Posts Tagged ‘productivity’

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Special mention

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Mainstream economists continue to insist that workers benefit from economic growth, because wages rise with productivity.

Here’s the argument as explained by Donald J. Boudreaux and Liya Palagashvili:

Firms cannot afford a misalignment of their workers’ pay and productivity increases—the employees will move to other firms eager to hire these now more productive workers. Higher economy-wide productivity, after all, means that workers add more to the bottom lines of employers throughout the economy. To secure the services of these more-productive workers, firms bid up worker pay. This competition for labor services is what links pay to productivity.

Except, of course, the link between wages and productivity has been severed for decades now, going back to the late-1970s. Since then, as the folks at the Economic Policy Institute have shown, productivity has increased by 70.3 percent but average worker’s wages have risen by only 11.1 percent.

So, no, there is no necessary or automatic link between productivity and wages within the U.S. economy. There may have been such a relationship after World War II, during the so-called Golden Age of American capitalism, but not in recent decades.*

A natural question that arises is just where did the excess productivity—the extra surplus U.S. employers appropriated from their workers—go? A significant proportion, as I showed last year, went to higher corporate profits. Another large portion went to those at the very top of the wage distribution.

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As is clear in the chart above, the top 1 percent of earners saw cumulative gains in annual wages of 157.3 percent between 1979 and 2017—far in excess of economy-wide productivity growth and nearly four times faster than average wage growth (40.1 percent). Over the same period, top 0.1 percent earnings grew 343.2 percent, with the latest spike reflecting the sharp increase in executive compensation.

In other words, corporate executives—on both Main Street and Wall Street—have been able to share in the extra booty captured from American workers, who were forced to have the freedom to sell their ability to work for wages that have barely increased in recent decades.

That combination of stagnant wages for most workers and the ability of those at the top to capture a large portion of the extra surplus is therefore at the root of increasing inequality in the United States.

 

*Even then, as I explained back in 2017:

The fact is, the supposed Golden Age of American capitalism was based on a set of institutions that allowed the boards of directors of large corporations to appropriate a growing surplus and to distribute it as they wished. At first, during the immediate postwar period, that meant growing incomes for those in the bottom 90 percent. But, even then, the mechanisms for distributing income remained in the hands of a very small group at the top. And they had both the interest and the means to stop the growth of wages, get even more surplus (from U.S. workers and, increasingly, workers around the globe), and distribute a greater share of that surplus to a tiny group at the very top of the distribution of income.

Block chain network concept on technology background

Forget Bitcoin. It’s the underlying technology, blockchain, that is generating the most excitement. Even utopia!

Bitcoin is a digital currency that was invented in 2009 by a person (or group) who called himself Satoshi Nakamoto. His stated goal was to create “a new electronic cash system” that was “completely decentralized with no server or central authority.” After cultivating the concept and technology, in 2011, Nakamoto turned over the source code and domains to others in the bitcoin community, and subsequently vanished.

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While Bitcoin (and other so-called cryptocurrencies, such as Ethereum, Ripple, and the other 1500 or so other such currencies) have generated a great deal of media attention (for their novelty, their ability to permit transactions beyond government surveillance and control, and their wild gyrations in price), it’s blockchain, the technology behind Bitcoin, that carries the utopian promise of remaking the economy and society.

At its most basic, blockchain provides a decentralized database, or “distributed digital ledger,” of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.* The technology can work for almost every type of transaction involving exchange-value, including money, goods, and property. It can also serve as the basis for a variety of other functions, from distributed cloud storage and the recording of property titles to authenticated voting and decentralized social media platforms.

For some (such as Brendan Markey-Towler), blockchain technology makes it possible not only to envision, but to establish a viable pathway toward, a utopian alternative to contemporary society.

On the face of it a mundane and boring technology for bookkeeping, blockchain is actually revolutionary because it makes the anarchist utopia a more realisable dream than has ever before been possible. At the very least it provides the strongest challenge ever posed to the monopoly of the state over the promulgation, formation, keeping and verification of institutions and the public record. The purpose of this essay is to investigate the conditions under which this might occur, and the dynamics of a society organised using blockchain technologies.

