The Rise and Fall of the Managerial Class

Robert Samuelson on the rise and fall of the managerial class:

The Next Capitalism, by Robert Samuelson, Newsweek [WP]: When he died in 1848, John Jacob Astor was America's richest man, leaving a fortune of $20 million that had been earned mainly from real estate and fur trading. Despite his riches, Astor's business was mainly a one-man show. He employed only a handful of workers, most of them clerks. This was typical of his time, when the farmer, the craftsman, the small partnership and the independent merchant ruled the economy. Only 50 years later, almost everything had changed. Giant industrial enterprises -- making steel, producing oil, refining sugar and much more -- had come to dominate.

The rise of big business is one of the seminal events in American history, and if you want to think about it intelligently, you consult historian Alfred D. Chandler Jr., its pre-eminent chronicler. ...

Until Chandler, the emergence of big business was all about titans. The Rockefellers, Carnegies and Fords were either "robber barons'' whose greed and ruthlessness allowed them to smother competitors and establish monopolistic empires. Or they were "captains of industry'' whose genius and ambition laid the industrial foundations for modern prosperity. But ... Chandler ... uncovered a more subtle story. New technologies (the railroad, telegraph and steam power) favored the creation of massive businesses that needed -- and, in turn, gave rise to -- superstructures of professional managers: engineers, accountants and supervisors.

It began with railroads. In 1830, getting from New York to Chicago took three weeks. By 1857, the trip was three days (and we think the Internet is a big deal). From 1850 to 1900, track mileage went from 9,000 to 200,000. But railroads required a vast administrative apparatus to ensure the maintenance of "locomotives, rolling stock, and track'' -- not to mention scheduling trains, billing and construction...

Elsewhere, the story was similar. ... No matter how efficient a plant might be, it would be hugely wasteful if raw materials did not arrive on time or if the output couldn't be quickly distributed and sold. Managers were essential; so were statistical controls. Coordination and organization mattered. Companies that surmounted these problems succeeded. ... The rise of big business involved more than tycoons. Its central feature was actually the creation of professional managers. ...

The trouble now is that the defining characteristics of Chandler's successful firms have changed. ... We can ... identify many of the forces reshaping business: new technologies, globalization and modern finance... But the very multitude of trends and pressures is precisely the problem. No one has yet synthesized them and given them larger meaning.

Just as John Jacob Astor defined a distinct stage of capitalism, we may now be at the end of what Chandler perceptively called "managerial capitalism.'' Managers, of course, won't disappear. But the new opportunities and pressures on them and their companies may have altered the way the system operates. ... Asked about how the corporation might evolve, [Chandler] confesses ignorance: "All I know is that the ... Internet is transforming the world.'' To fill that void, someone must do for capitalism's next stage what Chandler did for the last.

Though it's mentioned, I don't think this pays enough attention to the role of information technology in reducing the need for middle management and white collar workers. Much of what these workers did in the past to track financial information, manage inventory and raw materials, plan distribution and sales strategies, and so on can now be done with a few mouse clicks on a computer or, alternatively, digitally outsourced for cheaper processing elsewhere.

This is not fundamentally different from any other sort of productivity shock, workers get displaced by new technology regularly, except that in recent years there are more white collars in the mix of workers affected by the technological innovation, a trend that may continue as information technology continues to advance. The question is where these displaced workers (or those who would have replaced them in future years) end up after the transition. Will these workers be able to transform their skills and move up to higher paying occupations or at least maintain their current income, or will the displaced current and future workers mostly move down to lower skill, lower paying jobs?

Given the outcome so far, we need to devote more attention to finding policies that can help workers receive a larger share of the productivity gains as we move to an increasingly information-based, geographically fractured, low-skill abundant, highly specialized, and highly competitive global economy. I'm not sure what fancy name to give "the next capitalism" or if it really needs one, but if growing inequality continues to be one of its main features, calling it "the new gilded age" as many do already might just stick.

Comments

[save_the_rustbelt]

or will the displaced current and future workers mostly move down to lower skill, lower paying jobs?

So far this is where we are headed.

I get a feeling that neither academics or politicians will be at the front of finding a cure, if there ever is a cure.

If we are lucky the inequality will grow more rapidly, causing a bigger political backlash. If it creeps in, we are like the frog in the pot of water brought slowly to a boil.

[evagrius]

The phenomenon is already occuring in the "world" of social welfare services. Although not quite up to snuff, with many snafus and mistakes, there are already in place computer programs that are replacing basic welfare eligibility workers and their supervisors and managers. I've mentioned CalWIN for California. There's also similar programs in Colorado and Texas. These are only the tip of the iceberg. I expect that soon, those who need aid will go to a kiosk in a shopping center where they will receive their pittance from an ATM.

[eightnine2718281828mu5]

---
Will these workers be able to transform their skills and move up to higher paying occupations or at least maintain their current income, or will the displaced current and future workers mostly move down to lower skill, lower paying jobs?
---

I think you're leaving out another option; American workers may end up in a high skills/stagnant pay environment.

That's why the right's talking point that education is the answer rings so hollow; the upper 20% of the workforce is well educated, yet the benefits of three decades of growth has largely passed them by.

And the typical comment that we now have DVD's and flat panel TV's is incomplete and misleading at best; after all, the top .1% have these toys *and* an increase in wealth. And it's this missing wealth, along with its ancillary effects such as stability and security, that is important to the average family.

[Michael Cain]

Although not quite up to snuff, with many snafus and mistakes, there are already in place computer programs that are replacing basic welfare eligibility workers and their supervisors and managers. I've mentioned CalWIN for California. There's also similar programs in Colorado and Texas.

At least in Colorado, human interpretation is still required in completing the eligibility application. One of the complaints from some of the counties is the amount of skills upgrading that the new system has required: eligibility workers must now be familiar with the requirements of many assistance programs instead of being able to specialize in one or two. To date, there does not seem to be any solid evidence that the number of eligibility workers needed has decreased.

[Lars Smith]

What we are seing is the disappearance of jobs based on routine cognitive tasks, whereas interactive skills are becoming more important. See here,
http://conservationfinance.wordpress.com/2006/10/23/the-evolution-of-work/

[evagrius]

Michael Cain; Yoour observation is correct. But the point of the magic program is to eliminate the eligibility worker and their managers so that the process is completely "objective".
The county I worked for had the "solution", "generic" eligibility workers who "knew" all the programs. In actuality, of course, most knew one program well and the rest in a vague sort. The result has been a "dumbing down" of institutional knowledge. But not to worry. The computer program will be updated and take care of everything.

[Richard]

I believe this might reflect a disconnect between "execs" and "analysts and programmers".

I once worked for a financial services company that wanted to put in a spiffy new ETL system and cut the number of programmers and analysts. A nice automated system can do many things, including making data delivery cleaner and more reliable, but the same reasons that caused the analysts and programmers to be hired still remained: to analyze issues and implement them.

Often there is a disconnect between execs -- who think that if you just hire enough software guys with programming skills you can automate anything -- and the reality on the ground.

[save_the_rustbelt]

Voters Weigh Plentiful Jobs vs. Scant Pay

NYT today

[Bruce Wilder]

"Will these workers be able to transform their skills and move up to higher paying occupations or at least maintain their current income, or will the displaced current and future workers mostly move down to lower skill, lower paying jobs?"

When Henry Ford, having developed the highly organized assembly line, announced that he would pay a minimum of $5 a day, were American workers moving into "higher" skill jobs or "lower" skill jobs?

Mass production technologies were actually mostly about eliminating craft skills. In fact, the whole history of the industrial revolution has been about eliminating "skills". James Watt had only a year's apprenticeship as an instrument maker, instead of the usual 7 years. When house construction went from mortise and tenon to balloon-frame with nails and 2x4s, expensive skills were eliminated. Do you think reading an MRI is nearly as difficult as reading an X-ray? Mozilla Firefox 2.0 is checking my spelling as I type. The mostly highly paid "skilled" workers in our economy are actors, paid to look pretty and emote on cue -- hardly the most sophisticated "skills", closely followed by athletes, who can play a child's games.

There are two great threads in the economic development, which is the industrial revolution(s): one is the application of fossil fuel energy, and the other is ever more extensive organization to improve control of production. We are hard up against the limits imposed on former -- we're running out of the stuff we can dig out of the ground cheaply, and the environment cannot absorb the waste -- but our ability to control production processes has been advancing at an accelerating rate: the technology of control -- monitoring, communication and information processing -- is cheap for the first time in history and getting cheaper, cheaper, cheaper.

