Technology didn't kill middle class jobs, public policy did

The story is that innovation rapidly reduced the need for factory workers and other skilled labor. The data just doesn't support it

• 
• • Dean Baker
  • theguardian.com, Monday 25 November 2013 15.17 GMT

Unionisation has shrunk in the US from over 20% in the 1970s to less than 7% today. Photograph: Christopher Furlong/Getty Images

A widely held view in elite circles is that the rapid rise in inequality in the United States over the last three decades is an unfortunate side-effect of technological progress. In this story, technology has had the effect of eliminating tens of millions of middle wage jobs for factory workers, bookkeepers, and similar occupations.

These were jobs where people with limited education used to be able to raise a family with a middle class standard of living. However computers, robots and other technological innovations are rapidly reducing the need for such work. As a result, the remaining jobs in these sectors are likely to pay less and many people who would have otherwise worked at middle wage jobs must instead crowd into the lower paying sectors of the labor market.

This story is comforting to elites, because it means that inequality is something that happened, not something they did. They won out because they had the skills and intelligence to succeed in a dynamic economy, whereas the huge mass of workers that are falling behind did not. In this story, the best we can do for those left behind is empathy and education. We can increase opportunities to upgrade their skills in the hope that more of them may be able to join the winners.

That's a nice story, but the evidence doesn't support it. My colleagues Larry Mishel, John Schmitt, and Heidi Sheirholz, just published a paper showing that the pattern of job growth in the data doesn't fit this picture at all. This paper touches on a wide variety of issues related to technology and wage inequality, but first and foremost, it shows that the story of the hollowing out of the middle does not fit the data for the 2000s at all.

Since 2000, the increase in employment has occurred almost entirely in low-wage occupations. There has been a decline in relative employment for both workers in middle wage and high wage occupations. If this "occupational shift story" explained trends in wages we should expect to see sharply rising wages for retail clerks, custodians and other workers employed in low-paying occupations.

Of course, we see the opposite. Workers in these occupations continued to lose ground in the 2000s as they did in the prior two decades. Their wages barely kept pace with inflation over the last three decades.

The paper makes an impressive case that technology is not the main explanation for the rise in inequality that we have been seeing. In fact, even MIT economics professor David Autor, the leading proponent of the occupational shift story concedes this point. He was quoted in a New York Times column saying of the view that technology explains inequality:

It can suck all the air out of the conversation … All economists should be pushing back against this simplistic view.

Given the evidence compiled by Mishel et al, it would be difficult to maintain that technology has been the main culprit in the upward redistribution of income that we have seen.

It is not difficult to identify other potential culprits – trade would certainly rank high on the list. A trade policy that quite deliberately puts factory workers in direct competition with low-paid workers in the developing world, while protecting doctors and other highly paid professionals, would be expected to redistribute income from the former to the latter.

The weakening of unions is likely also an important factor. The private sector unionization rate in the United States has shrunk from over 20% in the 1970s to less than 7% at present. In the same vein, the deregulation of major industries like airlines, telecommunications, and trucking has been another factor putting downward pressure on wages. The higher unemployment rates we have seen, not just in the last five years but in the last 35 years, compared with the early post-war decades, has also weakened the bargaining power of workers at the middle and bottom of the pay ladder.

We have also seen big changes that contributed to growth of income at the top. The highlights in this category would be deregulation in the financial sector and the changes in corporate governance that pretty much allow top management to write their own pay checks.

The big difference between the items listed above and the occupational shift story is that this is a list of items that involve policy changes. If this list (which could be extended) explains the growth in inequality over the last three decades then, it means that inequality was a result of policy. It was not something that just happened; it was something that we did or was done to us.

That presents a very different policy agenda for addressing inequality. No one would quarrel with the idea that our children should get a better education, but if a lack of skills was not the cause of inequality, more skills will not be the solution. Rather, we might look at an agenda that would rein in finance and CEO pay, restore the strength of labor unions, and include a more balanced trade policy.

