Broken Promises - III

The process of industrialization makes an implied promise of providing relatively secure, well paying jobs. Indeed in the modern world, governments have to go for industrialization. There is no other alternative. At the same time, there is the process of globalization underway. The problem is that the imperatives of globalization and that of industrialization are often at odds with each other. The interactions of these two trends enables corporations to play one country against another and at the same time successfully impose harsh working conditions on their workforce. The level of the individual concerned is immaterial. The high ranking manager is just as terrified of losing his or her job and all the benefits that accrue with it as the factory worker. This is why both types are willing to sacrifice family and personal life and work insane hours for what are relatively meager rewards for the amount of effort and hours put in.

Quite apart from globalization, companies are putting efforts in the development of advanced robotic machinery and computerized systems. There is a clear logic behind these efforts. Robots can work 24/7, do not require time off and do not do things like going on strikes. Similarly, knowledge systems seek to incorporate knowledge and insights that a manager will typically acquire over his career. Here the primary effort is to "lock" in the knowledge and insights so that they can be used after the manager is no more on the scene. Both trends tend to have a similar effect. The number of people required to run the system gets smaller. In the past, new forms of technology came along to absorb the people thus rendered surplus. The same will happen again. The question is one of timing. Unfortunately, the process of people being rendered surplus is happening far faster than the development of promising new technology and processes. So a large number of people, specially older workers both managerial and non-managerial, are finding their skills obsolete and their services no longer required.

Clearly something is amiss. Workers of all stripes, educational background and skill level face an uncertain future in which they can never be sure when they become redundant. It does not matter if they are in a developed country or a developing one. The normal argument given in such cases is that people must upgrade their skill and knowledge levels. This ignores their academic inclinations as well as their willingness and ability to learn the new skills required. Besides the problem is that many of the upcoming technologies are in their infancy. They are still being heavily developed. Most have not yet emerged from scientific laboratories. As a result, the knowledge of these industries is changing rapidly as new discoveries are made and new theories are propounded and proved or disproved.

There is the additional question of exactly what new technologies will provide the basis of future growth? The situation is currently murky. Betting on the wrong horse means wasted time and effort for little or no reward. Blithely saying upgrade skills and knowledge does not give people an idea of how to direct their efforts. We are thus faced with a deadly combination of redundancy, globalization and rapidly changing technology with concomitant rapid advances in knowledge. The pace of change is blistering and ever increasing.

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Broken Promises - II

The process of globalization and outsourcing means that jobs are coming to developing countries. While developed countries may be losing jobs, developing countries are gaining them. These jobs are no longer just manual labor or factory work although these are still coming. Higher end "knowledge" jobs are also being outsourced. Basically any job that does not require face time with clients is at the risk of being outsourced.

Most economists generally view this as a net positive when looking at the system as a whole. Consumers in the developed countries get goods at a cheaper cost while people in the developing countries get gainful employment. What's not to like? The problem lies in the very factors that under-gird the process of globalization.

At the lower end of the job spectrum, workers face the constant threat of jobs moving to still cheaper locales. As a result, they become willing work under appalling, often unsafe conditions for exceedingly low "market" wages. The argument that they are nevertheless still better off than previously simply highlights their desperate poverty. The availability of cheap goods comes at a high human cost that is largely invisible to more well off consumers. The wages that these workers get generally allows them no better than subsistence living. This in turn hampers the economic development of the host country. Since domestic consumers are too poor to buy the goods that they help to make, companies do not have an incentive to produce goods for them which means that the foreign investment that comes in is geared towards the export sector while neglecting domestic needs. The only way to break this circle is if the host government takes active steps to mitigate these effects and promote domestic development. However, this is not an easy task since the foreign companies then threaten to shift jobs to other, more pliant governments. There is then the distinct possibility of thousands of workers being unemployed with the concomitant social problems; something that no government will contemplate with equanimity.

At the higher end of the job spectrum, middle class, "knowledge" workers face the same threat both in developed countries and in developing countries. The advances in logistics and communications technology that made it possible to outsource low end jobs are now doing the same at the upper levels. Basically, all back office work can be outsourced. This includes jobs that range from accountancy to engineering design to paralegal work to software creation and so on. All of this work was supposed to be the domain of developed countries but that ignores the fact that anyone can get the same level of knowledge while sitting anywhere in the world. Also, these jobs are much easier to move around than factory work. In the latter case, companies have to shut down physical plants and rebuild them elsewhere. For much knowledge work, all one needs is a computer and fast internet access. Now companies are in the happy position of being able to pit knowledge workers around the world against each other. This reduces the value of this work and lowers wages in these areas. So graduates in developing countries are not immune to the forces that brought them the higher end jobs; these same forces can easily shift such jobs into still lower wage areas.