I would not worry about the effect of "skills" on wages, per se. That's ignorant foolishness, frankly. A clerk at McDonald's with a computerized cash register is more productive than a clerk at Woolworth's circa 1900, who had to be trained to count back change. The increase in marginal productivity will drive up real wages; only a macroeconomic decision to drive down labor demand or deflate the economy will have opposite, redistributive effects.

The era of mass employment in manufacturing is over, though, hurried along by the migration of remaining jobs to China. Wages in manufacturing in the U.S. now average less than wages in services.

What does worry me a bit is that we don't have good intuition for the shape of the economy to come. Confusing prosperity and wages with "high skills" and "low skills" is just one symptom of how poor our intuition is.

Cheap control is a novelty in human affairs, and the economics of it is not well-understood. Economists have generally, even systematically, avoided an analysis of the economics of control, management, engineering and bureaucratic organization. Principal-agent theory is, at best, a glancing blow at the subject. As I have noted in comments before, the problems of control were "assumed" out of the economic theory of production, embedded in price theory, long ago. The implications of "increasing returns" and "external economies" in trade theory are still treated as exceptions to a general rule of ricardian allocative efficiency, which excludes altogether consideration of the kinds of things Adam Smith tried to observe in his famous pin factory, long ago.

The general implications of increasing sunk cost investments and disappearing unit variable costs seem lost, when tired pieties about education are being trotted out, to cover up the banditry of top corporate executives. But, I am sure if people would just think about what is going on, progress can be made.

[Ken Houghton]

plentiful jobs? Are you referring to this piece, STR?
The second big cause of the [minimum wage increase] proposals’ [sic] popularity stems in all likelihood from the rise of income inequality. The American economy has done so well at creating jobs in recent decades that almost anybody who wants work can find it. The problem is that too many jobs still don’t pay a decent living. So even if a minimum wage increase does eliminate a small number of jobs, that may be an acceptable price for improving the lot of millions of low-wage workers.

[dissent]

Like every other citizen of the USA I've been lectured to and hectored by right wing conservatives about their superior ideas and moral character for the last 40 years. I've learned to dismiss much of this out of hand (moral character!), given the value of the Bush Administration as a sort of combination demo and crash test. But the drill does reverberate in my head, leading to this question.

What is being suggested is that we leave the process of (high wage in particular) job destruction alone, and mitigate its consequences.

Now how does that pencil out? Wouldn't most economists say that programs to mitigate such consequences were very inefficient?

If you look as the social consequences of job/career destruction, aren't they so damaging to the prospects not only of individuals but of families and communities that no reasonable amount of tax payer money could possibly do any real good?

Would it be more efficient just to come up with some measures that have the effect of making it more expensive for companies to destroy jobs?

Are the factors that make this latter idea impractical ideological? Or economic?

[dry fly]

The phenomenon is already occurring in the "world" of social welfare services. Although not quite up to snuff, with many snafus and mistakes, there are already in place computer programs that are replacing basic welfare eligibility workers and their supervisors and managers.

To evagrius & Michael Cain's points - I've been seeing the same thing in 'design & mfg' evolve for a generation. Thinking specifically of CAD - Computer Aided Design and CAM - Computer Aided Manufacturing.

There are certainly 'organizational consequences'.

The original idea was to eliminate 'draftsman'. In old 'Chandleresque' mfg'ing companies there were HUGE departments of engineers & draftsman bent over drawing boards producing 'blue prints'. In those days there was an 'original vellum' with a part drawn on it (easy to draw & erase on vellum but also easy to smear & destroy)... Each part was represented that way. At one factory I call on in Iowa they had 125,000 active part numbers.

To make the drawings available to workers they ran them through an ammonia based reproduction process that produced the blue prints we hear about so often... blue backgrounds with white lines - a negative. These were more robust and 'plant hardy'.

Every time a revision was made to the design - some body either drew one up from scratch on a new sheet of vellum or erased and redrew the original - then ran new copies of the blue prints & distributed them.

It was extrordinarily time consuming both in overall time line length & labor hour per part. This environemnt was ideally suited to the 'professional manager'. Control & manage.

Then came the early 'CADs'. At first all they did is automate the drawing - instead of lines on vellum, it was lines on a CRT screen. When done the file was printed in a printer or 'drawn' - they had machines that held 'pens'. I know it is unbelievable but I remember wanting one in the worst way circa 1983-1985. The good ones cost a couple to ten grand then.

Then somebody got the smart idea that instead of just drawings, use CAD to 'build solid models'... literally 'vector' the part in cyber space. The first ones were incredibly crude - 'wire frame' models that looked like 'tinker-toys' for you old enough to remember them. Complex curves were out of the question - donuts & cylinders & cones & spheres - fine, but don't even think of modeling a car hood, even for a cheap econobox.

But all that was finally worked through and 'real solid' modeling started to happen. At first these programs were expensive ($25K-$50K a 'seat' depending on what bells & whistles you got). Plus they needed to run on large mainframe-workstation systems. Million dollar systems - IBM & Cray & Control Data made a killing.

Again the centralized nature meant Chandleresque organizational structures were ideal. These systems required top down control too. And tight financial controls. Plus any transmition of the information was still dept-to-dept transfer of paper. Managers oversaw all of that from the safety of their own personal 'silo'.

But as modeling got better & factory floor automation got 'smarter' the inevitable hook up occured: using the CAD solid model as the template for processing instructions at the machine level. At first is was simple tool paths but it has gotten much more complex (mold build with draft angles, mold flow, etc.).

And now with internet a designer in Bangalore can send a CAD file to China where it is processed through CAM to produce a product that is managed through ERP based global supply chain out of Singapore so that it ends up on the shelves of yout local WalMart in time for Chistmas. Whew.

And because both the software & the hardware got MUCH cheaper, it is now possible to have VERY powerful solid modeling systems on laptops and the whole thing cost $5,000 (with all the other Office Suite software thrown in). A rep can be at a truck stop in Nebraska redesigning a part he just saw in a Walmart - email the changes via wireless internet around the world to a suppler - and get the quote back before he gets home to Chicago. This happens EVERYDAY - believe me.

Now did the original plan to eliminate the draftsman ever occur? I suppose so - few are actually drawing anymore. But those folks were replaced by these other 'technicians'. However that doesn't mean there were more or fewer bodies working... it's like comparing, apples and footballs. You couldn't possibly know.

But one thing is for sure, the amount of 'work' produced per person has dramatically increased & dispersed. That guy in the truckstop in Nebraska can in an hour do what a draftsman would take a couple days to a week to produce.

The more significant change from this evolution is seen in the org structure... what can a Chandleresque professional manager do in this new environment to improve productivity & control? Not much, really. Just make sure the tech is (1) happy and motivated (2) has the resources and (3) understands the organizational mission.

In today's world the only task from the three where a manager is critical is item (2) make sure the tech has the resources... in fact in today's distributed communication environment the tech might know the mission & task sets better than the mgr.

The result of this is that 'professional managers' are as useless as tits on a boar, they in fact usually have negative value since they get in the way.

But there is still a need for some control & management. So the hybrid manager is quite common - a person who still has hands-on skill & can (and often does) do actual work but also handles the managerial load (ideally that load is greatly reduced because the techs are semi-autonomous). My wife works in that capacity as a worker-manager in design, CAD & customer service for a mid sized mfger sending product all over the world.

And the people part of the managerial load really doesn't have to be that heavy since there is so much electronic monitoring - like it or not. Personalities & motivation issues are still there, people are still people, but the compilation of 'performance metrics' is often 'done' for the managers 'electronically'. In theory the managerial side of the work load should be less.

******

To take this back to evagrius & Michael Cain's comments regarding 'services' - my guess is you will see EXACTLY the same thing occur. There will still be 'social workers' & 'managers'... but FAR fewer of each per case load. In addition the actual payment execution might be automated (via ATM similar to how mfg was electronically executed via CAM)... but there will still be people, just a whole lot fewer of them per case.

This is certainly a 'brave new world'.

[James Killus]

The downsizing of the managerial functions in large organizations, which really began to take hold in the 1980s, may have had other consequences.

Prior to the massive IT expansion, the best and safest jobs in large companies were the "corporate" jobs, the managerial service jobs in the home office. Managerial job downsizing changed all that, so that even the personnel that upper management saw every day were at ongoing risk.

It's easier to lay off workers when it's "us vs them," white collar vs blue collar in other words. Laying off your everyday acquaintances takes more steel, or maybe less compassion and empathy. I wouldn't go so far as to say that, since the 1980s, upper corporate management has been selecting for sociopaths who think nothing of destroying the lives of their best friends, but putting it that way does make recent corporate scandals and tales of upper management malfeasance easier to understand, doesn't it?