This agenda wouldn't just mean empathy from those on top, but also lead to them losing some of their gains from the last three decades. Therefore we are likely to keep hearing stories about technology destroying middle wage jobs for some time, even if the evidence doesn't back up the stories.

If Thatcher's revolution had truly saved us, why is Britain in such a mess today?

The claims made for Mrs Thatcher's transformative powers are grossly exaggerated

• 
• • Will Hutton
  • The Observer, Sunday 14 April 2013

Margaret Thatcher speaking at Perth city hall, Scotland in 1987. Photograph: Neil Libbert/The Observer

The empress has no clothes or, at least, not the clothes in which so many want to robe her. Despite all the praise, Mrs Thatcher did not arrest British economic decline, launch an economic transformation or save Britain. She did, it is true, re-establish the British state's capacity to govern. But then, although she wanted to trigger a second industrial revolution and a surge of new British producers, she used the newly won state authority to worsen the very weaknesses that had plagued us for decades. The national conversation of the last six days has been based on a fraud. If the Thatcher revolution had been so transformatory, our situation today would not be so acute.

In the 20 years up to 1979, Britain's growth rate averaged 2.75%, although it had been weakening during the ills of the mid-1970s. In the years before the banking crisis, there was a vexed debate about whether the Thatcher reforms, essentially unchallenged by Blair and Brown, had succeeded in restoring the long-run growth rate to earlier levels. Certainly, the gap in per capita incomes between Britain, France and Germany had narrowed, as, apparently, had the productivity gap.

The question is whether any of it was sustainable. Now, there is a growing and dismaying recognition that too much growth in the past 30 years has been built on an unsustainable credit, banking and property bubble and that Britain's true long-run growth rate has fallen to around 2%. The productivity gap is widening. All that heightened inequality, the unbelievable executive remuneration, wholesale privatisation, taking "the shackles off business" and labour market flexibility has achieved nothing durable.

This bitter realisation has been sharpening in non-conservative circles for some months. The pound has fallen by 20% in real terms since 2008, yet the response of our export sector to the most sustained competitive advantage since we came off the gold standard has been disastrously weak. Britain's trade deficit in goods climbed to 6.9% of GDP in 2012 – the highest since 1948 – and February's numbers were cataclysmically bad. Britain simply does not have enough companies creating goods and even services that the rest of the world wants to buy, despite devaluation.

The legion of Mrs Thatcher's apologists argues she can hardly be blamed for what is happening 23 years after leaving office. But economic transformations should be enduring, shouldn't they? Thatcherism did not deliver because dynamic capitalism is achieved through a much more subtle interplay. She never understood that a complex ecosystem of public and private institutions is needed to support risk-taking, the creation of open innovation networks, sustained long-term investment and sophisticated human capital. Believing in the magic of markets and the inevitable destructiveness of the state, she never addressed these core issues. Instead, the demand for high financial returns steadily rose through her period of office, along with executive pay, even while investment and innovation sank. And the trends continued because none of her successors dared challenge what she had started.

Instead, her targets were trade unions and state-owned enterprise in the ideological project of brutally asserting the primacy of markets and the private sector, and thus a conservative hegemony, in the name of a fierce patriotism. This was real enough: she really did want to put Britain back on the map economically and politically and the task force sailing for the Falklands embodied the intensity of that impulse. But she did not pull it off, as even she acknowledged, in her more honest moments out of office.

Trade unions certainly needed the Thatcher treatment in terms of both accepting the rule of law and the need for responsibilities alongside their rights. But companies, shareholders, banks and wider finance also needed this treatment. But as "her people" and part of the hegemonic alliance she aimed to create, they would never get the same medicine. Instead, her Big Bang in 1986, allowing banks worldwide to combine investment and commercial banking in London, was a monster sweetheart deal to please her own constituency. Britain became the centre of a global financial boom, but at home this meant an intensification of the financial system's dysfunctionality, helped by little regulation and a self-defeating credit boom, worsening the anti-investment, short-termist that needed to be reformed. This is now obvious to all. But for nearly 30 years, the apparent success of Thatcherism hid the need.

