Progress, Technology and Seven Billion People: A Solution to Save Capitalism

Progress, Technology and Seven Billion People:

A Solution to Save Capitalism

By Jack Buffington, Ph.D.

Copyright by Jack Buffington, 2011

Smashwords Edition

Progress, Technology and Seven Billion People:

A Solution to Save Capitalism

TABLE OF CONTENTS

Introduction: The Permanent Impermanent Job

Chapter One: American Dream to Pitchforks and Torches

Chapter Two: Globalization: A Petri Dish for Technology

Chapter Three: The Evolution of Man and Machine

Chapter Four: 2029: A Technology Odyssey

Chapter Five: Adam Smith and Frankenstein

Chapter Six: An Economic Model for Seven Billion

Chapter Seven: Solutions for Manufacturing

Chapter Eight: Solutions for Services

Conclusion

Footnotes

INTRODUCTION: THE PERMANENT IMPERMANENT JOB

What’s going on here?

This book is about the seven billion people who inhabit the earth, their desire to earn a decent standard of living, and the machines that are being deployed to eliminate work from them. In 1964, the television show, The Twilight Zone presented an episode titled, The Brain Center at Whipple's that depicted a CEO who was fascinated with the opportunity to completely automate all facets of the factory operations at the expense of the workforce. The plant manager, foreman, and chief engineer all called upon Mr. Whipple to understand the impact that automation was having on the company and society as a whole. Nothing personal, it's just progress, Mr. Whipple proclaimed after each ensuing phase of technology was implemented. In the end, it was Whipple himself who was the victim of automation, and the last scene was of a 1960 style robot exacting his mannerisms. Progress or stability? Consistent to the theme of this episode, I guess it depends upon one’s perspective, and self-interest.

Just a generation after this Twilight Zone episode, the collapse of the manufacturing sector in the early eighties began to show its effect: inflation at 14.8% in 1980, mortgage rates of 18.5% in 1981, a gallon of gas was $3.45 in 1981 (in 2008 dollars), and unemployment was over 10% nationwide in 19821. Deindustrialization was in full swing: in the 1950s, 35% of the U.S. workforce was in industry, and today it is less than 15%. In my hometown of Baltimore, Bethlehem Steel (the world’s largest steel mill in 1959) employed 35,000 workers in 1959, dwindling to 8,000 in the late eighties, and dropping to irrelevancy today. From the mid-sixties to the mid-nineties, Baltimore lost over 100,000 manufacturing jobs; an astounding statistic given that, at its peak; it had less than one million residents in the city, and less than 2.5 million in the metro area2! Growing up in the rust belt during this time period gave me the opportunity to see the effects of deindustrialization first hand, and as a result, I did not want anything to do with manufacturing, much like those of my generation from cities like Detroit, Cleveland, and Pittsburgh.

Finding a professional job after college for me was not easy, so I bartended and interned with a bachelor's degree, and even mowed lawns and landscaped while I was completing my MBA. Eventually, I landed a white collar job as an entry level financial analyst/accountant in 1990 with United States Fidelity and Guaranty (USF&G), a large property and casualty insurance company based in Baltimore. One month into the job, the current CEO, a long-term employee named Jack Moseley was replaced with a Mr. Whipple-type leader named Norm Blake, who proceeded to gut the organization through an endless drumbeat of corporate reorganizations. Every Friday for a year, or so it seemed, more employees would walk in the building at the beginning of the day than would leave at the end. After a short period, I realized that seeking stability as a white collar worker would be as futile as a strategy as doing so as a blue collar worker. Yet in white collar work, there were no Japanese to blame for job losses; the culprit was more insidious, and difficult to detect. After all, who would blame the progress of the computer for one losing his job? One man’s progress was another man’s pain.

I remember back then there was a spoof song on my favorite radio station to the Buddy Holly song Wake Up Miss Susie titled, Wake Up and Eat Sushi, America, identifying Japan as the villain of deindustrialization. While it was fashionable in the early 1990s for pundits and talking heads (like Donald Trump, of all people) to pile on, and blame everything wrong in the U.S. economy on Japan, there was not a word regarding the future tsunami of the personal computer that was beginning to merge. Today, as Americans fret over the Indians and the Chinese, the same holds true: few are discussing the impact of technology on the economy. Statistically over the past decades, more jobs have been streamlined due to automation rather than globalization, yet we don't see protest events like a scene at Whipple's factory when the foreman bashes a computer with a tire iron (before Whipple shoots him with a guard's gun). It was no coincidence that during my seven year tenure at USF&G from 1990 to 1997, when the processing speed of the computer almost quadrupled in speed (Moore’s Law, as is illustrated below in Figure 1), the number of employees fell from 12,600 in 1990 to less than 5,000 in the year that I left3. The intention of this book is not to call upon citizens to stage massive protests against computers, but rather to understand how technological change is such a silent but powerful variable to the global economy.

Figure 1 – Illustration of Moore’s Law

Most people have never even heard of Moore’s Law, and struggle with a law, so to speak, that is not of the natural world, like Newton’s Laws of Motion. How can the evolution of computer technology be akin to that of gravity and motion (keep reading and you’ll find out!)? For your own benefit, you better believe it: I hypothecated in 1990 that if the computer processing speed is to double every two years, then I better reinvent myself once every two years as well in order to stay marketable. This began the process of my career journey when I continually reinvented myself, from a financial analyst and manager at a financial services company, to a Big Five consultant (in the late 1990s when it was all the buzz), to a leader in electronic business for a large company (again, following the wave of the buzz), and so on, even today. I have and will zigzag my way through my career, seeking to ride the wave of technology, never to fall prey to it. Considering myself to be a fan of complex adaptive systems, I define myself as a survivor of impermanence, and all that it brings being a 21st century worker.

