especially if no sales taxes are collected. Furthermore, digital sites are working hard to speed up delivery so that waiting won’t discourage purchasing. Jeff Bezos bought a company called Kiva to do robotic sorting in warehouses and currently is investing in drones as a future delivery system, much to the consternation of the U.S. Postal Service and FedEx. Marc Andreessen, the digital venture capitalist, predicted, “Retail guys are going to go out of business and e-commerce will become the place everyone buys.”⁴ The question for us is, what will happen to all the people who worked in those stores? Certainly the digital sites will grow and hire more people, but far fewer than work in in-store retailing today.

FEWER JOBS FOR MORE PEOPLE

At the same time that automation is reducing the number of jobs, the labor supply is actually increasing. Many people who’ve lost their jobs are still out there looking for work—not all of them have given up the search. Legions of young people just out of college are struggling to find meaningful employment. As a result, there are more people looking for fewer jobs.

Let’s add another disturbing thought about the job creation question. Will there be enough jobs if the United States reduces its military spending on equipment and supplies and fewer military personnel are needed? National security spending accounts for more than half of all federal discretionary spending. During 2008, Pentagon data reported that the federal government maintained 5,429 bases in the United States and thirty-eight foreign nations. If defense spending were cut in half, we would have to close most of the foreign military bases and reduce spending on weapons development. This will represent the loss of a great number of military-related jobs. Add the fact that many veterans will return as we reduce our boots-on-the-ground military commitments in Iraq and Afghanistan. Where will the new jobs for all of these people come from?

Has the high level of military spending and our engagement in a number of wars been largely about job creation? We built 32,000 nuclear bombs (8,500 still exist), while only a few would have been enough to deter aggressors. The United States is building supercarriers for $12 billion each (a total of $120 billion) and F-35 combat jets for $80 million each (a total of $325 billion) at a time when most fighting against terrorists is carried out door-to-door or by drones. What is the connection between capitalism and militarism?⁵

Another development may further increase the supply of labor. American prisons today are swelling with inmates. The number of prisoners increased from 300,000 in 1970 to about 2 million in 2000. The United States accounts for 25 percent of the world’s prison population. Many inmates are incarcerated for drug charges. The War on Drugs hasn’t been successful; in fact, it’s been a disaster. Now, with more liberal treatment accorded to drug cases, many prisoners will receive reduced sentences and earlier release. Can good jobs be made available to them? Employers will run background checks, and many of them may not be willing to hire ex-prisoners. With the scarcity of jobs, ex-offenders will find it especially difficult to get work.⁶

The specter of a diminishing number of jobs has come up a number of times, especially during each of the many recessions when people were let go because of falling demand. This was such a serious question during the Great Depression of the 1930s that the U.S. government went into deep deficit spending to create jobs, guided by the theory of the economist John Maynard Keynes, who said that jobs can be created by fiscal policy even if monetary policy didn’t work. Employment slowly rose in the construction and other industries until 1937, when the government reduced its stimulus. Unemployment didn’t seriously go down until the country started to prepare for possible participation in World War II.

The good news is that all past business cycles eventually ended and jobs reappeared. The real question is whether the rapid acceleration of automation and information technology will put a new face on the problem of job creation. Jeremy Rifkin addressed this problem in his 1995 book The End of Work.⁷ Rifkin pointed to the rapid increase in the use of automation and information technology as potentially eliminating millions of jobs in the manufacturing, agriculture, retail, and service industries. He contended that the incomes of knowledge workers who produce the automation and information would increase, but not enough new jobs would be created to equal the number of old jobs destroyed. Even if they did, low-skilled workers would have lost their jobs and gone on welfare. Rifkin saw the possibility of worldwide unemployment leading to the need for more government welfare in the form of a “social wage” and the growth of the third sector of not-for-profit organizations to supplement the government’s provision of needed social services.

WHO WILL BE AFFECTED MOST?

