← Autodidact Archive · Original Dissent · Hilaire Belloc
Thread ID: 12645 | Posts: 2 | Started: 2004-03-04
2004-03-04 04:48 | User Profile
[url]http://www.thephora.org/showthread.php?s=&threadid=4133&highlight=postindustrial[/url]
I am reading an excellent new book at the moment, Unsustainable: How Economic Dogma is Destroying American Prosperity. This is an excellent critique of the so-called 'new economy' and 'post-industrial economy'. Here is a small excerpt, three strikes against the New Economy.
Strike One Against the New Economy: A Bad Job Mix
The most obvious problem with the New Economy is that it creates an unbalanced mix of jobs. Whether we are talking about financial engineering, legal services, computer software, movie-making, healthcare, broadcasting, database management, consulting, scientific research, or telecommunications, most postindustrial jobs are for people of considerably higher than average intelligence - typically people whose IQs rank in the top 20 percent in IQ tests, if not in the top 5 percent or even 1 percent. In this regard, postindustrialism constrasts sharply with manafacturing, which, of course, generally creates a well-balanced range of jobs.
For workers who like the rarefied talents needed to succeed in postindustrial services, therefore, the United States' shift to the New Economy is little short of a disaster. In fact, their job prospects are so discouraging that even the postindustrialists don't bother to sugercoat the pill. As estimated by the postindustrial economic commentator Michael Rothschild, up to 20 percent of the American work force will be marginalized by the move to an information-based economy. That amounts to a shocking 25 million people - or nearly four times the total number of jobless workers in the United States as of 2001!
Yet, Rothschild and his cohorts see the sacrificing of so large a share of the work force as not only inevitable but even acceptable - because the collateral advantages of postindustrialism for the rest of the economy are supposedly so large. They imagine in particular that postindustrialism is a formula for generally fast growth in incomes. Would that it were so. It is time to consider the second strike against the New Economy.
"In essence, as American labour is not represented in American boardrooms, the real losers from technological globalism have no say in the matter. Moreover, workerââ¬â¢s interests count for so little these days that American corporate executives openly proclaim their commitment to utopian globalism without the slightest fear of embarrassment. The patter was memorably exemplified a few years ago by an executive of Colgate-Palmolive, who told The New York Times: ââ¬ÅThe United States does not have an automatic call on our resources. There is no mind-set that puts this country first.ââ¬Â A similarly outspoken disregard for the interests of American labour was apparent in a remark by NCR President Gilbert Williamson some years ago, when he said: ââ¬ÅI was asked the other day about the United Statesââ¬â¢ competitiveness and I replied that I donââ¬â¢t think about it at all. We at NCR think of ourselves as a globally competitive company that happens to be incorporated in the United States.ââ¬Â
Eamonn Fingleton, Unsustainable: How Economic Dogma is Destroying American Prosperity (New York: Thunderââ¬â¢s Mouth Press, 2003), pp.34-35
Strike Two Against the New Economy: Slow Income Growth
That the United States' drift into postindustrialism results in weak income growth is one of the most serious, albeit one of the least recognized, drawbacks of the New Economy.
Yet, the evidence is undeniable. More than two decades after the United States began its fateful experiment in full-scale postindustrialism, international economic comparisons have consistently shown that Americans have lagged in wage growth in the interim. The point stands out dramatically in statistics for hourly compensation costs compiled by the Geneva-based International Labour Organization. According to the latest statistics available as of 2003 at the ILO's website, hourly compensation (wages plus benefits) in no less than ten nations exceeded that of the United States. The nations were Germany, Norway, Switzerland, Denmark, Belgium, Austria, Sweden, Finland, the Netherlands, and Japan.
Of these, Germany, Switzerland, Austria, Sweden, and Japan are particularly noted for the large share of their workforce engaged in manafacturing. Indeed with just two exceptions - Norway and the Netherlands - all the nations identified by the ILO as exceeding the United States in total hourly compensation also devote a larger share of their labour force to industry than the United States.
As for the Netherlands and Norway, neither nation constitutes a model for a deindustrializing United States. They owe their high positions in the compensation league table not to any special merits of their service industries but rather to their lucky endowment of natural resources: both are major exporters of natural gas and Norway owns much oil as well.