[ken melvin]

Hard to see a model where all production is done by capital and that capital is owned by a very few. A new economic model is required. That's the challenge.

[save_the_rustbelt]

So here is the real problem.......

Revolt of the fairly rich
Today's lower upper class is seething about the ultrawealthy.
By Matt Miller, Fortune columnist
October 25 2006: 8:43 AM EDT

(Fortune Magazine) -- Not long ago an investment banker worth millions told me that he wasn't in his line of work for the money. "If I was doing this for the money," he said, with no trace of irony, "I'd be at a hedge fund." What to say? Only on a small plot of real estate in lower Manhattan at the dawn of the 21st century could such a statement be remotely fathomable. That it is suggests how debauched our ruling class has become.

The widening chasm between rich and poor may well threaten our democracy. Yet if that banker's lament staggers your brain as it did mine, you're on your way to seeing why America's income gap is arguably less likely to spark a retro fight between proletarians and capitalists than a war between what I call the "lower upper class" and the ultrarich.

Here's my outlandish theory: that economic resentment at the bottom of the top 1 percent of America's income distribution is the new wild card in public life. Ordinary workers won't rise up against ultras because they take it as given that "the rich get richer."

But the hopes and dreams of today's educated class are based on the idea that market capitalism is a meritocracy. The unreachable success of the superrich shreds those dreams................

[eightnine2718281828mu5]

---
Hard to see a model where all production is done by capital and that capital is owned by a very few.
---

Really? I just look out my front door.

I find it odd that the cost of even some mundane form of capital, say a carwash or bowling alley, is beyond the means of so much of our population.

[evagrius]

dryfly- Loved your "useless as tits on a boar"- my wife says that often- she's Canadian and picked it up there.

What you've stated about CAD's is of course also true for publishing. I once had the idea of being involved in publishing, even taking courses at UC Extension. But the industry was changing fast and the old skills, ( linotype, proofreading etc;) were being replaced by automation. I realized that the employment future was limited.

Yes. It certainly is a brave new world but I wonder if something has been lost.

Do you know that a lot of younger doctors can't do a simple diagnosis without a bunch of blood tests?

[georgist]

Hard to see a model where all production is done by capital and that capital is owned by a very few.

Hard to see indeed. Most productive capital does not just float in the air, you know.

I find it odd that the cost of even some mundane form of capital, say a carwash or bowling alley, is beyond the means of so much of our population.

*yawn* Try building your carwash or bowling alley in the middle of the desert - that's a good way to cut costs.

[adam]

"Given the outcome so far, we need to devote more attention to finding policies that can help workers receive a larger share of the productivity gains as we move to an increasingly information-based, geographically fractured, low-skill abundant, highly specialized, and highly competitive global economy."

I'm assuming this means giving more gains to the workers in the u.s. since rural workers world-wide are flocking to population centers because they make more money in cities. The losers, of course, are those in wealthier countries that are not used to labor competition (at least not to such a large degree).

Add a couple billion capitalists to the world via reform in china and india and those that make the money will be those that structure the organization to take advantage of that reform.

Are they making too much? Sure. But treading water will increasingly be the norm until rates of return on capital are normalized across borders.

Anyone that thinks capping exec pay or one political party or another changes the fact that this is a multi decade reality is delusional imho.

[dry fly]

Yes. It certainly is a brave new world but I wonder if something has been lost.

Do you know that a lot of younger doctors can't do a simple diagnosis without a bunch of blood tests?

Ya a lot is being lost.

You can CAD up all the parts you want & transfer them over to CAM and hope the program gives you the optimum tool path, speed & feed... but after the chips are cut it still usually takes somebody to look at the parts and see if they are right (not just measured to tolerance but actually 'fit for use' - not always easy to quantify).

Currently there are enough transitional workers around who can do both - CAD up the part, send the file out to the factory, get a part back and tell the mfg crew why it isn't right & how to fix it (adjust this cut angle, lower feed, increase speed, change cutter insert material... etc.) Those guys are getting harder to find & motivate. Few boomer mfg professionals have the complete skill set... most newbies don't even have a clue what skill sets are needed.

At least not here in North America.

You want job security - learn these kinds of multiple skill sets (like hands on machining & CAD-CAM) plus an additional language or too (say Spanish, Mandarin, Hindi or Bengali). Ka Ching.

This applies to other careers too, not just mfg. But that's the one I know best.

[Movie Guy]

Mark Thoma - "Though it's mentioned, I don't think this pays enough attention to the role of information technology in reducing the need for middle management and white collar workers. Much of what these workers did in the past to track financial information, manage inventory and raw materials, plan distribution and sales strategies, and so on can now be done with a few mouse clicks on a computer or, alternatively, digitally outsourced for cheaper processing elsewhere."

Valid points. The sales strategies issue isn't a perfect fit, but your point is taken.

[Movie Guy]

Mark Thoma - "This is not fundamentally different from any other sort of productivity shock, workers get displaced by new technology regularly, except that in recent years there are more white collars in the mix of workers affected by the technological innovation, a trend that may continue as information technology continues to advance. The question is where these displaced workers (or those who would have replaced them in future years) end up after the transition. Will these workers be able to transform their skills and move up to higher paying occupations or at least maintain their current income, or will the displaced current and future workers mostly move down to lower skill, lower paying jobs?"

I agree, but bear in mind that the author's discussion focused on the displacement and/or consolidation of managers.

Absent a sustainable expansion of the economy in related fields or specialties, it is perhaps unlikely that the displaced managers will move to higher paying jobs. Personnel employment statistics I have reviewed on this issue have indicated otherwise for specialized managers and floor leaders. The day of the jack-of-all-trades manager/leader is typically long gone, but when you find an individual with multiple leadership/specialty skills, they are generally snapped up quickly. But that doesn't mean that their pay rates are much higher than the average in the industries concerned.

[Movie Guy]

Mark Thoma - "Given the outcome so far, we need to devote more attention to finding policies that can help workers receive a larger share of the productivity gains as we move to an increasingly information-based, geographically fractured, low-skill abundant, highly specialized, and highly competitive global economy."

Why?

And who are the "we" in your presentation?

Your views are not echoed by corporate leaders, managers, and shareholders.

Who are you speaking to in address this supposed "need"? Certainly not the corporate audience.

But, do continue...

[dry fly]

Anyone that thinks capping exec pay or one political party or another changes the fact that this is a multi decade reality is delusional imho.

Agreed.

And through this multi decade period, standard of livings are going to converge worldwide. I don't mean everyone will be paid the same, I mean the local income distributions around the world will become more similar so that the income distribution of a community near Guangzhou will increasingly have a currency adjust income distribution similar to a comparable community in the west.

Two important things to realize (1) it will take time and (2) the convergence will work both ways meaning it is not only 'they' who will rise toward 'our' level... there is going to be some serious down drafts in standard of living in the developed world in this convergence process too.

Not facing THAT reality is even more delusional IMHO.

The question as to which party is going to better manage this convergence from the US side so as to minimize hardship & resultant social unrest is a good & valid question.

I personally think the Dems are more concerned about the issues & their consequences, but I don't feel they have a lock on the answers. JMHO.

[adam]

dry fly-

i'm not a party member. here's what i see among my friends:

dems-blaming bush for outsourcing overseas when clinton advanced this (to the degree that it has anything at all to do with the u.s.) and it was signed off on by a republican senate.

repubs- blaming mexicans. yeah studies show that immigration hurt low skill wages as much as 7% and overall wages 4% but with an aging population we'll need replacement workers, house buyers and tax payers.

we need cheaper energy sources- lng is great but environmentalists oppose it. often oppose nuclear as well.- that's dems right?

ethanol is a boondogle- that is republican (interview with pelosi yesterday said they are in line to continue that givaway).

repubs cutting education bothers me becasuse agility will be key in the future.

what do you see as the strong point of the dems? both parties sell snake oil as far as i see.

[Movie Guy]

Is ethanol a boondoggle in Brazil or any other countries, other than the USA?

It may not be a perfect substitute fuel, but it's in much of the pump gasoline sold right now. In low percentage, of course.

[Lafayette]

EV: “I don't think this pays enough attention to the role of information technology in reducing the need for middle management and white collar workers. Much of what these workers did in the past to track financial information, manage inventory and raw materials, plan distribution and sales strategies, and so on can now be done with a few mouse clicks on a computer or, alternatively, digitally outsourced for cheaper processing elsewhere.”

