Paul Krugman: Age of Anxiety

This is what I was trying to say in The Old Deal is Broken, but Krugman says it so much better:

Age of Anxiety and Job Insecurity, by Paul Krugman, NY Times: Many eulogies were published following the recent death of Peter Drucker, ... however, ... few ... mentioned his book "The Age of Discontinuity," a prophetic work that speaks directly to today's ... economic anxieties. Mr. Drucker wrote "The Age of Discontinuity" in the late 1960's, a time when most people assumed that the big corporations ... like General Motors and U.S. Steel would dominate the economy for the foreseeable future. He argued that this assumption was all wrong.

It was true, he acknowledged, that the dominant industries ... of 1968 were pretty much the same as the dominant industries ... of 1945, and for that matter of decades earlier. ... But all of that, said Mr. Drucker, was about to change. New technologies would usher in an era of "turbulence" ... and the dominance of the major industries ... of 1968 would soon come to an end. He was right. ... Many of the corporate giants of the 1960's ... have fallen on hard times, their places in the business hierarchy taken by new players. General Motors is only the most famous example. So what? ...: why does it matter if the list of leading corporations turns over every couple of decades, as long as the total number of jobs continues to grow?

The answer is the reason Mr. Drucker's old book is so relevant...: corporations can't provide their workers with economic security if the companies' own future is highly insecure. American workers at big companies used to think they had made a deal. They would be loyal to their employers, and the companies in turn would be loyal to them, guaranteeing job security, health care and a dignified retirement. Such deals were, in a real sense, the basis of America's postwar social order. We like to think of ourselves as rugged individualists, not like those coddled Europeans with their oversized welfare states. But as Jacob Hacker of Yale points out in his book "The Divided Welfare State," if you add in corporate spending on health care and pensions ... we actually have a welfare state that's about as large relative to our economy as those of other advanced countries. ...

[T]hose who don't work for companies with good benefits are, in effect, second-class citizens. Still, the system more or less worked for several decades after World War II. Now, however, deals are being broken ... What went wrong? An important part of the answer is that America's semi-privatized welfare state worked in the first place only because we had a stable corporate order. And that stability - along with any semblance of economic security for many workers - is now gone.

Regular readers ... know what I think we should do: instead of trying to provide economic security through the back door, via tax breaks designed to encourage corporations to provide health care and pensions, we should provide it through the front door, starting with national health insurance. You may disagree. But one thing is clear: Mr. Drucker's age of discontinuity is also an age of anxiety, in which workers can no longer count on loyalty from their employers.

Previous (11/25) column: Paul Krugman: Bad for the Country
Next (12/2) column: Paul Krugman: Bullet Points Over Baghdad

Comments

[cm]

And it's a two-way street -- neither can employers generally count on much loyalty from their employees anymore, beyond of what an individual's sense of pride and good form in social behavior supports. And often enough that extends only to actual "corporeal" entities, not abstract corporations.

[Emmanuel]

I think this goes back to Schumpeter's notion of "creative destruction," wherein old, tired industries churn in favor of newer ones. The automotive industry is suffering from massive overcapacity, and things look to get tougher as China becomes a force in automobile manufacturing.

I know that economists kind of look down on the business literature, but if you have the chance, do read Clayton Christensen's book "Seeing What's Next: Using Theories of Innovation to Predict Industry Change". GM's demise isn't entirely unexpected; SUVs never figured big in the future of the automotive industry.

[realist]

toyota bought general motors' subaru interest. toyota is the only non-american company to join the american companies in trying to block new york's new, tougher emissions law. this tells me, that gm is ready to file bankruptcy, and shall then be bought by toyota. the big companies still rule, but now they are multi-national.

[ilsm]

CM,

Employers and employees have a "contract". The employee gives productive output in exchange for wages and security. Neither are at all reliable from the employer.

The employers, particularly in a soft labor maket have all the advantages.

The issue is that NAFTA, WTO and profit gluttony are leveling the playing field between the US worker and the Third World worker.

Okay so the US worker has no loyalty, as soon as the employer can move the job to a cheaper source it is gone.

Loyalty! Only matters among equals. There is no equality between a worker and a manager.