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Broken Promises

We have been betrayed. All of us. No exceptions except for a tiny minority. It does not matter whether we live in a developed country or a developing one. We were made a promise that has been broken. False reassurances were given. We were lulled into a stupor and now are slowly awakening to conditions that we don't recognize and never agreed to.

The promise was made as a result of the development, export and expansion of the industrial revolution. As a result of this, technological innovation has exploded. New inventions and new ways of doing things are constantly being developed. At the same time there is an increased emphasis on obtaining technical education to fulfill the demands of the new technologically oriented society. This has affected both developed and developing countries. The only difference between the two is that the latter experience these trends later than the former although the time delay has been shrinking rapidly.

So people in the developed countries have been strongly encouraged to obtain a university education. This encouragement has been backed up by reams of statistics from "experts" which showed that people with a university degree earn significantly more than their less educated peers. People were told that the future was in the "knowledge" economy. Thus when the first wave of outsourcing to the developing world hit the labor classes in the developed countries, "experts" were on hand to reassure everyone that the future did not lie in the "dirty" manual labor. Brain power was more important. The blue collar jobs lost will be replaced by higher paying, white collar jobs in which knowledge is more important. No need to get hands dirty when the more important, higher value added, better paying cerebral jobs will be available.

A little thought on this claim would have quickly exposed it as being largely a piece of fiction. There is no monopoly on knowledge. A person in the developing world can acquire the same amount and level of knowledge that anyone in the developed world can. Furthermore, developing countries have lower living costs than developed ones so such a person can be acquired at a cheaper price than a similarly knowledgeable person in the developed world. The same technological, economic and communication factors that have made outsourcing of manual jobs feasible do the same for "knowledge" jobs. So for example a qualified accountant in the developing world can be acquired for a fraction of the cost of an equally qualified one in the developed world. Similarly a developing country hardware designer can design a new computer chip at a much lower cost than a developed country hardware designer. Thus outsourcing of middle class, higher end "knowledge" jobs was only a matter of time and already this process is well underway. What is left are jobs that require face to face, physical interaction with clients and customers. That is why McDonalds can add jobs in developed countries whereas General Motor is shedding them. It is to be noted that at the high end, face to face, physical interaction is becoming less important as technology advances to a point where it becomes possible to transmit holographic images around the world. So at the high end, these jobs will also be under the threat of being outsourced.

All of the above means that people in developed countries are sitting pretty right? After all, jobs are coming to them. Their counterparts in the developed countries may be getting fired but they are getting hired. And it is not simply low end manual jobs that are coming their way. As the above indicated, high end, "knowledge" jobs are also coming their way.  Therefore for the developing countries, good times indeed. Not quite. The picture here is not as rosy as it seems.

Labor as a Commodity - III

The type of work that you want to extract from a commodity does not matter. It does not matter if oil is used to power a car or an airplane. If labor is to be treated as a commodity, then the type of work that it is to be asked to do should also not matter. It should not matter what industry someone is working in. At any stage, that person should be willing to undergo any type of retraining necessary for the demands of the economy.

The problem with this reasoning is that commodities do not have an independent existence outside what they are asked to do whereas people do. The type of supreme flexibility that this particular assumption implies is simply not present in the case of labor. People develop relationships based on where they live and work. These relationships are not always easy to discard. Retraining is an integral part of the new thinking about labor. Now training has always been a part of work. New technologies demand new ways of working and people have had to adjust to the new reality thus created. What is different now is that people are expected to retrain in completely different areas not once or twice but three to five times in their working careers. It is also assumed that the learning capacity of people does not change over time and that a person of say 50 are able to learn at the same capacity and the same rate as somebody 30 years younger.

Incidentally, the idea of a working career has also changed. Whereas previously people were expected to work for a time and then retire, now they are expected to keep working for as long as they are fit. This is also in alignment with the concept of treating labor as a commodity.

Labor as a Commodity - II

There are certain assumptions central to viewing labor as a commodity. Incidentally labor here refers to managerial and non-managerial work. Some of these assumptions are:

1. Labor will behave like other commodities.
2. The type of work does not matter.

Lets examine the first of these assumptions. A crucial underlying premise underlying the idea that labor is a commodity is that it will behave like other commodities. Generally speaking, the price and availability of commodities depends on the interaction of demand and supply leavened by the availability of substitutes which in turn are influenced by the same interaction of demand and supply. If the price of a commodity goes up, then its supply can be ramped up relatively quickly. Similarly if the price goes down, then its supply can be decreased relatively quickly. The same argument holds true on the demand side.