Having sold IT for a good many decades, I can’t disagree more with this statement, which indicates that the writer cannot distinguish between what IT is and what it effects. One assumes that because one get dozens of emails in an instant, that an information worker is somehow more effective? More communicative, yes – but more effective … that remains to be seen.

For example: Nobody, but nobody, builds a Marketing Strategy with a click of a mouse. One sends it perhaps across the world in a microsecond to hundreds of people, that’s all. Marketing Strategy templates are guides in that they structure a document, but the content still requires original thought. And, as has always been said, “garbage in, garbage out”.

All the data mining in the world does not guaranty the success of a product that is badly concieved and a marketing plan that is incompetently implemented.

Furthermore, as the more developed societies take the lead of transiting from the Industrial Age to the Information Age, when you look at the structural composure of industry (in America or in Europe), one still finds a heavy content of industrial output. Yes, it is produced more efficiently (by the use of IT); but it still accounts for the lion share of GDP.

More over, IT does not replace managerial manpower as much as to have a leverage effect on it effectiveness. (After all, if IT had had a really tremendous impact on management personnel, it would have stimulated inordinate amounts of white collar unemployment, which has simply not happened. Most of the unemployment is blue collar dislocation of lower skilled factory work.

Let’s not extrapolate, just yet, the globalization effect from some spectacular niches to the rest of the economic activity. Not yet. The human mind is an ingenious instrument that is capable of innovating new products and new markets. It will be a while before a computer-based robot replaces it.

[Movie Guy]

Bruce Wilder,

That's a great post. Worthy of being cited or displayed in full in a main post...on any economics blog.

[dissent]

I think we should give up on education. College actually doesn't make sense any more.

It's too expensive. Going into big debt for skills that will not provide a secure living does not make sense. Going into debt for 'the man', who'll leave you to bankruptcy when you're 50 is just being played for a fool.

The wages of college educated 25-34 young people have falled sharply over the last 5 years.

If you get an education for a particular skill set, the risk is yours. No one else's. Your career probably has a 15-25 year life, during which you will acquire debt and responsibilities. But the only sure thing is change, and the desire of the corporations to dump American workers means you'll be out on your ass and unable to meet those responsibilities. The 100K down the drain is your loss. You should probably have put it into the stock market or gold and worked at Wal-Mart.

Also, there is no way to actually get the skills that you'll need. Chinese plus Russian plus engineering? If you can finance that kind of ten year education, you probably don't need to work.

[Mark Thoma]

Lafayette:

You don't build the strategy itself into its finished product using computers - of course it doesn't write itself - but all the little things from having access to Census block data with a few clicks to all the ways in which information can be used for targeting mailings, etc., etc., etc. Surely it's helped.

I have little doubt that technology has enhanced productivity around here. When I started, we used typewriters, could barely run a regression on a computer, etc. Compared to today, it's not even close...

[adam]

movie guy-

brazil makes ethanol out of cane sugar. don't know if it is a boondoggle there. would depend on their subsidies and gasoline taxes.

consumer reports recently called it a ripoff until the price comes down. cost per unit of bang higher than gasoline by 20%.

we could change that through taxation if we wanted but the gas tax is regressive and punishes those least able to pay.

[Movie Guy]

Mark Thoma - "Given the outcome so far, we need to devote more attention to finding policies that can help workers receive a larger share of the productivity gains as we move to an increasingly information-based, geographically fractured, low-skill abundant, highly specialized, and highly competitive global economy."

What types of policies? Federal government, non-government, regional, state-level, county, municipal?

We're not operating in a command economy, so what types of market driven policy solutions are you suggesting? Or are you simply referring to government intervention in the employment marketplace?

Perhaps you should, for discussion purposes, separate productivity efficiency improvements from all productivity "improvements" resulting from reduction of company/corporate employee wage and benefits costs.

If Corporate X negotiates a large reduction in pension fund obligations and health fund costs (two separate issues, for this discussion purpose) in order to remain domestically and/or globally competitive, you want a policy from whatever entity to do what for the workers? How do you propose that such "productivity recovery" policys and offsets work in relation to the corporate goal of reducing productivity costs - labor and other?

Are you seeking greater government control and influence over private enterprise entities, et al, companies and corporations? Don't those enterprise entities already have to comply with a wide range of governmental rules now?

[Movie Guy]

adam,

Appreciate the response.

Ethanol is an interesting topic. Your points are well taken, and there will be more to come on this front.

If we add up all of the opportunities not pursued to increase crude oil production in and offshore of the USA, taken in combination with other substitute fuel initiatives, the collective effort could help reduce the U.S. dependence on foreign source fuels - crude, refined, LNG, and whatever else in the future.

It's always easy to point out that doing X will only save U.S. consumers and our federal/state, local governments from relying on so much foreign crude oil, but add up all of the ignored or not-in-my-backyard passed opportunites and the story begins to change.

Ethanol's role is but one small piece of that story. Perhaps it should only be considered and used as a regional fuel.

Americans do not appear to want to save fuel, rather only reduce fuel costs. Not sure that there is much reality there.

[dry fly]

Is ethanol a boondoggle in Brazil or any other countries, other than the USA?

It sure can be a boondoggle - even in Brazil.

I worked in this industry when I first got out of school - circa 1981. Worked for ADM when they were putting up the first really massive & efficient plants. I was on the first wave of one of them though didn't do design engineering, only start up & operations.

ADM's process is corn-> EtOH via 'wet mill' and utilized co-gen power so it was a pretty good process but not perfectly 'green' because we used coal to generate both electrical power & process steam - lotsa 'net CO2' released from the coal burn.

But as a black box process it 'looks' almost like a syn fuels plant... corn & coal in with ethanol, electricity & food by-products out. Because of the coal input & electricity output this process has a very much better overall energy yield. The numbers were held pretty close by mgmt & I left before I had insight into boiler efficiencies to work completely backward - but I know we were beating outside estimates of overall energy yield by quite a lot.

Going 100% to electricity from coal and eating the corn had lot's better energy yield but you don't easily end up with a liquid fuel doing that. With co-gen wet mill ethanol you do.

And because it was a wet mill little of the 'food value' was degraded - a complaint often thrown at corn based ethanol. The starch is separated out for ethanol production or sweeteners... germ goes to corn oil extraction with solids going to chicken feed... gluten goes to food additives & high protein cattle feed... stillage, hulls & fiber to low protein cattle feed. Nothing wasted but the squeal.

It is EXTREMELY capital intensive though... corn fractionation, steam production for evaporation & drying of by products & stillage... distillation through azeotrope... even sewage treatment. All very capital intensive.

I was told the plant was 'worth' a billion dollars and could grind about 350K bu/day. If I recall one bushel produces 2.5 gallons of 200 proof. Plus we sold electricity (can't remember how much) and feed and also produced sweeteners when ethanol demand as low.

All in all it was profitable because of protectionism from Brazilian sugar & ethanol producers & low US corn prices. Artificially high selling price & artificially low raw material price. That sure helps the 'spread'.

The problem is even with an efficient process like this & subsidies - there isn't enough corn to even come close to meeting current US liquid fuels demand.

Sugar cane is far better feed stock, especially if (1) you have workers paid slave labor wages since it is far more labor intensive AND (2) you dump the stillage in the river instead of evaporating & drying it - far less capital required that way. Guess how they do it in Brazil?

The pitch for cellulostic ethanol is a real one but VERY far off. Elephant grass is staggeringly productive on a tons per acre basis... use that for the feedstock & domestic ethanol has a real chance. Ethanol everywhere has a chance.

But the biochemistry to break up the cellulose polymers into fermentable sugar is difficult & slow. That is where the research effort is. I was studying that almost 30 years ago - they are still struggling with it.

I'm not holding my breath waiting.

[dry fly]

what do you see as the strong point of the dems?

Only that they outwardly and I believe genuinely care about the working class & their plight. But then we often hurt those we love the most don't we.

I knew people like Paul Wellstone - he was my sister's advisor in college way before he thought about the Senate. I was still able to meet him & talk with him after he went to Washington. I had some very interesting discussions with him - beer in hand - at the Minnesota State Fair.

He really gave a damn about middle class issues, had lived them most of his life & didn't need a CBO report to tell him people are getting squeezed.

But he didn't have a clue what to do about it anymore than the rest of us.

Compare that with the GOP version - I've also seen that up close & friendly since I used to live in & still travel Iowa... every four years we'd get pummeled by hopeful Pols. Their answer was always - the market will handle it, don't worry about people, they take care of themselves.