[anne]

http://www.nytimes.com/2005/11/12/business/12drucker.html?ex=1289451600&en=14f52a771ff8f431&ei=5090&partner=rssuserland&emc=rss

November 12, 2005

Peter F. Drucker, a Pioneer in Social and Management Theory
By BARNABY J. FEDER

Peter F. Drucker, the political economist and author, whose view that big business and nonprofit enterprises were the defining innovation of the 20th century led him to pioneering social and management theories, died yesterday at his home in Claremont, Calif. He was 95.

His death was announced by Claremont Graduate University.

Mr. Drucker thought of himself, first and foremost, as a writer and teacher, though he eventually settled on the term "social ecologist." He became internationally renowned for urging corporate leaders to agree with subordinates on objectives and goals and then get out of the way of decisions about how to achieve them.

He challenged both business and labor leaders to search for ways to give workers more control over their work environment. He also argued that governments should turn many functions over to private enterprise and urged organizing in teams to exploit the rise of a technology-astute class of "knowledge workers."

Mr. Drucker staunchly defended the need for businesses to be profitable but he preached that employees were a resource, not a cost. His constant focus on the human impact of management decisions did not always appeal to executives, but they could not help noticing how it helped him foresee many major trends in business and politics.

He began talking about such practices in the 1940's and 50's, decades before they became so widespread that they were taken for common sense. Mr. Drucker also foresaw that the 1970's would be a decade of inflation, that Japanese manufacturers would become major competitors for the United States and that union power would decline....

[Movie Guy]

Mark,

Agree. Front door all the way.

[ilsm]

My favorite quote from Peter Drucker was that 'managers' job is to make resources productive'.

A tenet I have always tried do apply.

[save_the_rustbelt]

Krugman never did 30 years on an assembly line. Welfare?

Whatever the causes, Krugman's new trick pony of healthcare reform is not going to fix the problems.
Krugman wanted more trade and destruction and now he doesn't have an answer to deal with the human consequences, so he is going to bang the healthcare drum.

A number of my friends did 20+ years as loyal employees and got dumped into the street. The lesson is clear, never be loyal to an employer, look out for yourself.

says...

"The employee gives productive output in exchange for wages and security. Neither are at all reliable from the employer."

Would you care to define security? Is is stealing pensions and pension funds? Is it charging more for less healthcare? Is it stiffing retirees?

The new employment reality does not include security.

I would also disagree. Your job is gone if it is done cheaper somewhere else, having nothing to do with how good a job you do or how bad a job they do.

[kharris]

Rust Belt,

Krugman did call for freer trade. Most mainstream economists have done so. There has been a tendency to paper over the losses suffered by individuals by saying gains from trade are so large that losers can be paid off with still enough left over to make the change worth while. "Can be" is a bit too easy - workers almost never are paid off. Despite Krugman's high profile, though, we cannot think he achieved NAFTA all by himself. What is true is that he didn't think through all the consequences of freer trade on workers. He probably has not thought through all the consequences of single-payer health care, either. None of us has, I'd wager, but that doesn't mean it's the wrong solution.

Krugman is probably a better economist than he gets credit for among the educated laity, the impact of NRO-type efforts to blacken his name. Even so, he does have weaknesses, and crystal ball gazing seems to be one of them. Drucker got lots of things right in predicting the future. I'm not sure Krugman can match him for accuracy.

[dryfly]

Drucker got lots of things right in predicting the future. I'm not sure Krugman can match him for accuracy.

Drucker did a pretty good job seeing the problems from way back then but I can't remember him offering up much of an 'actionable set of proposals' to fix it while Krugman and others have though all seem imperfect.

I guess the thing to walk away from this with is no one has all the answers so we ought to listen to a lot of folks and try to piece together something workable...

I sort of split the difference with Rust & Krugman... While I don't see health care as the ONLY issue by any means... for employers getting squeezed it is a major one... especially for companies that hire lots oflow & mid-level employees (large flat structures)... For 'knowledge' companies (a few highly paid performers)... medical is a small cost compared to the rest of their work force.

If you read all the crap I did over the last few days about 'education & workforce'... you'd think the wonks all believe we can gainfully employ a country of 300 million as programmers and surgeons. Won't happen, we need plumbers & welders & assembly workers too. And they have to eat too & get health care & ... And not all of them can come from Oaxaca.