However, in one serious respect, trade unions were a proper target. By the late 1970s, a handful of trade union leaders in effect co-ran the country, the beneficiaries of the failure of successive governments to bring free collective bargaining into a legal framework. This despite the fact that they could not deliver their members to agreed policies, and the third year of an incomes policy had collapsed. On this question, the Labour party was intellectually exhausted and politically bankrupt; the Conservative government under Heath had been defeated too. It had become a first order crisis of governability, even of democracy.

This was her opportunity and she seized it . The early employment acts and the victory over Arthur Scargill's NUM decisively reaffirmed that the fount of political power in the country is Parliament, at the time a crucial intervention. But she wildly overshot. Trade unions within a proper framework are a vital means of expressing employee voice and protecting worker interests. Labour market flexibility – code for deunionisation and removal of worker entitlements – has become another Thatcherite mantra that again hides the complexity of what is needed in the labour market: employee voice and engagement, skills and adaptability. When she left office, 64% of UK workers had no vocational qualifications.

The best thing that can be said about Thatcherism is that it may have been a necessary, if mistaken, staging post on the way to our economic reinvention. She resolved the crisis of governance but then demonstrated that simple anti-statism and pro-market solutions do not work. We need to do more sophisticated things than control inflation, reduce public debt, roll back the state and assert "market forces".

The coalition government is developing new-look industrial strategies, reforming the banking system and reintroducing the state – as a vital partner – into areas such as energy. New thinking is emerging everywhere. For example, in the north-east of England an economic commission chaired by Lord Adonis, of which I was a member, recently recommended the de facto reintroduction of the metropolitan authority in Newcastle, abolished by Mrs Thatcher. It would co-ordinate a pan-north-east redoubling of investment in skills and transport, along with winning more investment. And it wants the local economic partnership to work in the same building as the proposed new combined authority, driving forward an innovation and investment revolution. This complex interaction of private and public the commission is trying to develop is a world away from Thatcher – and widely welcomed.

The empress really has no clothes. Wednesday's funeral is a tribute to the myth and the conservative hegemony she created. If the royal family is concerned, as is reported, that the whole affair will be over the top, they are right. Mrs Thatcher capitalised on a moment of temporary ungovernability that, to her credit, she resolved, then sold her party and country an oversimple and false prospectus. The landslide Mr Blair won in 1997 was to challenge it, but he did not understand at the time, nor understand now, what his mandate meant. The force of events is at last moving us on. But Britain has been weakened, rather than strengthened, by the revolution she wreaked.

Banking keeps getting away with it, just as the unions did

Heads will probably roll for the Libor scandal, but this crisis won't end until the profession's link with politicians is severed

• 
• • Simon Jenkins
  • guardian.co.uk, Thursday 28 June 2012 20.30 BST

Banking first refused regulation and now welcomes it, because only thus can it be protected from the consequences of its own greed. Illustration: Simon Pemberton

 

Too big to fail … now too big to jail? There seems no end to the immunity – moral, political, fiscal and possibly legal – claimed by the present masters of the universe, the bankers. In a side-splitting, coffee-spluttering radio interview today, Sir Martin Taylor, the former chief executive of Barclays, mused that his old board might consider the best person to "turn the page" on the bank's latest scandal might be none other than its author and present chief executive, Bob Diamond. That is presumably despite the bank being fined £290m and pending possible charges of fraud.

Diamond has "taken responsibility" for the division that from 2005 onwards manipulated inter-bank loans so as to disguise the bank's vulnerability in the runup to the 2008 credit crunch. The clear intention was to mislead the market and enrich bank staff with bonuses. Responsibility apparently means Diamond "giving up" a bonus which, surely, he has yet to earn.