This is the case for all commodities except labor. In the short term, the supply of labor is essentially fixed. No matter how high the price may go, the demand for labor will increase only gradually and over a long horizon. This is specially true of technical and professional work. It takes time, effort and money to train a professional. Furthermore, in order to maintain a level of knowledge of a certain profession in a society, a sufficient number of people have to undergo training in that profession. Otherwise the requisite skills will be lost at a societal level as older members of the profession retire and are not replaced. It is certainly not the case that a society can ignore a profession and not train people in it and then quickly ramp up production as demand increases. Once the older members retire or die, there will be an increasing shortage of the required skills which will not be easily replaced.

There is another problem that occurs if labor is treated as a commodity. This is a serious problem that has largely been ignored. Advanced economies require steady input of people into professional services. Research and development are essential for the long term growth of economies. Research is never done in isolation. It builds up on previous work and is increasingly collaborative. However, collaboration requires a critical mass of people knowledgeable in a particular area. Without this critical mass, research is severely hampered. One of the reasons why developing countries lag so seriously with respect to developed countries in research is that the former do not have this critical mass of professionals. However people will only enter a profession if they see future prospects in it. but of they don't enter, then the profession is more likely to be shifted to areas where there is this critical mass mentioned above. Thus a vicious cycle sets in through which an economy can lose needed skills in a very short time - generally speaking no longer than a couple of generations.

So labor does not behave like other commodities. Treating it as if it does has serious repercussions to an economy. These are repercussions that affect the long term growth rate. It should be noted that doing this often increases profitability in the short term, sometimes dramatically so. But this growth comes at a serious long term cost.

Labor as a Commodity

Is labor a commodity or not? Is it just a factor of production or is it something more? This question goes into the heart of the type of society that we have built and are building. Treating labor as a commodity means treating people as commodities. A key point to be remembered about commodities is that they are meant to be used and then discarded. In other words, commodities are either transformed from one state to another or they are consumed either physically or otherwise. When people are treated as commodities, then this implies that they are to be used and then discarded.

For about 50 or so years, there was an unspoken compact between companies and their workforce. This compact meant that workers (and I include both managerial and non-managerial staff in this category) could expect to rise fairly steadily up the hierarchy partially depending on performance and ability criteria and also see a concomitant increase in wages received. This compact is one of the reasons behind the rise of the middle class first in the developed world and then in other parts of the world as well. This middle class is extremely important for the modern capitalist system as it is one of the main drivers of growth in an economy. The middle class is the largest buyer of goods and services in virtually all categories. It is also a bulwark against social unrest. It gives hope to lower income people that they will be able to join its ranks one day.

However, now the compact which helped to create this most important class of people is broken. Companies increasingly treat labor as just one more input to consider. Under such circumstances,what matters is the price at which the commodity is available. Capitalists have an inherent interest in lowering the cost of all input including labor to the maximum extent possible. This is a primary logic behind outsourcing. This is also a reason behind pressure to reduce wages - pressure that is largely supported by economists. There are also some underlying assumptions behind this treatment. The basic assumption is that labor as a commodity will act like other commodities in terms of demand and supply. Another assumption is that the type of work does not really matter. Labor is interchangeable as far as the type of work is concerned in the sense that anyone can be plugged into any type of work at any time anywhere at any price (or in normal parlance pay scale). How far these and other such types of assumptions are true will be examined in later posts.

On Work

For most people, the work that they do is a strongly defining identity. In their minds, their work is a validation of their existence. This thinking is reinforced when people are viewed through the prism of consumerism. This view reduces people into objects and separates them according to their ability to buy. Not only that, it induces people to start viewing themselves as objects. This has several consequences.

One is that people are treated like any other input in the economic calculations of managers. In this environment, profit considerations become paramount and social aspects of work are downplayed and steadily ignored. Thus companies have no hesitation in relocating factories regardless of the impact on the local workforce. Second is that automation becomes easier to justify and implement. People and machines can be treated as being interchangeable. Thus over time the nature of the work changes. A third consequence is that since the job that a person does helps to a large extent to define his identity, when that job disappears, the affected person is left groping in the dark without any guiding light. Society too defines a person's worth on his ability to buy things and this ability is severely hampered by the loss of a job. A fourth and consequent effect is that people are rendered passive in the face of what seem to be overwhelming changes. Most people expect to work in a company and to a very large extent, we are conditioned to this expectation by the strong focus on job growth figures.

These consequences affect all types of work regardless of whether it is blue collar or white collar, labor or managerial, manual or knowledge based. How these consequences are playing out and what can be the form of work in the future will be explored in subsequent posts.

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