In any case, the absolute levels of incomes we have been discussing so far are less important than the pace of income growth. And here the facts are even more clearly against the postindustrialists.
A particularly appropriate starting point for any analysis of income growth is 1980. This was the year when the merits of postindustrialism were first widely debated in the United States. The debate began afte the social philosopher Amitai Etzoini published a gloomy analysis of the United States' deindustrialization. His concern about the United States' then-incipient drift out of manafacturing was widely challenged by many feel-good commentators, who proceeded to enunciate the now widely accepted doctrine that a shift to postindustrialism boosts the United States' income growth.
In any event, American incomes as measured in non-inflation proofed dollars grew by 207 percent in the twenty-one years to 2001. Although this may seem respectable, it pales by comparison with the performance of virtually every advanced nation that resisted the postindustrial trend. In South Korea, for instance, growth in dollar-denominated incomes was more than fivefold in the period and in Japan nearly fourfold. Perhaps even more significantly, virtually the only developed nations that lagged the United States' performance were the United Kingdom and Canada, two nations that by no coincidence have been at least as enamoured of postindustrialism as the United States in the last two decades.
In view of the evidence of the real world, how come the postindustrialists ever considered the information economy a superior formula for income growth in the first place? In essence, they have been blindsided by a subtle fallacy in economic reasoning. This fallacy is clearly apparent in the views of, for instance, John Naisbett, who as the author of Megatrends was one of the earliest cheerleaders for postindustrialism. Noting correctly that the wages of United States' postindustrial workers are generally much higher than the American average, Naisbett goes on to jump to the completely fallicious conclusion that a general shift by the United States into postindustrialism will result in a general boost to wages. The fallacy here is Naisbett's implicit assumption that postindustrial wages are high by dint of the innately superior economic virtues of postindustrial services. In reality, of course, the high wages paid in typical postindustrial activities such as software merely reflect the fact that such businesses generally recruit exceptionally intelligent and capable workers - in essence, workers who could expect to earn superior wages in almost any field they choose to enter. And in particular, such workers could earn at least equally high wages in a manfacturing-based economy. Meanwhile, Naisbett utterly overlooks the plight of the rest of the workforce, and in particular millions of ordinary workers who are left out in the cold by the shift to the New Economy. And it is their plight, of course, that is behind the United States' persistent underperformance in international comparisons of income growth.
Many postindustrialists question the methodology of surveys that show the United States has been losing out in long-run income growth. They maintain that the internal purchasing power of the dollar within the United States is greater than what one dollar can buy abroad if converted into local currency at market exchange rates. They therefore embrace a system in which "purchasing power parity" exchange rates are used to assign a lower-than-market valuation to wages earned by workers in Japan, Germany, Switzerland, Singapore, and other key foreign countries.
At first sight, this methodology seems to make sense. After all, if an American family is posted to, say, Singapore, it will soon discover that replicating an American lifestyle there is much more expensive than in Peoria. To the postindustrialists, therefore, the fact that Singaporean wages are typically somewhat higher than those in the United States hardly proves that Singaporeans are better off than Americans. But the postindustrialists forget that by the same token, citizens of Singapore who try to replicate their home-country standard of living in Peoria also face a sticker shock. They may, for instance, need to maintain two or three cars just to get through the day - whereas in Singapore the supermodern public transport system is so comfortable and safe that even many well-off citizens see little need to own a car. The Singaporeans will also face sticker shock when it comes to educating their children. How much will they have to pay for private education to make sure their children get as good a start in life as they would in just an ordinary Singapore state school? And, for that matter, is there any private school in Peoria, however expensive, that is as safe from the drug culture as an ordinary Singaporean school?
The postindustrialists' purchasing power parity method tends to throw up particularly anamolous results in the case of the United States' principal economic competitor, Japan. On a purchasing power parity basis, the Japanese come out looking distinctly less affluent than Americans. And this impressions seems to be confirmed by the high prices the Japanese must pay for some obvious things such as housing, beef, and entertainment. But are the Japanese really so poor? Hardly. In fact on many of the most important objective measures, the Japanese are clearly richer than Americans. Take the most important measure of them all, life expectancy. This is a highly objective measure and, if the past is any guide, it is closely correlated with living standards. Remember that in the early years after World War 2, the world's highest life expectancies were found in Sweden and Norway, nations that by common consent at that time led the world in affluence. These days, however, the Japanese are the world's longest lived people. In the space of just sixty years, their life expectancy has gone from about ten years shorter than that of Americans to four years longer. The key factor driving this trend has clearly been rising living standards. In the circumstances, therefore, it is obvious that there is something wrong with a purchasing power parity methodology that portrays the Japanese today as significantly less affluent than Americans.