In the late 70s & early 80s I used to vote GOP more than Dem because I agreed with that. But things pretty much worked back then. Not anymore, now it has reversed & I vote almost exclusively Dem.

I'd take clueless concern over callous indifference today. The breaking point was the Ag Crisis in the 80s - I lived & worked through that. That would wake about anyone up.

[evagrius]

dryfly- I tend to agree with you. One can have the technology available but if it's an idiot in charge, the result is that a mistake has been made faster.

As far as education, it all depends on the definition. Too many people confuse it with training. A monkey can get trained, it can't get educated. To me, education is linked to tradition, the handing down from one generation to the next, of insights about human nature and the surrounding world. It's meant to be an ongoing process. One learns to learn, so to speak. I don't think the same applies to training. Too much of what's called education is just training.

says...

evagrius - A monkey can get trained, it can't get educated.

As far as you know.

[evagrius]

"evagrius - A monkey can get trained, it can't get educated.

As far as you know."

If monkeys could get educated, they'd have a civilization and culture. As far as I can tell, they don't.

Perhaps people should read Jacque Ellul's treatise, " The Technological Society", written over 40 years ago. He explored the consequences of technological thinking and its effects on human culture. Much of what he wrote is still applicable. After all, as he argues, it's not the machines that create technology but a style of thinking, of perceiving reality. That style of thinking, ( which always looks for efficiency as its end),has a tendency towards hegemony or totalitarianism. It reduces everything to technique which is controllable and everything which is not controllable is dismissed as being unimportant. That's why it's interesting to see the reaction of politicians and other leaders regarding unintended, uncontrolled events.

[Bruce Wilder]

Does anyone know what percentage of the U.S. labor force is employed by organizations employing more than 20 employees? What's the trend?

[Movie Guy]

Bruce,

Future watch: 0.2% once we blow up the U.S. economy.

ha.

[Movie Guy]

Bruce,

Actually, the firm size employment stats are here:

http://www.census.gov/epcd/www/smallbus.html

As of 2003, the answer was 10.7% and the number of employees involved was 5,767,127.

The statistics are rather interesting.

[Movie Guy]

Bruce,

Let me correct that:

Actually, the firm size employment stats are here:

http://www.census.gov/epcd/www/smallbus.html

As of 2003, the answer was 10.7% and the number of firms involved was 5,767,127.

The statistics are rather interesting.

A more detailed breakdown, including state level totals, is here:

http://www.census.gov/epcd/susb/2003/us/US--.HTM

[evagrius]

MG- Could you elucidate your reasoning concerning the data you've referred? I'm a little confused.

[Movie Guy]

evagrius,

Isn't that the information that Bruce asked for?

"Does anyone know what percentage of the U.S. labor force is employed by organizations employing more than 20 employees? What's the trend?"

In reviewing the information at the Census Bureau once again, yes I believe that is what Bruce requested.

The percentage is up very slightly from 1998. I didn't mention that, as Bruce can read it.

Now, as for my first remark, I was just clowning around. If the U.S. loses that many firms employing 20 or more employees, then we're toast.

Do you disagree with the information available at the two links? Or do you think I stated it incorrectly? If so, please correct my response.

says...

Good grief is not an argument.

The claims you make about "it just being addition and subtraction" were the same claims made about investment data thirty years ago. No big deal, right?

Yet the re-discovery of finance, data mining and the subtle features of the data that rolled off has been a major area of research.

I gave you the likely areas of gamesmanship: the past relationship of bills introduced versus the actual pursuit of those bills being passed. There's actually a credible literature on this, at least from the perspective of lobbyists and the money spent on a bill versus the logit probability of it passing.

Some rigor would be helpful here, MG.

[elvis]

dry fly,

thanks for the very interesting insider view of the state of ethanol. It's always fun to listen to the Pols jump to support it at election time. Both Dem and Rep elbowing their way to the bar.

[Movie Guy]

I called two friends who work for Members of Congress. Both are senior staffers.

We discussed the few ongoing rants about the NTUF VoteTally and BillTally rollups. Both laughed at the situation, and said that they always verify their boss' data. Neither cited any problems with the NTUF methodology as all Members of Congress are subjected to the same considerations. Both agreed that any BillTally, VoteTally, and original bill votes can be "backtracked with ease".

If the VoteTally and BillTally records can be fully and easily verified, including verification by the original voting sources (the Members of Congress), then what is real problem here?

Who has discovered any errors in the VoteTally and BillTally voting records?

Show me an error in the voting rollup. Name the Congressman, cite the bill, the BillTally or VoteTally, and your evidence from the Congressman's office or elsewhere (Library of Congress or Congressional Committee tally or House/Senate voting clerk records).

Otherwise, this is an exercise in the artform of complaining and very little more.

[Movie Guy]

And, yeah, the subject also belongs on another thread.

[anne]

Post-Managerial Capitalism?

http://query.nytimes.com/gst/fullpage.html?res=950CE5DB133FF934A15757C0A9609C8B63

April 27, 2006

Insurer Reviews Stock Pay

UnitedHealth Group, one of the largest health-insurance providers, said yesterday that its board would vote May 1 on whether to end stock-based compensation for a small number of top executives who already have a well-established stake.

The board may eliminate golden-parachute packages tied to a change in control, freeze supplemental retirement benefits and drop non-cash perquisites for certain officers, the company said today in a statement.

William W. McGuire, the company's chief executive, said last week that he would recommend ending stock-option grants after The Wall Street Journal reported that his own options amounted to $1.6 billion, one of the largest totals for any executive.

The Journal reported that 11 UnitedHealth executives received stock option grants at the lowest daily closing price of their respective quarters, giving them the maximum opportunity for profit. The Securities and Exchange Commission has also made inquiries into compensation at UnitedHealth.

[anne]

http://www.nytimes.com/2006/04/26/business/26calpers.html?ex=1303704000&en=3681ed86de02eab5&ei=5090&partner=rssuserland&emc=rss

April 26, 2006

Calpers Questions Pay at UnitedHealth
By BLOOMBERG NEWS

The California Public Employees Retirement System, the largest public pension fund, said yesterday that the UnitedHealth Group, the health insurance company, must explain the $2.4 billion in stock options granted to its top executives.

Calpers, as the pension fund is known, sent a letter to UnitedHealth, asking for a meeting before UnitedHealth's shareholder vote on May 2. Calpers may withhold its proxy votes for the chief executive, William W. McGuire, who will receive $1.6 billion in options, and the members of the compensation committee, a Calpers spokesman, Clark McKinley, said.

"We're leaning that way right now," Mr. McKinley said....

[anne]

Post-Managerial Capitalism?

http://www.nytimes.com/2006/10/26/opinion/26thu1.html

October 26, 2006

Money Down the Drain in Iraq

When the full encyclopedia of Bush administration misfeasance in Iraq is compiled, it will have to include a lengthy section on the contracting fiascos that wasted billions of taxpayer dollars in the name of rebuilding the country. It isn't only money that was lost. Washington's disgraceful failure to deliver on its promises to restore electricity, water and oil distribution, and to rebuild education and health facilities, turned millions of once sympathetic Iraqis against the American presence.

Their discovery that the world's richest, most technologically advanced country could not restore basic services to minimal prewar levels left an impression of American weakness and, worse, of indifference to the well-being of ordinary Iraqis. That further poisoned a situation already soured by White House intelligence breakdowns, military misjudgments and political blunders.

The latest contracting revelations came in a report issued Tuesday by the office of the Special Inspector General for Iraq Reconstruction. The office reviewed records covering $1.3 billion out of the $18.4 billion that Congress voted for Iraq reconstruction two years ago. Reported overhead costs ran from a low of 11 percent for several contracts awarded to Lucent to a high of 55 percent for, you guessed it, the Halliburton subsidiary, KBR Inc.

On similar projects in the United States, overhead is typically just a few percent. Given the difficult security environment in Iraq, overhead was expected to run closer to 10 percent. But in many of the contracts examined, it ran much, much higher, in some cases consuming over half the allocated funds. And the report may have actually underestimated total overhead because the government agencies that were supposed to be supervising these reconstruction projects sometimes failed to systematically track overhead expenses.

The main explanation for these excessive overhead rates turned out to be not special security costs....

[Lafayette]

Wilder: "... Confusing prosperity and wages with "high skills" and "low skills" is just one symptom of how poor our intuition is."

Unfortunately, when you have no wage at all, it is hunger that reminds you that prosperity is a better condition.