There is a debate about which groups will be most affected by technological advances in automation. One would think low-skilled workers would be hurt the most because machines can be built to do unskilled routine work. But it can be countered that these machines may cost more than simply paying low wages to low-skilled workers. It may be that white-collar and middle-management workers will lose out to intelligent machines in areas such as accounting, financial analysis, and programming. Much bookkeeping is now done by automation. Many people can prepare their own legal service documents without using lawyers. The advent of 3-D printing makes it possible to replace some skilled artisans who do forging and welding. We may not need as many high school and college professors since students can learn much on their own by watching videos from massive open online course (MOOC) libraries describing many business theories and practices. The medical industry produces videos with avatars that can guide patients on rehabilitation exercises while watching a TV screen, reducing the need for health care facilities to have as many trained rehabilitation specialists.

There is no doubt that automation is impacting skilled and professional workers. An Oxford University study estimated that 47 percent of today’s jobs could be automated in the next two decades. The book The Second Machine Age shows how the field of “cognitive computing” is advancing in its use of “natural” language to undertake many complex tasks. IBM’s Watson has shown how machines can answer questions faster and recommend better answers and treatments for medical issues.

One critical question is whether there are brainier jobs that cannot be done by machines, and enough of these jobs. The other question is whether new types of work can be invented at a faster pace to replace the jobs that are being lost.⁸ New businesses tend to employ far fewer workers than in the past. Instagram, the photo-sharing site, was bought by Facebook for $1 billion in 2012 and had 30 million customers managed by thirteen people, whereas Kodak, a victim of the digital revolution, had to file for bankruptcy after once employing 145,000 people in its heyday.

Unemployment might rise even higher if the gap keeps increasing between the incomes of the rich and the poor. In the last thirty years, labor’s share of output has shrunk globally from 64 percent to 59 percent. Meanwhile, the income share going to the top one percent in America has risen from around 9 percent in the 1970s to 22 percent today. With fewer dollars in the hands of most Americans, they won’t be buying as many cars, television sets, kitchen appliances, and other items to constitute sufficient demand that therefore could create more jobs. Even then, many of these goods are imported and end up increasing the number of jobs in other countries rather than in the United States. Will the U.S. middle class get smaller and be replaced by a hyper-unequal economy that’s run by the top one percent of capital-owners and “super-managers”?⁹

SLOWER ECONOMIC GROWTH?

The underlying uncertainty about jobs is whether the U.S. economic outlook suggests slow growth or fast growth. I’ve already hinted that the outlook is for slow growth. This view has been promulgated by the economist Robert J. Gordon of Northwestern University in his paper “Is U.S. Economic Growth Over?: Faltering Innovation Confronts the Six Headwinds.”¹⁰ (One writer described this article as the most depressing economic idea of 2012.)

Gordon believes the big gains in productivity that supported an expanding middle class and the modern welfare state won’t be repeated in the future. He sees technology continuing to grow, but not likely to bring about brand-new breakthroughs on the scale of the steam engine, the internal combustion engine, indoor plumbing, electricity, the railroad, automobiles, airplanes, computers, and the Internet. Each of these inventions created spin-offs, such as highways, air-conditioning, and efficient factories that kept the economy growing for decades more. Gordon admits that the Internet and the digital revolution still has plenty of growth potential left, but he doesn’t expect it to have an impact on the scale of previous major innovations.

Furthermore, Gordon sees six other forces in the economy that are likely to dampen U.S. growth: “our aging population, our faltering education system, growing income inequality, rising foreign competition, the inevitable impact of global warming, and the need to eventually pay down our debt.” From 1891 to 2007, the nation achieved a robust 2 percent annual growth rate of output per person. Gordon estimates that these six forces will cut down half of the annual GDP income per capita to one percent growth. And he thinks innovation will be less than what produced our annual growth in the past. Put together, he thinks that our economy will at best grow at 0.5 percent per year for the next few decades. He suggests that the rapid growth made over the past 250 years could well turn out to be a unique episode in human history. He sees these forces combining to spell stagnation and a future decline in living standards.

