Tuesday, October 11, 2016
A Rising Tide of Animosity
When global efficiencies shift manufacturing processes to countries best suited – based on the labor costs, where automation replaces expensive industrial systems, there are always going to be winners and losers. Those able to pay for new plants in cheaper venues, the people and entities who own the automation, well, they are pretty clearly the winners. But since they are at the top of the food chain to be in that position in the first place, they only reinforce the notion that the “rich get richer.” They’re not tied to any particular location, and their money buys them factories wherever they choose to build them and equipment at whatever level they can afford.
Another batch of winners are those who are able to lift themselves out of poverty in developing nations to assume hands-on manufacturing positions. Sometimes, they are even able to immigrate to developed countries to take on the marginal jobs locals don’t want. Those in the developed countries who insist on getting high pay for less-skilled jobs that are easily replaced by outsourcing to overseas workforces or automated are the losers. Big losers. The spoils of international trade… trade that is good for some, and really bad for others.
For smug and highly educated professionals and experts, the acceleration of artificial intelligence will, sooner or later, put them in the same boat with workers who have been displaced by these changes. There are no maybes in this mix. Picture the above photograph with accountants, lawyers and doctors instead of steelworkers. This reality has set in here in the United States, it sparked Brexit and is fomented right wing politics in much of Western Europe as well. All the predictions of how open international trade would create opportunity for all, well, it hasn’t exactly turned out that way. Some have benefited. Others… For all that global populism, represented by Donald Trump here, there are no good solutions for those facing displacement.
“For generations, libraries full of economics textbooks have rightly promised that global trade expands national wealth by lowering the price of goods, lifting wages and amplifying growth. The powers that emerged victorious from World War II championed globalization as the antidote to future conflicts. From Asia to Europe to North America, governments of every ideological persuasion have focused on trade as their guiding economic force.
“But trade comes with no assurances that the spoils will be shared equitably. Across much of the industrialized world, an outsize share of the winnings have been harvested by people with advanced degrees, stock options and the need for accountants. Ordinary laborers have borne the costs, suffering joblessness and deepening economic anxiety.
“These costs have proved overwhelming in communities that depend on industry for sustenance, vastly exceeding what economists anticipated. Policy makers under the thrall of neo-liberal economic philosophy put stock in the notion that markets could be entrusted to bolster social welfare.
“In doing so, they failed to plan for the trauma that has accompanied the benefits of trade. When millions of workers lost paychecks to foreign competition, they lacked government supports to cushion the blow. As a result, seething anger is upending politics from Europe to North America… ‘The trade policy of the European Union is paralyzed,’ said the Italian minister of economic development, Carlo Calenda, during a recent interview in Rome. ‘This is a tragic situation.’
“The anti-trade backlash, building for years, has become explosive because the global economy has arrived at a sobering period of reckoning. Years of investment manias and financial machinations that juiced the job market have lost potency, exposing longstanding downsides of trade that had previously been masked by illusive prosperity.
“This tide of animosity may prove nearly impossible to reverse, given that technological disruption and economic upheaval are now at work in an era of scarcity. Today, many major nations are grappling with weak growth, tight credit and a gnawing sense that a lean future may persist indefinitely.
“The worst financial crisis since the Great Depression has left banks from Europe to the United States reluctant to lend. Real estate bonanzas from Spain to Southern California gave way to a disastrous wave of foreclosures, eliminating construction jobs. China’s slowdown has diminished its appetite for raw materials, sowing unemployment from the iron ore mines of Brazil to the coal pits of Indonesia.
“Trade did not cause the breakdown in economic growth. Indeed, trade has helped generate what growth remains. But the pervasive stagnation has left little cover for those set back by globalization.
“The North American Free Trade Agreement, or Nafta, exposed workers in the United States to competition with Mexico, but its passage came in the mid-1990s, just as investment was pouring into the Web, creating demand for a range of manufactured goods — office furniture for Silicon Valley coders, trucks for the couriers delivering e-commerce wares. China’s entry into the World Trade Organization in 2001 unleashed a far larger shock, but a construction boom absorbed many laid-off workers.” New York Times, September 28th. Has the “growth for all of us” curve of international trade finally hit a wall?
Reducing taxes for the rich, eliminating regulations, expelling immigrants, and abrogating trade agreements will not turn back the clock. For those who embrace a free-market system – capitalism – they are going to continue to face those really tough questions about what to do with growing income inequality and all those displaced from the once-lucrative job market. With more automation, even without cheap foreign labor, the problem is simply not going to get better without some very serious new political solutions. And we don’t seem willing to entertain workable answers… yet.
Those workers will not get their jobs back with the pay they expect… if they get them back at all. For the rest of us, the explosion of consumer prices from having to pay full expensive US-born workers to perform lower-level work will create another nasty acceleration of anger. And what are we going to do with all that automation? Burn it? Confiscate it from the rich and put highly paid workers back to their clearly obsolete jobs?
The realities is that we are simply going to have to address how we compensate our own workers, even those with really high levels of education, when there are really no jobs that they can take that would remotely pay them what they need even just to be “average.” The notion of “wealth redistribution” – a universal basic income, if you will – has been an absolute forbidden topic in American political circles, but Bernie Sanders just might have opened up our dialog on “socialism,” whatever that means.
We can experiment with slogan-driven “solutions,” even fracture the country into partisan pockets that can become mini-countries in and of themselves, but none of these efforts will reverse the tide that is transitioning work to machines or having masses of migrants seeking economic survival away from their home countries or in sweatshops where they live. We need bigger thinkers with bigger ideas. And that clearly cannot be anyone who believes that they can turn back time.
I’m Peter Dekom, and until we can face the world as it really is, providing solutions based on hard facts, the only changes we are likely to see are an increase in anger and those who are willing to act on that anger.