For sure, growing up in Baltimore taught me early on how to survive in the face of uncertainty and impermanence during these days of deindustrialization when everything seemed to be crumbling down. Despite this early on training, I would be foolish to suggest that what happened could have been predicted by me or Nostradamus. Who really predicted in scale and scope that electrons would be imported to India for processing, allowing this third world nation to leapfrog a conventional development path (agrarian to manufacturing to services) and become a direct threat (or so it seemed) to the American white collar workforce? At its onset, I saw it firsthand, working closely with Indian programmers and business managers, and American programmers who were affected by competition working for 10% of their wage. One of those initial business managers in India, Nandan Nilekani, the past CEO of Infosys (a leading Indian IT service firm) during the early 2000s, coined the term, the world is flat to describe the transformation of the world from one of inequality to an environment of a level playing field for commerce. A few years later, American author Thomas Friedman popularized the term, selling millions of copies of his book in numerous languages, leading those from the third world to believe that globalization brought forth endless possibilities. In his book, Friedman told the developed world that everything would be alright, don’t worry, yet globalization was happening very fast, with roughly 5 billion people in the developing world who were living on less than $10 a day4 believing that their time has come.

In the U.S., Friedman was ridiculed by pundits and politicians who disagreed that globalization was equitable and good for the U.S. In his 2006 book that can largely be seen as a rebuttal to Friedman’s The World is Flat, Senator Bryon Dorgan’s book Take This Job and Ship It, blames corporate greed and brain dead politicians in an attempt to classify any entity that moves jobs away from the United States to be a Benedict Arnold. Identifying CEOs and those who offshored to India to be akin to the worst traitor in U.S. history was intended to stroke the fears of the disenfranchised who were already looking for someone to blame. When my first book, An Easy Out was published in 2007, I sought Senator Dorgan for a debate on the topic of the U.S. economy and offshoring; while I doubted that he would ever accept my invitation (he did not). Yet if he did, I was prepared to show up to the debate with copies of books written in the 1980s that were followed a similar format of blaming the Japanese for our economic woes, as he was blaming the Chinese and Indians. Whether we would like to admit it or not, history has repeated itself once again.

Technological change, in fact, is the primary driver of the permanent impermanent job, the jobless recovery, or whatever you would like to call it. It has been the foundation for the global economy over the past few centuries (if not millenniums), and its trend line exponentially accelerates. Yet, automation is impacting labor in local environments much greater than any act of globalization. Harvard Business School professor Pankaj Ghemawat found that 90% of the phone calls and traffic over the Internet is local5, leading to even greater disintermediation at home than is occurring from India or the Philippines. Self-check-out lines in your supermarket and Home Depot, self-banking, automated post offices, travel sites, and so on, leading to greater disruption than those from China and India. Demagogues like Bryon Dorgan and Lou Dobbs have not connected the dots back to technology, with it being the common denominator both home and abroad. Whether local or twelve time zones away, our economy is on a technology trajectory that cannot be effectively controlled or stopped, and rather must be understood. As technology continues to accelerate in capability, affordability, and ubiquity, the labor model of every economy, from every nation will be increasingly disrupted. This statement is not a matter of opinion, but rather an established rule of law in modern economics, which I will discuss to be the problem outlined in this book.

I confess at this point that the strength of this book is not intended to bring forward a myriad of epiphanies for you to be amazed by, but rather to show you the evolutionary, slow path of progress over decades in the U.S. economy. The trends that we are seeing today are not new, and have been emerging for some time. Noted futurists of the past such as Alvin Toffer (The Third Wave) and even Thomas Friedman (The World is Flat) have been speaking of this amalgamation of technology, society, politics, economics and culture for some time now. While it may feel to us as if this technological impact has come from out of the blue, the technological progress pattern that we are on today has been inevitable since the advent of Adam Smith’s classical concept of economics from 1776. I will discuss this point in great detail later on in the book. For now, understand that technological change has been on a path for centuries to eliminate the labor function in the economic growth equation of modern economics.

Geeky Economic and Techie Stuff

Warning: this book will include some geeky economic and techie stuff to build the case that our permanent impermanent jobs are the result of an acceleration of technology that is eliminating the role of labor in the development of economic growth. Let me start this short trip through the field of economics by identifying a traditional economic production function between capital and labor. In 1957, noted economist Robert Solow concluded that a residual or unexplained portion of economic growth in the U.S. stemmed from technological advances, and that this residual far outweighed changes in capital or labor5. This made sense: technological change (from the first tool to the computer) has always powered growth throughout the ages, even if not in the form of capitalism. With computer technology doubling in processing power every two years, automation is increasingly replacing workers, and capital becomes labor. While certainly an efficient process through the ages, technology has lately created an unhealthy balance in the economic production function, with workers being eliminated from the equation. As technology continues to advance, the adoption of its use becomes easier and cost becomes cheaper than labor, leading to a workerless business model, with productivity driven by automation. This is a normal economic phenomenon: falling prices (and labor) occurs in a strong economy, not a weak one. From the onset of the U.S. as a nation until the beginning of the 20th century, there has been only one instance (Civil War) when prices were not falling, due to progress. However, with economic growth, this has today led to what is being called a jobless recovery arising from each ensuing economic downturn. Therefore, employment is becoming permanently