Getting health care cost off the employer and onto a much wider base more representative of the population as a whole would be a huge step in helping to assure those 'other jobs' stay & prosper too... Not the whole answer but a big part. A bigger part than just 'retraining them'.

Now the next question is... who's the 'base' and how do we get them to gladly carry the load. I don't think Krugman, Drucker (rest his sole) or anyone else I've read effectively & convincingly speaks to that.

[dryfly]

rest his sole

God my spelling is so bad... that is what you say about deceased salesmen, not someone of Drucker's stature. Oh well chalk another one up to phat phingers-n-fonix.

[ken melvin]

This underlying assumption of an ever increasing demand for goods (and labor), bother anyone else?

[anne]

http://www.nytimes.com/2005/11/27/books/review/27easterbrook.html

November 27, 2005

The Capitalist Manifesto
By GREGG EASTERBROOK

ECONOMIC growth has gotten a bad name in recent decades - seen in many quarters as a cause of resource depletion, stress and sprawl, and as an excuse for pro-business policies that mainly benefit plutocrats. Some have described growth as a false god: after all, the spending caused by car crashes and lawsuits increases the gross domestic product. One nonprofit organization, Redefining Progress, proposes tossing out growth as the first economic yardstick and substituting a "Genuine Progress Indicator" that, among other things, weighs volunteer work as well as the output of goods and services. By this group's measure, American society peaked in 1976 and has been declining ever since. Others think ending the fascination with economic growth would make Western life less materialistic and more fulfilling. Modern families "work themselves to exhaustion to pay for stuff that sits around not being used," Thomas Naylor, a professor emeritus of economics at Duke University, has written. If economic growth were no longer the goal, there would be less anxiety and more leisurely meals.

But would there be more social justice? No, says Benjamin Friedman, a professor of economics at Harvard University, in "The Moral Consequences of Economic Growth." Friedman argues that economic growth is essential to "greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy." During times of expansion, he writes, nations tend to liberalize - increasing rights, reducing restrictions, expanding benefits for the needy. During times of stagnation, they veer toward authoritarianism. Economic growth not only raises living standards and makes liberal social policies possible, it causes people to be optimistic about the future, which improves human happiness. "It is simply not true that moral considerations argue wholly against economic growth," Friedman contends. Instead, moral considerations argue that large-scale growth must continue at least for several generations, both in the West and the developing world.

Each American, the World Wildlife Federation calculates, demands more than four times as much of the earth as the global average for all men and women, most of this demand being resource consumption. Some think such figures mean American resource consumption must go down; to Friedman's thinking, any reduction would only harm the rest of the world by slowing global growth. What the statistic actually tells you, he would say, is that overall global resource consumption must go up, up, up - to bring reasonable equality of living standards to the developing world and to encourage the liberalization and increased human rights that accompany economic expansion. If by the middle of the 21st century everyone on earth were to realize the living standard of present-day Portugal (taking into account expected population expansion), Friedman calculates, global economic output must quadruple. That's a lot of growth.

"The Moral Consequences of Economic Growth" is an impressive work: commanding, insistent and meticulously researched. Much of it is devoted to showing that in the last two centuries, periods of growth have in most nations coincided with progress toward fairness, social mobility, openness and other desirable goals, while periods of stagnation have coincided with retreat from progressive goals. These sections sometimes have a history-lesson quality, discoursing on period novels, music and other tangential matters. And sometimes the history lesson gets out of hand, as when the author pauses to inform readers that the Federal Republic of Germany was commonly known as West Germany. More important, Friedman's attempt to argue that there is something close to an inevitable link between economic growth and social advancement is not entirely successful, a troublesome point since such a link is essential to his thesis....

[dryfly]

When growth equals landfill fodder it is a problem… but as Anne’s piece points out there is more to growth than additional cup holders in a bigger SUV.

I think we need a bit of a redefinition of what we want… growth as ‘value growth’ vs. ‘more tons of stuff’ growth. Commodity products move about lotsa money & stuff but precious little value added and create few good sustainable jobs anywhere. Everybody needs some of these commodities as we all eat… but we sure don’t need to focus our energy & policies & limited resources at making more cheap disposable crap.