A year ago the Barclays chief dazzled the BBC into letting him give a lecture on banking and citizenship, a lecture now sodden with irony. He spoke of the importance of an organisation's culture, of "how people behave when no one is watching", and how "our culture must be one where the interests of customers and clients are at the very heart of every decision we make". Bankers must be good citizens, said Diamond,, or there would be social unrest.

At the time Diamond was demanding his own shareholders pay him not just a salary, but the tax on that salary and then the tax on that taxable benefit. It is not clear who paid the tax in this spiral of greed. Diamond must also have known his colleagues were then being investigated by the Financial Services Authority for irregularities in the bank's trading. Diamond's entire reputation was built on his banking culture, one of bonus-hunting, offshore tax avoidance and killer-takes-all rivalry. For him to give a lecture on ethics invited cliches about Jack the Ripper and door-to-door salesmanship.
The Barclays affair should be a sideshow to our present discontents. The world currently faces the greatest collapse in western statecraft since the second world war. Economists, officials, politicians, even commentators, seem gripped by professional and intellectual rigor mortis, one horribly reminiscent of the 1930s. All experience tells them that a collapse in global demand needs monetary injection, not contraction. Yet they deny it, and bankers lie about it. In Britain we all parrot that £325bn has been "pumped into the economy" by the Bank of England. It has not. The money is nowhere to be seen. It is a device, a headline, a sick joke.

At such times it is comforting to turn from the murky failures of the present to the clear ones of the past. The snoozing Commons Treasury committee is yet again "to call Mr Diamond the account", so it can show off its interrogatory machismo. Lord Myners, formerly of the Guardian, won himself plaudits today by calling Barclays "the most corrosive failure of moral behaviour that I have seen in a major financial institution". But he was a worldly banker himself, and City minister in 2008-9, when the whole house of cards was collapsing amid media reports of "something fishy" in the Libor market. Labour was putty in the hands of the bankers.

From the credit crisis to the present day, the one profession with open access to Downing Street is banking. It lobbies successfully on everything from bailouts to bonuses, non-doms to Tobin taxes, euro regulation to "quantitative easing". When told to lend to small businesses, it refuses. When given money to do so, it buries the money. When ministers plead for lower salaries, it increases them. The government takes over a bank, RBS, and its computers crash. Bankers get ribbed in the press – but so what, when the bonus is in the safe and few are ever called to account, banned from trading, or sent to jail?

Banking gets away with all this because it enjoys the same unaccounted access to power that trade unions enjoyed in the bad old days. It first refused regulation and now welcomes it, because only thus can it be protected from the consequences of its own greed. It preaches the nobility of the markets and then rigs them. We should listen every day to Adam Smith's maxim, that "people of the same trade seldom meet together … but the conversation ends in a conspiracy against the public or in some contrivance to raise prices".

Most running controversies today reflect deep confusion in corporate ethics and accountability. Barclays traders, News of the World reporters, immigration office officials, even drone bombers, turn instinctively to the excuse that they were "just obeying orders". Thus is moral responsibility dispersed and blame passed upwards to the boss, the board, the regulator, the government, ultimately democracy. The great let-out is that "we are all to blame". As the philosopher Reinhold Niebuhr remarked, moral individuals can still constitute an immoral society. Guilt is diffused in a crowd.
Failure of regulation has become a catch-all to sanitise personal and corporate misbehaviour in large organisations. This merely means that, when an outrage has been detected, and a feeding frenzy begins there are howls for heads to roll. Certainly at Barclays public decency, if nothing else, demands some sacrifice. But the real fault lies in bigness, in the ease with which corporations can fall victim to ethical compromise and pretend it is not their fault but the regulator's.

There must surely be a reckoning one day for the loss and agony that the credit crunch has inflicted – and is still inflicting – on millions of innocent victims. But as we seek out the guilty men, we should know that as long as banking retains its stranglehold on policy, the disaster will continue.