Eessentially, there are many hidden flaws in the purchasing power parity method. Thus, although it may accurately capture how the price of a McDonald's hamburger varies around the world, it is far from reliable in assessing easily measured items - items such as infant care and preventive medicine, where superior Japanese standards do much to explain Japan's world-beating longevity experience.
Much more could be said about the major blindspots in the purchasing power parity method. But all we need to note here is that purchasing power parity is an ethnocentric yardstick that should have no place in a scientific debate. What matters is the undeniable fact that, measured at market exchange rates, employers in many foreign countries pay wages that are considerably higher than American levels. Thus, it is a myth that manafacturing-oriented economies are ipso facto low-wage economies. As for the postindustrialists' suggestion that manafacturing economies are destined to suffer slower income growth that postindustrial ones, this is clearly even more misguided.
The result in the end is not only poorer income prospects for individual American workers but a general decline in the United States' economic strength. And this latter effect is greatly compounded by the New Economy's tendency to weaken the nation's trade position. To that subject we now turn.
2004-03-04 04:49 | User Profile
A Hard Look at Computer Software
Computer software is the quintessential postindustrial business, and as such, it is undoubtedly the ultimate test of the postindustrialists' claims. After all, when postindustrialists cite examples of postindustrial opportunities, computer software is typically at the top of their list.
It has blossomed from a niche business that served just a few hundred mainframe computers in the 1950s to one that today is literally ubiquitous. While computer software is most familiar as the progams we run on our personal computers, it is also installed in everything from cars and telephones to video cameras, vacuum cleaners, and even refrigerators.
Looking to the future, the industry's potential to boost American prosperity seems to the postindustrialists to be almost limitless. So much for the hype. Now for the reality.
Microsoft's Success: A Very Special Case
For all the euphoria about software, the industry's image of fabulous success is remarkably narrowly based. In fact, this image is largely attributable to just one company, Microsoft. The enrichment of Microsoft's founders has powerfully supported the myth that the information economy is a latter-day El Dorado. The press seems to assume that, just as any young American boy or girl can aspire to become the president of the United States, any new software company can aspire to become another Microsoft. In reality, Microsoft is a very special company, one whose growth has been driven almost entirely by its monopolistic role in setting standards for computer operating systems. Microsoft inherited this role from IBM in the 1980s; as was abundantly apparent from IBM's famously fat profit margins in former times, the ability to set the computer industry's standards amounts to a license to print money. In the words of American consumer activist Ralph Nader, Microsoft's position is the functional equivilant of "owning the alphabet."
By contrast, other software companies enjoy no such all-embracing franchise - and no such license to print money.
In any case, the Microsoft story is misleading in another way. Although the company is portrayed as a Leviathan, it is still a relatively unremarkable business in most respects. In fact, it counts as a giant on just one rather dubious measure, its stock market valuation. Measured by its peak stock price at the end of 1999, Microsoft was worth more than $600 billion - and even in mid-2003, after a painful stock market crash, it was still worth $260 billion. This latter figure was more than the annual gross national product of Switzerland! Its stock valuation apart, Microsoft is no colossus by most other measures. In fact, ranked by sales revenues, it is little more than a middleweight in Fortune magazine's league table of the world's 500 largest companies.
On the crucial yardstick of jobs, Microsoft compares even worse. As of 2003, its total workforce came to just 50,500. This was one-seventh those of both Ford and General Motors. It should be added that the latter two companies as of 2003 were a fraction of their former selves in employment terms. By comparison in the early 1980s, before the fashion for postindustrialism took hold (and before the American auto industry was gutted by Japanese imports), Ford employed more than 500,000 workers and General Motors more than 850,000.
Perhaps the most telling indication of Microsoft's relative economic insignificance is that its workforce counts for only about 2 percent of all employment in the American computer software industry. Thus, when the media talk about the famously large compensation levels at Microsoft, one should remember than 98 percent of the industry's workers work for less successful employers.