According to Markey-Towler, blockchain can serve as the basis for organizing an anarchist utopia—”a society which is composed of groups formed entirely by mutual association and absent violence and coercion.” The idea is that the keeping of verifiable records via blockchain technology allows for the creation of a public record that is kept by everyone and updated by collective consent, which means there is no nexus of power (such as the state or monopoly corporations) that can be exercised to corrupt or use the public record as a tool of extortion.** Even more, the existence of blockchain technology makes it possible to exit from existing economic and social relations and to practice, if only in a selected domain, a different way of organizing economic and social transactions. Thus, it permits a “sort of competition” for adherents between the two systems—one organized in and by the state, the other via decentralized distributed ledgers—and creates the possibility for individuals to choose the set of institutions associated with the alternative, blockchain technology.

I have no interest here in exploring either the feasibility or desirability of such a blockchain utopia (although I have elsewhere, e.g., here and here). My focus for the moment is otherwise—on the fact that the claims about blockchain from the latest example of a long series of “technological utopianisms.”

Many will remember this 2012 iPhone commercial claiming the device is the most used camera in the world. Light piano music twinkles and images of people living their best lives flit past. It is utopic desire, crystallized: the ad says that the gadget will make us happy, and that, through its lens, we’ll all evolve into a better version of ourselves. Facebook (like other social media) promised to give “people the power to share and make the world more open and connected.” And there’s Uber, which pledges “to make transportation safer and more accessible, helping people order food quickly and affordably, reducing congestion in cities by getting more people into fewer cars, and creating opportunities for people to work on their own terms.”

Many will recognize these as pledges that technology will usher in the new utopian society. But, as Howard P. Segal reminds us,

few if any of the high-tech zealots of our own day have even considered the possibility that, far from being original, their crusades fit squarely within a rich Western tradition of technological utopianism. It is not likely that very many of them realize how old-fashioned they really are when celebrating technology’s prospects for transforming the nation and, in due course, the world.***

They are merely the latest in a long line—starting with the late-sixteenth- and early-seventeenth-century Pansophists (such as Tomasso Campanella, Johann Valentin Andreae, and Francis Bacon) through the utopian socialists of the early nineteenth century (especially Henri de Saint-Simon) through the numerous technological utopians of the late-nineteenth- and early-twentieth centuries (including Edward Bellamy, Henry Olerich, Edgar Chambliss)—of prophets of progress and the possibility of achieving utopia through the introduction and expansion of new technologies.

Technological utopianism, as I am using it here, refers to one or more of the following three claims:

  1. Technology is the means for creating a perfect society.
  2. The perfect society itself is modeled on technology.
  3. The perfect society is one that promotes the development of new, better technologies.

Clearly, Markey-Towler’s enthusiastic claims for blockchain technology meets the definition. So, as it turns out, does contemporary mainstream economics.

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Mainstream economists treat technological innovation as the sine qua non of economic and social progress—the key to economic growth and the achievement of global prosperity. It is introduced in the production function as y, the “recipe,” whereby capital (K) and labor (L) can be combined to produce output (Y). Thus, even without changes in the amount of capital and labor, output will be increased as new technologies are introduced. Thus, when they move from an individual firm’s production function to economy-wide economic growth, mainstream economists claim that the key is the increase in productivity due to technological change, which is generally referred to as the “Solow residual” (named after Nobel laureate Robert Solow).****

The mainstream argument is that the level of production and the rate of economic growth can be increased by the introduction of new technologies, which lead to higher levels of productivity. More goods and services are thus made available to satisfy human wants, thus solving the problem of scarcity.*****

Moreover, mainstream economists claim, an economic system based on free markets is the best way of encouraging the development and application of new technologies. At a microeconomic level, profit-maximizing firms have an incentive choose the best, more efficient technologies, for themselves and for the economy as a whole. And free international trade is the best way of increasing the pool of research and development experiments, from which the best technology is chosen. Thus, technology trade increases national income in each country and raises the total gains from trade.