ACQUIRING NEW SKILLS

There are, ironically, many skilled and middle-class jobs that can’t find workers. In August 2013, U.S. companies were unable to fill 7 million jobs, mostly in the science, technology, engineering, and mathematics (STEM) fields.¹¹ There is a disconnect between the skills that workers have or are acquiring and the skills that are actually needed. Low-skill jobs are being decimated by technology, creating a major unemployment problem. And not enough students are studying STEM subjects to equip them for a large choice of jobs when they graduate.

Clearly the demand for STEM skills is terribly out of balance with the present and future workforce skills, not only in the United States, but also in China and India and emerging countries. What are the possible solutions?

1. Set up better job-retraining programs for the current workforce, focusing on the types of jobs that will be in chronic short supply.
2. Do a better job of training U.S. students in math and science at the elementary and high school levels. Less than 10 percent of American students scored at the highest level of math, whereas in such countries as Switzerland, Finland, Japan, South Korea, and Belgium, 20 percent of students can perform at the highest math level. The need is to develop better educational leaders and better classroom teachers. This will require improving the salaries and status of teachers in our society to the level found in the most educationally competitive countries.
3. Educate high school students to better understand the job market so that they can make wiser career choices.
4. Bring together educators, businesses, and government groups, at the local level, to develop a shared vision of how to improve their job pipeline.
5. Encourage businesses to invest more in human capital development and be able to depreciate the cost of their investment, the same as they do with physical equipment.
6. Make it easier to attract more foreign talent to come and work in the country. Reduce the present impediments that limit entry visas.

ENCOURAGING ENTREPRENEURSHIP

Are there potential developments that could get the country back to a 2 percent GDP annual growth rate and create the necessary jobs? One approach is to encourage and facilitate a strong interest in and support of entrepreneurship. There are still many needs that go unsatisfied and there are many people with good ideas on how to satisfy these needs. These entrepreneurs need capital and knowledgeable help to create their businesses. Fortunately, the U.S. harbors many venture capital firms and there are many financial “angels” who might advance funds to would-be entrepreneurs.¹²

However, entrepreneurs face many hurdles in starting a business beyond their need for funding. How easy is it to start a new business in any country? Countries vary greatly in this respect. New Zealand is rated as the easiest place in the world to create a new business. Starting a business requires “one procedure, half a day, (and) less than one percent of income per capita and no paid-in minimum capital.” The top five countries in the ease of starting a new business include New Zealand, Canada, Singapore, Australia, and Hong Kong. The United States, by contrast, ranks well behind countries like Rwanda, Belarus, and Azerbaijan in terms of the ease of starting a new business. It requires an average of six procedures, five days, and 1.5 percent of the company’s income per capita when starting a new U.S. business.¹³

Nobody can predict the extent of new job creation through entrepreneurship and other means. Here are some possibilities that I would point to:

• There are many new technologies that have promising futures. Among them are mobile Internet, automation of knowledge work, Internet of Things (smart sensor technologies), cloud technology, advanced robotics, autonomous and near-autonomous vehicles, next-generation genomics, energy storage, 3-D printing, advanced materials, advanced oil and gas exploration and recovery, and renewable energy. Although none of these may singly produce the next great innovation, cumulatively their future impact can be great.
• Many manufacturing jobs might start coming back to the United States as foreign costs increase and as more value is placed on quick turnarounds. Although many products, such as those from Apple, are produced abroad, many of the designers and engineers and distribution experts are in the U.S. They are factoryless goods producers who should be but are not included in the manufacturing section of GDP.
• Technology replaces some existing jobs, but also creates new jobs. It also can lead money to flow into other hands through lower prices, higher wages, or higher profits, all of which stimulates demand that can possibly lead to hiring more workers. Corporate America is sitting on $2 trillion of cash in bank accounts abroad. Corporations don’t want to bring the cash back to the United States because the U.S. corporate tax rate is 35 percent (the average in other countries is about 20 percent). If this tax rate could be lowered, money would pour into the U.S. to build needed factories and infrastructure, which would greatly boost employment. The new GDP generated would well make up for the lost tax revenue resulting from the lower tax rate.