[anne]

Dryfly

Interesting comments as usual :) The goodness of growth can be tritely generalized, but I am much excited about what is happening at long last in China, India, South Africa...and, being told that China is being taken as a loose hopeful model in Africa and Latin America.

[anne]

China is especially active diplomatically and gradually economically in Africa and Latin America. I do not find this activity ominous, but I do wish we were more actively attentive through both arenas.

[dryfly]

but I do wish we were more actively attentive through both arenas.

Me too.

[anne]

http://www.nytimes.com/2005/11/20/international/asia/20beijing.html?ex=1290142800&en=d37f3b4011ac983c&ei=5090&partner=rssuserland&emc=rss

November 20, 2005

China Wages Classroom Struggle to Win Friends in Africa
By HOWARD W. FRENCH

BEIJING - As the teacher, a career Chinese diplomat, spoke, his class of African diplomats scribbled furiously.

At the United Nations, China opposed the United States invasion of Iraq and has defended the right of Iran and other developing countries to use civilian nuclear power, said the teacher, Yuan Shibin. China, he noted pointedly, swept aside American objections to making an African the secretary general.

There was nothing subtle about his message, which will be repeatedly hammered home to the African diplomats during their three month, all-expenses paid stay at the Foreign Affairs University here. "China will always protect its own interests as well as those of other developing countries," Mr. Yuan said. By contrast, "U.S. national interests are not often in conformity with those of other nations, including China."

The classes are one element in a campaign by Beijing to win friends around the world and pry developing nations out of the United States' sphere of influence. Africa, with its immense oil and mineral wealth and numerous United Nations votes, lies at the heart of that effort.

Since 2000, Chinese trade with Africa has more than tripled, reaching nearly $30 billion in 2004. Beijing has signed at least 40 oil agreements with various African countries. Medical teams from China are training counterparts in numerous African countries and providing free equipment and drugs to help fight AIDS, malaria and other scourges....

[nate]

insomnia drug makers should do okay when the age of discontinuity begins in earnest

[calmo]

They would be loyal to their employers, and the companies in turn would be loyal to them, guaranteeing job security, health care and a dignified retirement. Such deals were, in a real sense, the basis of America's postwar social order
Such a romanticized view of history --even the mice were loyal to the cats, the cats to the dogs... To hear the unionists tell the story it was a battle of enormous proportions about gaining a fair share of the product of their labors. Atleast there were some negotiations of legally binding contracts, the result of an occasional strike now and then.
But the union doesn't write too much of the history since this cosy relationship was discontinued. Those articles detailing the declining portion of labor in today's products are also part of that discontinuity.
But not all components of the product are flagging though esp the financial side. These guys know how to get their share:
http://www.nymetro.com/nymetro/news/bizfinance/biz/features/15197/

[cm]

ilsm @ Nov 28, 2005 3:44:32 AM: Not to disagree with your point about equals etc., but I hold there was and still is a concept of allegiance to "the team", and in a generalized sense "the company", "the law", "the commonwealth", etc. Without such loyalties/allegiances to social abstractions there is no cohesion in society, and one can well argue no society at all.

To that end, the breaking/broken loyalty between employers and employees is just a projection of what happens in society at large.

With reference to calmo, in the "happy times" prior, people also tried to cheat and screw each other, but there was still a stronger sense of checks & balances, e.g. "reputation" and keeping up of appearances.

It is not that I don't know how many decades ago managers wouldn't mercilessly fire their employees, but they perhaps had to fear a stronger backlash from their peers and and the social environment viewing them as scumbags, and failures in keeping their people employed.

It appears that the difference between then and now is largely that those checks & balances have been substantially weakened, and replaced by an "anything goes" and "whatever it takes to make a buck" attitude. This must be somehow related to the phenomenon of "make money not things" as well.

What do you all think?

[calmo]

What do I think?
Well I think $5B? in profits above regular million dollar salaries for executives, not to mention pension packages and stock options, is THEFT. Sorta like 3rd party billing, there is no specific victim and so there is rarely any apprehension of the thief. Their contribution to the well-being of society is as specialized as their compensation.