Contemporary mainstream economics thus combines market utopianism with technological utopianism.

As I see it, the biggest problem with technological utopianism is that it takes politics out of the equation—whether in imagining solutions to economic and social problems or envisioning the role of technology in a radically different kind of economy and society. Technology thus becomes a substitute for politics. As Aleszu Bajak has recently explained with respect to finding a solution to climate change,

Relying on a technological fix that’s just over the horizon avoids the mountain moving required to wean ourselves off fossil fuels, bring hundreds of countries into agreement on how to limit and clean up emissions, and alter the consumption habits of an entire civilization. Those are systemic complexities ingrained in our economies and cultures. Propping up glaciers to limit sea level rise, sprinkling iron dust into the oceans to encourage plankton growth to absorb carbon, or spraying the skies to reflect the sun’s heat just seems simpler.

Much the same can be said of obscene inequalities in the distribution of income and wealth, the “diseases of despair” that now afflict a large portion of the U.S. population, or the prospect that new forms of automation will eliminate jobs and make workers redundant. In each case, a technological fix is promised—tax-rate changes for inequality, the expansion of healthcare insurance for increasing levels of addiction, a universal basic income for labor-substituting robots—when the problem itself is political, not technical.

And that means the solution has to be political—organizing people to criticize the existing set of institutions, in order to imagine and create new ways of organizing the economy and society. New technologies may even have a role to play in enabling people to see such a “virtual reality.”

Tackling problems as deeply ingrained as the ones humanity faces right now will require facing a question that technology alone cannot address: are we willing to band together to criticize and change the existing set of economic and social institutions?

 

*To carry out a transaction a party needs two things: a wallet (public key) and a private key. A wallet is a string of digits and letters, also called a public key. It is an address that appears each time a transaction is done. The private key is a string of random digits that should be kept in secret. When someone enables a transaction it is signed with a private key, which is only visible to a sender. Then a network of nodes carries that transaction making sure that it is valid. Once it confirms its validity the transaction is put into a block where, because it has been “hashed,” it is virtually impossible to change without being detected.

**Technically, blockchain fulfills three requirements: (a) it guarantees a certain degree of reciprocity and security with respect to exchange and property; (b) it is sufficiently easy to interact with and to keep records; and (c) it permits a certain degree of freedom to use one’s property, that is, it is secure from theft, corruption, and manipulation.

***Howard P. Segal, Technology and Utopia (American Historical Association, 2006), p. 66.

****Solow (1957) started with a neoclassical production function where Yt = At•F(Kt, Lt), where Yt is aggregate output in time period t, Kt is the stock of physical capital, Lt is the labor force and At represents productivity growth due to technology. Solow then estimated the variables for the U.S. economy for the period 1909-49, where output per labor hour approximately doubled. According to his estimates, about one-eighth of the increment in labor productivity could be attributed to increased capital per person hour, and the remaining seven-eighths to the residual.

*****This is one of the reasons why Robert Gordon’s work on the slowing-down of U.S. productivity growth has been met with such concern.

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Must come down. . .

I’m not referring to karma or the application of Newton’s law of universal gravitation. No, it’s just the way capitalism works.

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Take the stock market, for example. Last Friday, the Dow Jones Industrial Average closed down 666 points, or 2.5 percent, its biggest percentage decline since the Brexit turmoil in June 2016 and the steepest point decline since the 2008 financial crisis.

The large decline is really no surprise, since the U.S. stock market—a thoroughly speculative institution within contemporary capitalism—has been on the rise, based on soaring corporate profits, since 2009.