SUPPORTING THE UNEMPLOYED

If job creation remains low, what can be done to assist the unemployed? We already know that certain groups are particularly unable to find jobs. The unemployment rate is high for young African Americans. College students are graduating with accumulated student debt of over $1 trillion. And many seniors who lose their jobs are finding it hard to be rehired or find work at the wages they formerly received. How are these people to be supported?

Sadly, the cost of supporting the unemployed exceeds the cost of creating a job for them. This suggests that the great needs of the society for better education, health, and infrastructure ought to be met by the government supplying these jobs in the absence of the private sector creating them. The private sector’s interest lies in reducing its payroll expenses, not creating new jobs. As the government’s role increases in supplying work for the unemployed, it must fund the programs (much like the Works Progress Administration and the Civilian Conservation Corps in the 1930s) through either higher taxes or printing more money. The former becomes harder because of citizen resistance to higher taxes in an economy with more poor people. The alternative, printing money, has the potential of producing runaway inflation.

Among the better proposals for supporting the unemployed are the following:

• Share the work. Reduce the average workweek to thirty-five hours, as France did in February 2000. Assuming that the same amount of work remains to be done, the assumption is that companies will need to hire more workers. This did not happen in France, however, largely because French companies find it hard to lay off workers and don’t want to be stuck with more workers. France simply found ways to get more output from the existing workers.
• Establish a three-day workweek of eleven hours a day. Workers would have more time for family and they will constitute a larger market for entertainment and self-development products and services. This idea was proposed by the world’s second richest man, Carlos Slim of Mexico; it was also proposed, in some form, by Larry Page of Google.¹⁴
• Offer longer unpaid vacations. Honeywell did this.
• Increase the programs in job training and retraining. Recall that there are some industries—computer programming, certain engineering areas, the Internet—that might have worker shortages. Some U.S. industries are in short supply of certain technical skills and are anxious to import skilled people for these jobs. The DeVry Education Group and others offer many programs to train people in needed skills.
• Undertake a vigorous program to rebuild our deteriorating infrastructure—bridges, ports, airports, water and sewage systems—and build solar and wind farms and better electric grids.
• Establish “social wages” for those who have tried to get jobs but have not been successful. They will have more money to spend on goods and services, which will increase the number of jobs.
• Help American companies increase their exports from their U.S.-based businesses.
• Attract more foreign companies to locate their factories and offices in the United States to increase the number of jobs.

*   *   *

There are signs arising of a permanent class of long-term unemployed persons. Some persons make this their choice because they can’t get the kind of jobs they want. Others decide that they can make enough income working part-time or in temporary service jobs and then applying for unemployment insurance and food stamps, which allows them to make more than they would working at a $7.25 minimum wage. Some people can live on their inheritances or live at home with their family. Certainly, we need to examine the different groups that make up the long-term unemployed and see if they can be brought back to favor full-time jobs.

The kinds of jobs that are increasing in the United States are mostly in retail sales and fast food, temporary work (with no benefits), and low-paying service jobs. What does this mean for students who borrow great sums of money to get a college education with the prospect of ending up flipping hamburgers or being a greeter at Wal-Mart?

A person’s life meaning and dignity are highly connected to having a job and being able to move to a better job. When farmers left the land, they found plentiful jobs in industry. They didn’t need much of an education. Now industry has largely moved overseas. Today’s workers have to find jobs in the service trades. But many services require specific skills and people with low education often won’t qualify. The society has clearly lost its previous high mobility. The question is whether we can get back to a job-abundant society.