The "low-skill levels" category has always applied mainly to manufacturing jobs. This requires only a wee bit of training and is wrote, meaning repetitive and monotonous. Why it should have become so well paid as, say, at GM is pure unionism. (Not that unionism is bad, because it isn't.) Unions simply out priced themselves since negotiating higher wages was what union leaders were expected to do.

Union leaders did not, neither did many others, note that the world labor supply would burgeon as it has with the awakening of China. Though his fact was underscored in a book by Frenchman (ALAIN PEYREFITTE, ”When China Awakens”) in 1973. The book was prescient, but apparently "Lost in Translation".

America, with its typical monochrome (black or white, friend or foe) outlook on the world did not see what was coming. Had American leadership understood that Chinese Communism would inevitably implode, the next obvious question is, "So, what then?" The answer to that question is what is happening now, known, for lack of a better word, as "globalization".

With America, fixated on the "Evil Empire", and Europe, comfortably tucked in its complacency abetted by the protection of high customs tariff barriers; "leaders" simply did not see the paradigm shift that was occurring.

And yet, one might think, "that is what they are paid for, isn't it?"

Still, the real wealth of any nation is its ability to produce. Flipping a condo and making a neat profit of 30% in 30 days is sterile speculation afforded by the easiness of capital availability - that capital being, often, supplied by foreigners holding your national debt.

There will come a day to pay the piper, and that day is very bleak indeed. It does not happen suddenly, but rather slip-slides into existence. The greatness of Rome was neither made nor destroyed in a day. It simply withered on the vine.

[Lafayette]

Anne: "Their discovery that the world's richest, most technologically advanced country could not restore basic services to minimal prewar levels left an impression of American weakness and, worse, of indifference to the well-being of ordinary Iraqis."

When Bremer arrived in Iraq, in his luggage was a book about rebuilding Germany after the Nazi defeat. The nerd obviously thought that history repeated itself in the same way.

So, according to the book, he did what the Allies did in Germany. He disbanded the German Army and made unemployed paupers of the ex-soldiers. Now, maybe this works in Germany, but not in Iraq.

Unlike the Germans, the unemployed Irasi soldiers became insurgents and the insurgents did thier best to show that, as soldiers, they had NOT been defeated. The best way to do so was to hamper the reconstruction of the nation. They have largely succeeded.

Had Bremer kept the Iraqi Army in tact, it could have been used to immediately lock down the nation. Sending units to the borders would have assured that no kamikaze bombers entered from Syria to play into the hands of al Qaida.

Iraq would have had a better chance to succeed, which it still does ... but America MUST leave for that to happen.

Americans elected as PotUS a man who cannot accept defeat. It is in his nature. Two more years and he will be relegated to the dust bin of history. So, for the present, concentrate on what is wrong IN America and not outside. There's is work aplenty for all your minds to be applied.

[teme]

Probably the funniest lecture I ever attended was given by Sari Baldauf, then head of Nokia Networks business units. She had three mobile phones with her, first for calls she could ignore, second for calls she should answer and third for call she must answer. Her point was that at Nokia, and perhaps in general too, people communicate too much. Which was nicely illustrated by phone number one ringing a dozen times, number two a few times, until she had to finish early after 40 minutes when phone number three rang...

The point is that as cost communication approaches zero, we hit another barrier which is time spent doing doing communication. Approriateley, much of the work in communications tech nowadays is about limiting communication, that is technology to help you figure out what you can ignore.

When cost of management, or control as Bruce Wilder put it, approaches zero, what then is the limit? It seems to me obvious that we can not keep on adding more controls ad infinitum, but at the same time I don't know what exactly is the problem with this.

Somebody mentioned Ellul's books, but another old book that keeps coming to my mind what keeps coming to my mind is Joseph Weizenbaum's Computer Power and Human Reason. Namely the point that if you take an bad bureaucratic system and then run it on a computer, the increased efficency masks the deficiencies, but the negative effects are also multiplied. His example was US Tax system, point being that if weren't for computers the whole system would've collapsed due to its faults and would've been replaced by something much more simpler and more effective.

Weizenbaum wrote back in 70's, but I think the point is still very valid. A recent example would be the copyright system, which particullary in USA is acknowledged to be a hopeless mess by pretty much everyone involveed. However, as long as transactions involving copyrights were between publishers and other such institutions with lawyers and other resources, this was manageable. But with the Internet, the other party is invidual consumers, and the pseudo-solution offered is to write the copyright rules into DRM-programs. The problem ofcourse being that the rules are anything but intuitive, which effectively causes consumers to treat restrictions emposed by DRM as bugs, and switch to using pirated products instead...

There is something novel about an unlicences copy being a better product than the original, and perhaps this is the limits to controls: at some point it is better value to ignore them. As anecdotal evidence of this, the biggest productivity gains I've personally gotten out of small scale programming have been from little scripts that basicly fill coporate forms with credible looking bullshit so I can actually do my job. The timecard filler with random variance so it doesn't look automaticly filled, was a huge hit in the entire department.

[Barry]

BTW, a school for military government had been set up in the USA in 1943, in preparation for the post-war handling of Germany. That's a level of foresight that the Bush administration seems to be inherently incapable of, especially since the Iraq War was a 'go' from Sep 12, 2001. From what I heard (sources thin here), the officers, NCO's and EM who were designated for military government were kept out of combat as much as possible, to make sure that they'd be more effective in dispassionately ruling the Germans. Lists of pre-Nazi politicians and social leaders were made and kept, so that, when Karl Schmuck walked up and claimed to be a pre-Nazi (and anti-Nazi) guy, this could be verified.

When certain practices were found to be harmful, such as forbidding mine workers from taking food home for their families, those practices were (eventually) dropped. Contrast this with the never-learn Bush administration.

[Barry]

Bruce Wilder: "The increase in marginal productivity will drive up real wages; only a macroeconomic decision to drive down labor demand or deflate the economy will have opposite, redistributive effects."

Considering that the US has seen declining median real wages for all but three of the 32 observed years since 1973, I beg to differ. Increased marginal productivity certainly makes it *easier* to have increased real wages, but it is not sufficient.

[dry fly]

We discussed the few ongoing rants about the NTUF VoteTally and BillTally rollups. Both laughed at the situation, and said that they always verify their boss' data. Neither cited any problems with the NTUF methodology as all Members of Congress are subjected to the same considerations. Both agreed that any BillTally, VoteTally, and original bill votes can be "backtracked with ease".

If their process is so good how did they miss the cost run up in Iraq (pre-war estimates vs now)? The Medicare Drug Benefit overruns (initial estimates vs current cost)? The variance between budget estimate & annual deficts in general - that happens every year & the variances are pretty damned large?

If the businesses I work with missed by these amounts heads would roll.

Its not that they can't 'Tally' it's that the basic assumptions, inputs & models are hopelessly flawed or intensionaly distorted - impossible to know which unless you are an insider and I'm not.

Call your staffer buddies and ask them about that.

And it isn't new - or an exclusively GOP phenomenon.

[save_the_rustbelt]

Top degrees here earn $22,000 less

Thursday, October 26, 2006
Joe Guillen
(Cleveland) Plain Dealer Reporter

It pays to attend college, but not as much in Northeast Ohio than in other parts of the country.

Northeast Ohioans holding an advanced college degree earn about $22,000 less per year than the national average, according to recently released Census data.

The data also shows people with bachelor's degrees and high school diplomas in the region earn thousands less on average than their national counterparts.

Bachelor's degree-holders in Northeast Ohio make an average of $43,737, compared with the national average of $51,554.

High school graduates earn $26,428 on average here, compared with $28,645 nationally. People in the area with advanced degrees average a salary of $56,367, while the national average is $78,093.

The averages were released today from a Census Bureau survey of 100,000 households nationwide done in February, March and April 2005. They cover adults ages 18 and older. The figures specific to Northeast Ohio represent people 25 years and older and are estimates as of July 1, 2005.

People of all education levels earn less here because Ohio's economy generally grows slower than other parts of the country, said LeRoy Brooks, professor of finance at John Carroll University.

[Ican]

Save The Rustbelt: Do you think economists bear any responsibility for the wage decline?

Below is an interesting piece I read on ControlCongress.com. Do you agree with the sentiment?

Economists Are Destroying America

Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:

• Increase wages
• Create trade surpluses (for the US)
• Reduce illegal immigration

Well, their trade policies have been in effect for about 15 years. Let’s review the results:

• Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)
• A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)
• Illegal immigration out of control
• Soaring trade deficits, much with countries that use slave and child labor
• Personal and national debt both out-of-control
• Global environments threatened by lax trade deal enforcement

Economists Keep Advocating Policies That Aren't Working

Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.”

Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.

Why Aren’t American Economists Shouting From Street Corners?

America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:

• Economists are too beholden to corporations and special interests that provide them with research grants.
• Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.
• Economists refuse to admit they make mistakes.

Economic Ambulance Chasers

Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit”.

[save_the_rustbelt]

"...Save The Rustbelt: Do you think economists bear any responsibility for the wage decline? ..."

Given that the Rustbelt has lost about 40% of our manufacturing capabilities since the passage of NAFTA, with no valuable replacement jobs, the neoliberal economists certainly missed big time on that one.

I think part of the problem has been underestimating the speed with which China and other comeptitors have moved into the market, and of course the lack of "fair trade" on their part.

What the economists told us was:

"Free trade will make us more prosperous."

What really happened was:

"Free trade made some much more prosperous, and many much less prosperous."

Now how do we clean up the mess?

[Movie Guy]

I wondered if anyone was going to comment on the 'Economists are Destroying America' post at Control Congress.

The direct link to the post is:

http://controlcongress.com/uncategorized/economists-are-destroying-america#comments

From the comments related to the post:

"JohnKonop Says:
October 25th, 2006 at 5:30 pm

I just got an e-mail from an economist and he called me a name I cannot put on the site.

I e-mailed him back and told him he was free to express what I got wrong.

He said he did not want to get into it!

WHY do you think the PHD economist could not supply an answer to this post?"

----

"Marc Says:
October 26th, 2006 at 4:34 am

Hallo,

I am an economist in macroeconomics in Germany and I think that you are right, JohnKonop.

Marc"

---

"JohnKonop Says:
October 26th, 2006 at 5:46 am

Marc,

Is Germany having the same problems?"

---

"Marc Says:
October 26th, 2006 at 6:19 am

The problems in Germany are worse. Influential economists preach politics, which destroy the German economy and the structure of the German society: storng wage cutting for less qualified people, privatisation or cutbacks in the public social security system, open and liberal markets in every corner of the country, thumbscrews for long-term unemployed, etc… Often, these politics are beneficial for big cooperations or for the financial sector but not for German people or Germany at whole.

I belive that German economists are destroying our country without realizing this disaster, and the situation in Germany is worse than in USA, because there is nobody, who shows a different way to go. Everybody is liberal and the mass media covers this disaster.

I am hopeless

Marc"

---

"JohnKonop Says:
October 26th, 2006 at 6:43 am

Marc,

The reason I ran for office and started this blog was to help inform Americans about the trend.

Why do you think German and American economist are silent?"

---

"Marc Says:
October 26th, 2006 at 7:08 am

I am not sure. On the one hand, many young economists (professors between 35 and 45 years old) are brainwashed by their education in university and in post graduated programs. They simply think that this policy is the only possibility. Usually these people do not care about ethics in the topic of economic. But, and that is the important point, I am convinced that this policy is wheter ethically and economically right.

On the other hand, some clever economists in Germany may see through the hole topic. But they are rare and maybe corrput in such a way that they benefit from the system.

In general, it is simply impossible to break this system at the moment. We are confronted with an alliance of mass media, science and politics. For example, I think that my chief (a well-known professor in germany, but not mainstream) is afraid of this allince, since his reputation could be destroyed immediately.

Finally, I think we have to wait for the right moment in order to mobilize normal people against this politics.

Marc"

---

[John Konop]

This was a e-mail from Bob

Abolish Tenure for Econ Professors

Among the worst offenders and biggest hypocrites are tenured professors of economics who have lifetime job security.

They sit in their ivory towers and advocate the idea that everyone else's job should be subject to market forces, globalization, outsourcing, and insecurity.

But what hypocrites they are! You'll notice that many econ and business school professors have tenure (which means lifetime job security) and are not willing to subject themselves to the same economic forces they advocate for everyone else.

[save_the_rustbelt]

John Konop:

Link to Cafe Hayek and post the Abolish Tenure tirade, it will drive Don Boudreux (sp?) nuts.

When i made the argument he dedicated an entire post to me, and why I shouldn't say such things.

Economists are only providing the ideas, the politicians ran with them.

[georgist]

Abolish Tenure for Econ Professors

Among the worst offenders and biggest hypocrites are tenured professors of economics who have lifetime job security.

They sit in their ivory towers and advocate the idea that everyone else's job should be subject to market forces, globalization, outsourcing, and insecurity.

Garbage. In the late 19th century econ professors had no tenure and they were beholden to all sorts of special interests, corporations, and etc. See The American Apologists (from HET) and The Corruption of Economics by Mason Gaffney.

[Mark Thoma]

John Konop:

Yesterday, my kids got an email from you (or properly, the GOP campaign you work for) trashing economics professors and the profession generally.

Leave my kids out this, okay? There's no reason for them to be receiving campaign material from the Republican party for a race in Georgia, none at all. The only reasons I can think of for your doing that do not reflect well on you.

In any case, I'd appreciate it if that did not happen again. I can take a lot, but not having my kids dragged into this. One of them even called me to see what it was about.

You really are an idiot.

[anne]

Sorry, Mark.

[Bruce Wilder]

Barry: "Considering that the US has seen declining median real wages for all but three of the 32 observed years since 1973, I beg to differ. Increased marginal productivity certainly makes it *easier* to have increased real wages, but it is not sufficient."

We don't disagree, Barry.

My point was that one should not blame declining median real wages on "de-skilling", based on a false intuition regarding how the course of economic development favors or disfavors "high skills" versus "low skills".

My own view is that the principal driving force behind the redistribution of income and wealth is political: changing rules, which tend to increase the risk exposure of the poor and middle class tend to redistribute wealth by abrasion and income by reducing the (non-market) investments of the poor and middle class in themselves, while increasing the cost of "insurance" provided privately by the wealthy to the poor and merely middle class.

The advancing technology of the computer age does reduce the demand for some kinds of people management. As other posters have noted, some kinds of coordination become unnecessary as an individual creator/designer is empowered by the technology. An architect/design engineer/publisher/movie director-producer/computer systems engineer no longer needs an army of support techs to get the job done, and that eliminates a some things management does.

The economic logic of control, however, is complex and contradictory. The scale of enterprise is driven up, by the increasing returns and rising sunk cost of improving control of production processes. Intel, at the center of the vortex, has had fairly modest revenue growth in recent years. Famously, Moore's Law dictates that the number of transistors that can be squeezed into a square inch of silicon doubles every couple of years (the newspapers usually say one year, and Moore, himself, said various things, including 18 months; two years is a better estimate of the long-term trend in the raw power of integrated circuits). Every four years, the cost of a MES Intel plant doubles. So the power of the unit product doubles every 2 years, the unit price falls about 25% per year, and the sunk cost of a production plant doubles every four years. The number of people actually employed directly in the production of integrated circuits is quite small. A really BIG plant might employ a couple of hundred people.

That doesn't address the problem faced by Microsoft, which leads the industry writing software to use the power of those processors. As the power of processors has increased, the complexity of the software has also increased. The code of Microsoft's first product, a version of the language, Basic, would occupy only a few typewritten sheets, if printed out; Bill Gates says he memorized the whole thing. Windows subsumes tens of millions of lines of code; the coordination of the army of programmers -- notorious as more difficult to herd than cats -- that supposedly maintains and develops Microsoft's products is probably the most difficult management task every undertaken by humans; that they don't do it very well is just testament to the difficulty. So far from being able to memorize the code, it would take a largish team of expert programmers just to read the whole of the Windows code base in a lifetime of 12 hour days!

For Intel's advances to mean anything to Microsoft and the software publishers requires not a mere doubling of processor power, but an order of magnitude advance, something, which comes roughly every 7 to 8 years: the difference between Windows 3.1 (1991), Windows 2000, and Windows Vista. I'll let Microsoft's growth speak for itself.

Advancing control entails, overall, more cooridination. And, it involves piling up ever larger sunk cost investments, while driving down unit units to the vanishing point. Intel is, essentially, mass-publishing high resolution photographs, using copper and aluminum in place of silver nitrate, and silicon instead of paper; the actual unit variable cost can't be much -- a tiny bit of metal on sand. Microsoft's unit variable cost to put a DVD-ROM in shiny packaging can't be more than $1; even a generous estimate of full distribution costs at retail cannot be much about $9, with a dollop of, what, $30 in support costs allocated per unit. For these companies, the prime directive is to find business models, which allow them to capture huge rents/quasi-rents. For Microsoft, in particular, the haunting nightmare is the whisper that information wants to be free!