Rising stock values are related to corporate profits in two ways: First, they are bets on corporate profits, in the sense that stock speculators expect future prices to track the rate at which corporations are able to extract surplus and realize profits from their workers. Second, the profits themselves are distributed by corporations—internally, to buy back their own stocks, and to wealthy individuals (such as CEOs and recipients of dividends), who are in the position to capture their own portion of the surplus and use it to engage in speculative stock-market purchases.

So, stock-market indices went up—and then, last week, they came down.

No one knows why the stock market plummeted, although there are many stories out there. One of them is the jobs report—indicating 200 thousand new jobs in January and an increase in workers’ wages—and the risk that the profit rate might fall.

That’s another one of those up-down features of capitalism. And every time the profit rate falls, as if like clockwork, a recession or depression is just around the corner. Corporations cut back spending, workers are laid off, and then—perhaps, always maybe—the conditions are created for another economic upturn.

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Here’s what’s interesting: while average hourly earnings for all employees on private nonfarm payrolls once again increased (in January by 9 cents to $26.74, following an 11-cent gain in December, and thus, over the year, by 75 cents, or 2.9 percent), average hourly earnings of private-sector production and nonsupervisory employees increased by only 3 cents (to $22.34, or 2.4 percent on an annual basis) in January—in both cases, just a bit more than the rate of inflation. And by another measure—real weekly earnings—wages actually fell (by 1.1 percent) during the last quarter of 2017.

So, there’s no clear indication that workers’ wages are finally ready to take off (as mainstream economists and business commentators keep promising) or that they’ll make a large dent in corporate profits.

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In fact, as is clear from the chart above, workers’ wages continue to lag far behind increases in productivity—literally no change compared to an increase of almost 9 percent, respectively, since 2009.

Still, even the threat that workers’ wages might rise seems to have spooked the stock market, which tells us something else about capitalism: the members of the small group who, in terms of wealth and power, stand above the rest by benefitting from and betting on corporate profits are themselves no more than uncertain followers of the herd.

Up and then down again. . .

Liberal mainstream economists all seem to be lip-synching Bobby McFerrin these days.

Worried about automation? Be happy, write Laura Tyson and Susan Lund, since “these marvelous new technologies promise higher productivity, greater efficiency, and more safety, flexibility, and convenience.”

Worried about the different positions in current debates about economic policy? Be happy, writes Justin Wolfers, and rely on the statistics produced by government agencies and financial firms and the opinions of mainstream economists.

Me, I remain worried and I have no reason to accept mainstream economists’ advice for being happy.

Sure, new forms of automation might lead to higher productivity and much else that Tyson and Lund find so alluring. But who’s going to benefit? If we go by the last few decades, large corporations and wealthy individuals are the ones who are going to capture most of the gains from the new technologies. Everyone else, as I have written, is going to be forced to have the freedom to either search for new jobs or deal with the fundamental transformation of the jobs they manage to keep.

When it comes to separating fact from fiction, aside from the embarrassing epistemological positions liberals rely on, where are the statistics that might help us make sense of what is going on out there—numbers like the Reserve Army of Unemployed, Underemployed, and Low-wage Workers or the rate of exploitation.

You want me not to worry? Analyze what’s going to happen to workers and the distribution of income as automation increases and calculate the kinds of economic numbers other theoretical traditions have produced.

Even better, let workers have a say in what and how new technologies are introduced and change economic institutions in order to eliminate the Reserve Army and class exploitation.

Then and only then will I be happy.

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If you read the business press in the United States (e.g., the Wall Street Journal), you’ll find something along the lines of the following argument: the fact that U.S. worker productivity rebounded in the third quarter while hourly wages rose moderately is a sign “the economy is strengthening.”

But look at the numbers. Nonfarm business sector productivity (the blue line in the chart above) rose 1.5 percent (from the same quarter a year ago) while real hourly compensation (the green line) fell 1.1 percent.* The result is that unit labor costs (the red line) fell 0.7 percent.

According to Stephen Stanley of Amherst Pierpont Securities,

lighter regulation under the Trump administration and the prospect of a $1.4 trillion tax-cut package being passed by Congress are likely factors that have led companies to boost investment and become more productive.

