Monday, December 16, 2013

The End of Peak Blue: Productivity Up, Future Uncertain. By Walter Russell Mead.

The End of Peak Blue: Productivity Up, Future Uncertain. By Walter Russell Mead. The American Interest, December 16, 2013.


Productivity increases are almost always a good thing, but this time, rising productivity hasn’t translated into more jobs or higher wages. This has happened before, but it wasn’t easy. Can we transition again?

Unemployment is high, wages are stagnant, inequality is higher than its been in years, yet America is as productive as ever. Total productivity—essentially measured by how much a worker can produce in one hour—has risen substantially over the past quarter, growing faster than it has since 2009, according to a new Labor Department report.
This is both good news and a sign of the trouble we are in. Basically, it is always good when productivity goes up. Rising productivity means that capitalism is working: some combination of technology, management and competitive drive is enabling Americans to get more done—more widgets made, more meals cooked, more diseases cured—in less time. If absolute poverty is going to be defeated, if more people are going to be freed from repetitive, meaningless work, if humanity is going to have more time for art and culture because it spends less time in drudgery and toil, productivity must continue to rise.
But in times like ours, the link between productivity and wages looks broken. Back in Peak Blue, when the post-WWII model of mass production and mass consumption was working at its best, rising productivity translated very quickly into rising wages for most workers. Unions used those productivity figures to bargain for raises, and competitive pressures in a tight labor market forced employers to offer rising wages along with the trend in rising productivity. There was a close connection between the productivity level and the wage level.
That isn’t true today, and it hasn’t been true for the last thirty years. Lots of factors are at work, but the core issue has been the decline in manufacturing jobs. While the US is more productive than ever in manufacturing, fewer people have jobs in the field than in 1973. Add that shift to the mass entry of women into the workforce, throw in high levels of immigration (legal and illegal), and it is not surprising that wages have stagnated even though productivity has grown. And there’s another factor; productivity in some service sector jobs is harder to raise than in manufacturing. It is harder to increase the number of bedpans per hour that a hospital worker can change than to increase the number of widgets per hour a manufacturing worker can process.
So does that mean that the link between capitalism and rising living standards has broken down for good? There are lots of people who seem to think so, but history suggests they are wrong. The early Industrial Revolution, for example, was another period when productivity was rising fast but wages and living standards for many people were stagnant or falling. (They didn’t keep the same kind of statistics then that we do today, so direct comparisons are impossible, but the overall picture seems pretty clear.) In those days, agriculture was shedding jobs as British landlords shifted from renting small plots at low rents to subsistence farmers to more profitable but less labor intensive methods of agriculture like raising sheep. The combination of peasants flocking to the cities and skilled workers losing their jobs to new automated techniques meant that more people were looking for fewer jobs. Living standards for many workers fell sharply, and Britain was convulsed by waves of social unrest.
Making things worse, huge new fortunes were made both by the landlords getting rid of “excess” peasants and the factory owners hiring workers (including children) for pennies. It was not a happy time, and many people looking at England in that era, including Karl Marx, believed that a social revolution was inevitable.
In the end, the industrial revolution made pretty much everyone better off in most ways (though arguably jobs in steel factories and coal mines were neither as healthy nor as fulfilling as the traditional jobs on the land).
The information revolution seems to be following a very similar pattern. Old jobs are disappearing faster than new ones can be created, and rising inequality combined with stagnant living standards is making people rightly unhappy. Irritating fortunes are being made while millions of people struggle. Yet the underlying productivity of society as a whole is going up.
Instead of fighting a process that offers us and the rest of suffering humanity its best hope of better living in the medium to long term (and people should never forget that an information economy is going to be better for the environment than an industrial one), we should be thinking about how to manage the change as best we can, and how to accelerate the creation of new jobs in new fields as the old ones fade away. The key to restoring the link between productivity and wages so that the rising tide lifts more boats is to increase the demand for labor. As that happens, wages will rise, competitive pressures to attract good employees will rise, and workers everywhere will have more bargaining power when they negotiate with employers, whether through unions or as individuals.
Enabling more self employment, promoting small business formation and development, lightening the tax and regulatory burden on job creation and shifting some of the government’s research focus and capacity from research into agricultural and manufacturing based fields toward research that benefits the rise of a job-rich information economy are all things that we can and should be doing. They don’t even have to cost much money.
Rebuilding society in the aftermath of a broken social model is a big job, and creating an advanced information society will require even more social, economic, ideological and cultural change and development than it took to get from the Dickensian world of the early industrial revolution to the advanced industrial democracies of the age of Peak Blue. That’s the job that the Millennials face; they are one of the special generations in human history that must build a new world. It’s a high fate and in some ways a hard one, but it also gives a full scope to their powers of creativity and originality.