On the NewsHour Friday night, in response to the dismal new jobs numbers, Andrew McAfee of the MIT Center for Digital Business blames the loss on “powerful” new labor-saving technology. But if he’s right, is it the technology itself, or the large corporations that install it?
The claim that new technology destroys jobs is at least as old as the industrial revolution; it’s always been met with the counterclaim that new technology creates jobs too. And after all, the growth of any modern economy depends on adopting ever more labor-saving technology. Is something different this time? If so, what? Here’s what McAfee says:
“About 30 years ago, wage growth for the average American worker started to taper off. And for the past 15 years, it’s actually been negative. About 12 years ago, job growth started to taper off as well. Of course, that took a huge dive during the great recession and has really not recovered at all.
And I look at these longer-term trends, and I think they’re part of a pattern, as are technologies. And especially our digital technologies just continue to get so much more powerful and to demonstrate all these new capabilities. That means that we tend to need human labor a little bit less, as the digital labor gets more and more powerful. That trend, I think, is only going to continue.”
McAfee unwittingly drops a clue in this statement. What happened 30 years ago? The Reagan Revolution, that’s what. In the name of creating a “free market”, the Revolution created exactly the opposite. By cutting taxes on the rich and on corporations while raising payroll taxes, the Revolution tipped the policy balance in favor of the One Percent and against small business. By cutting regulation and anti-trust enforcement, the Revolution set off a wave of mergers and takeovers unparalleled since the era of robber barons. Mergers that would have seemed unthinkable even a decade ago—such as the new combination of US Air and American Airlines or Comcast and NBC (2009-11)—happen without more than a peep from the Justice Department. And in the crisis of 2008, the government not only bailed out the culprit banks, but officiated at a series of shotgun marriages—as between Wachovia and Wells Fargo; or Bank of America, Merrill Lynch and Countrywide—that left us with a handful of Even-Too-Bigger-to-Fail banks.
But what’s the Reagan revolution have to do with new labor-saving technology and employment? Quite simply, big corporations, especially big monopolistic corporations, tend to carry labor-saving technology too far. They automate too soon and too much. The reasons are pretty obvious once you think about it. First, the bigger an organization, the greater the management bottleneck, that is, the more difficult it becomes for top management to keep track of lower levels. There could be no better example than the story of how the risky trades of the “London Whale” blindsided Jamie Dimon and cost JP Morgan billions. So managers of big corporations understandably seek to replace fallible or potentially-dishonest employees with machines. Second, big corporations, awash in cash, can easily afford to automate. Third, there’s the “gee whiz” factor—the temptation to automate even if it’s not cost-effective, because the new technology is so cool and the CEO wants to appear to be “with it.”
As a consequence, large corporations hire far fewer employees per dollar of sales or assets than do small businesses—the true “job creators.” For example, according to 2007 Census data, comparing firms with under half a million in sales to those with over $100 million, the small firms averaged 15 employees per $100 million sales while the big ones averaged only three. The greater the share of the economy that large corporations control, the more their labor-saving propensities put the squeeze on workers.
So yes, new technology is indeed destroying jobs. But in focusing on technology rather than the corporations that install it, scientists like McAfee ignore the elephant in the room: the growing concentration of wealth and corporate power.
Polly, yours are insightful points that I hadn’t thought of, but having seen McAfee’s TED talk, I have a few more:
(1) Since the 1980s the U.S. has run a trade deficit, which creates a debtor economy. The cheap capital has promoted a stock bubble and two land bubbles, something McAfee doesn’t apparently know anything about.
(2) The U.S. tax code, especially the payroll tax falls very heavily on labor. Machines don’t pay FICA.
(3) McAfee’s utopian view of computers is naive. Computers can index information better than humans, but they can’t synthesize it. There’s a limit to how much indexing we really need. Human thoughts are not ones and zeroes.
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McAffee’s work was also covered in depth in the BBC Radio 4 show In Business (http://www.bbc.co.uk/programmes/b01rlrjs). The disconnect between rising productivity and employment may well be due to “robots”, and deregulation and the rise of corporations may well have sped up this process. But Georgist insights are unmissable when it comes to properly understand the disconnect between rising productivity and (falling) living standards of the majority. The workings of the law of rent means that rising productivity due to technological innovation will not “float all boats”. George understood this 140 years ago. Its high time academics and media analysts of today caught up!