Corporations may have chosen to boost investment and become more productive—but they have also chosen not to compensate their workers.

The only possible conclusion is that the Trump recovery is a recovery for employers but not for their employees.

Let’s see if Trump or someone in his administration will tweet that!

 

*Hours worked rose 1.5 percent and hourly compensation only 0.8 percent in the third quarter. As a result, real hourly compensation was -1.1 percent.

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Posted: 4 December 2017 in Uncategorized
Tags: , , , ,

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How bad have things gotten in the United States? It’s now up to Nitin Nohria [ht: ja], the dean of Harvard Business School, to sound the alarm that “class lines. . .have become far more distinct and visible in recent years.”

Nohria published his essay at the end of the same week that the U.S. Senate passed its version of the “Tax Cuts and Jobs Act,” which is nothing more than an enormous boon to large corporations and wealthy individuals under the guise of trickledown economics,  and Philip Aston, the United Nations monitor on extreme poverty and human rights, has embarked on a coast-to-coast tour to investigate the widespread existence of extreme poverty in the United States.

The inspiration for Nohria’s reference to class lines is Arlie Hochschild’s Strangers in Their Own Land (which we taught in the spring, as the final text of A Tale of Two Depressions). According to Hochschild, the U.S. class structure once resembled an orderly queue: the premise and promise of economic and social institutions were that, if you worked hard, you would achieve the American Dream.

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Notwithstanding the large number of exceptions (for racial and ethnic minorities, impoverished whites, women, and many others), it was a story Americans told about themselves and their country. And it held a kernel of truth: until the early-1970s, workers’ wages did keep pace with growing productivity and the wage share was relatively stable.

Now, of course, the American Dream lies in tatters. In response, the members of the white working-class in Hochschild’s account are resentful that others at the bottom—especially minorities and immigrants—have been allowed, with the help of the government, to cut ahead of them in the line.

Nohria goes in a different direction:

As I read Hochschild’s analysis, my thoughts turned to a different sort of resentment the white working class is feeling. Even as it stews over people cutting into its ever slower-moving line, it also envies another faster-moving queue: the special one reserved for people with means—the ones who travel business or first class. The affluent people in this line believe they have earned their preferred status through a meritocratic process that has assessed and rewarded their ambition and enterprise. This group becomes accustomed to its special privileges and comes to expect them everywhere, from legacy admissions to college for their children to special seating at sports events to VIP treatment at theme parks. It begins to believe that there should be a special line for innovators and pioneers who have sacrificed time with friends and family to achieve their personal best—those who want to reach for the top, to be number one. Yet even preferred status is not enough; those on any fast track can always see a still-faster track. If the first-class line is short, flying on a private aircraft from a terminal with no security lines is even faster.

The result is that

Now there are fewer and fewer opportunities for people in different lines to ever encounter each other in person. They go to different schools, shop at different stores, and rarely interact. Yet they are hyper-aware of each other due in part to the ubiquity of social media and television. You can gawk at the lives of the privileged on Instagram, tap into the resentment of the white working class on Brietbart [sic], and see the plight of the disenfranchised on Vice. This ready visibility has unleashed a range of emotions, including resentment, entitlement, envy, and despair—and it’s tearing America apart.

Neither Hochschild nor Nohria offers an analysis of why those class lines are moving further and further apart—there’s no mention of how more and more surplus is being captured and kept by the small group at the top. And Nohria’s proposed solution, to allow more underprivileged students into Harvard Business School and to expose all business students to “cases that describe the challenges of the working class and the impoverished,” is derisorily inadequate.

In my view, we don’t need yet another effort “to better understand those who may not be in the same line as us.” What we need instead is an open and frank discussion of how the existing economic and social institutions in the United States are predicated on creating and reproducing those class lines—and how a different set of institutions would erase the class lines that keep Americans apart.

Let’s see them teach that lesson at Harvard Business School.