Microsoft's problem and Intel's problem has much in common with the problem of Time-Warner or Pfizer. To only a slightly smaller extent, it is the problem of all manufacturing.

For all manufacturing, the run-up of sunk costs and the overhead costs of marketing and distribution (which could be interpreted as finding ways of capturing returns to sunk cost investments) has been a secular trend pressing down for decades.

The direct labor in, say, a washing machine is less than an hour. The direct labor to assemble a subcompact car is measured in single digits. Can we talk Viagra?

When the price of widgets can no longer be conditioned on unit cost, and the market power to capture returns to mountains of sunk cost investments in development and marketing is essential to enterprise survival, the larger part of all income in the economy is rent, and its distribution is, to be short and sweet, negotiable.

[anne]

Georgist, that was an interesting and even obvious perspective but I would never have thought about such a perspective even wandering in and out of the archives of letters at Houghton Library. I am sure your case is sound, because even a William James was only protected and freed in thinking by friends and students ranging from Oliver Wendall Holmes to Teddy Roosevelt and George Santayana, freed as well by public admiration at times. I remember John Dewey having difficulty and needing support, but why I forget. Hmmm.... Thank you.

[anne]

I remember Santayana telling of being the guest of John Rockefeller, who wanted to talk philosophy from time to time (there was a daughter in there as well, but that is a tricky matter). Santayana would talk philosophy through breakfast, but one day Rockefeller stopped him and asked what the population of Spain was. After all, this was Santayana. When Sanatyana told him, Rockefeller became immediately annoyed and explained that Spain was using too little oil for such a population and no one had told him. Rockefeller spent the rest of the day dictating telegrams.

Remember, the daughter? Married in time to another student of William James, and if I am right an economics professor at Columbia University who about the time of courtship found himself in an endowed chair from John Rockefeller. There is a letter somewhere from James or to James explaining that the son-in-law found little time for Columbia subsequently.

[anne]

Teddy Roosevelt, by the way, was impossible even as a student; Santayana was as well and James always strikes me as a little afraid of each. James was powerful enough though to shelter WEB Du Bois when he was a student and Henry James helped Du Bois after. Oh, Gertrude Stein was another student.

[anne]

Though, again, I never thought about this, from the turn of the century letters my sense is that much faculty support came from personal inheritance and direct patronage. I wonder.

[David H]

Mark

Forgive me if I am being rude. But I would like to hear your thoughts or, anyone’s about what the German economist wrote in the post by Movie Guy. I found it very compelling.

[anne]

Heck, Germany is really really fine and in the midst of just what I had been hoping for a housing boom which should spur growth for quite a while since German housing was sluggish from a few years after unification. Berlin was puzzling to me, because Berlin is almost an endless city of the arts, but housing languished. Now, housing is catching up to France and Spain.... The German stock maker is booming as well, up about 25% this year. So, I do like Germany's prospects. Also, a socially conscious people in so many respects.

[anne]

I found what the German economist wrote, comical nonsense by the way and I found the generic complaints about economists nonsense and would have ignored them but they became spiteful. Germany is fine, and we should pay attention to just how fine considering the task of unification.

[anne]

Funny thing, the German stock market is up 25.1% this years, and has better the American market the last decade even with the difficulties of unification. Oh, and everyone in Germany has health insurance in an interested mixed public-private system that I do wish we would look to. And, Germany is at peace which is awfully nice.

[anne]

The grumbles about Germany have to do with a fairly conservative government that is being checked on economic changes that will be a problem for middle class well-being. No matter, the changes have been and will be checked and Germany will go on building nicely. There are conservative grumbles, which is fine since conservatives are meant to grumble but no more.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6949&exhibition=7&ee_lang=eng&u=56,13

American Kestrel Hovering
Floyd Bennet Field, New York.

Look about, Mark.

says...

You're right, I didn't.

I'm not making the claim that I know of a better source -- though I'd be surprised, given the level of interest in political science over the years, that someone hasn't put together the beginnings of such a database.

What I have stated is that the source you are using hasn't passed the threshhold of simple useful research. Unvetted, sponsored by a partisan agency and subject to fairly simple objections, it doesn't pass the "less than useful" test.

Use what you will and how you will. But if I'm going to spend time obtaining data that is purportedly a behavioral predictor, I'd like some level of vetting and validation to go with it. This data has none of that.

[dry fly]

Blaming economists for the economic issues we face today is like blaming photographers at 'Fashion Week' for ugly outfits and bad hair.

[John Konop]

One of my readers posted this on the Kos.This should be a wake up call too Democrats what your own base thinks about trade and immigration.

Do you agree that economists are destroying America?

Yes, economists should be required to work a Walmart for 1 year to graduate.
87%
No, economists are doing the right thing by promoting these trade deals.
5%
Who cares about America, they’re doing the right thing for the global economy.
7%

[anne]

Shame, shame, shame.

[Lafayette]

"Blaming economists for the economic issues we face today"

What is this, "Catch 22"? OF COURSE, we blame the economists. Or the PotUS, or the local congressman.

We blame ANYBODY but ourselves. Fixated by wealth accumulation, oblivious to environmental dangers, fervent in the advance of "Amurican Demogracy" for the illiterate masses, bigoted antisecularism - you've come a long way, baby.

[John Konop]

controlcongress.com

Workers Of The Real World

Jonathan Tasini is president of the Economic Future Group.

For the past 20 years, we’ve been barraged by a relentless mantra: Education is the magic bullet to survive in the global economy. Virtually every politician, armed with rhetoric from academics, tells American workers that, essentially, they are too dumb to make it in the “New Economy.” Save yourself, they exhort—go back to school. Prepare yourself—get an advanced degree. But this is utter nonsense.

Let’s talk about the real world. Today’s global economy is about one thing: labor costs. If a company can move to China to employ workers making 35 cents an hour—whoosh, they are gone from America. High-tech jobs have been moving offshore for years, first to places like Ireland, and now to India. The world is awash in highly skilled, highly educated and cheap workers.

The hard fact is that in virtually every industry, foreign workers across the globe are increasingly as skilled and productive as American workers. India, for example, has a highly trained, highly skilled workforce capable of pumping out new software, industrial design and other new technological innovations. In India, the starting salary of a software engineer is about $5,000, and senior engineers make $15,000; the country has at least half a million information technology professionals eager to work for wages that are a fraction of the going rate here.

I posted this article because we now see conservative Republicans like Walter Jones, Tom Tancredo, Lou Dobbs now agreeing with liberals like Mr.Tasini. The only common ground I see between the groups is they are not tainted by the lobbyist repersenting big business interest over the American families and small businesses.

Can America blue collar workers compete with 35 cents an hour employees? Can America High Tec workers compete with engineers making $5000 a year? Do you think this is why we have a trade debt in High Tec to manufacturing?

[evagrius]

Regarding economists, I presume you've all read the following article by Harvey Cox;

http://www.christianethicstoday.com/Issue/021/Living%20in%20the%20New%20Dispensation%20By%20Harvey%20Cox_021_6_.htm

"The Market as God" is really quite a humourous article.

[Lafayette]

"If a company can move to China to employ workers making 35 cents an hour—whoosh, they are gone from America."

That depends. When is your next trip to Beijing for a haircut? Pedicure? Doctor's appointment? Broker? Teacher? Plumber? Electrician? Mechanic? Florist?

Be careful of generalities. The jobs going to China have been lower skilled. Yes, the Chinese are going upmarket in terms of technology, particularly in machine tools, but they are not there yet. Neither will they enter into localized services, but still be the world's supplier of cheap gadgets for retail - that retail being by internet. So, jobs aplenty for package delivery companies!

But, it is true that the systems analyst just out of university is NOT going to be hired for between 75 and $100K in Silicon Valley. That salary level was ridiculous to begin with, anyway.

The pendulum has swung back the other way. But the clock still ticks a second at a time. The more the world changes, the more it seems all pretty much the same.

[anne]

Again, the remarks being made about economists are shameful attempts meant not to argue a policy but to intimidate. This is mean-spirit intimidation. Enough of such rubbish.

[John Konop]

Lafayette,

Do you think the trade deals are working with soaring trade debt and falling wages?

[save_the_rustbelt]

Anne:

In the free market of ideas everyone should be able to defend their ideas and work.

I doubt the economists are going to curl into a fetal position in the corner and sob.

They need to get tough, say, like accountants. :-))

[dry fly]

Barry R posts Stephen Colbert & Peter Agre on 'Evolution & Economics'... link here:

Big Picture

Too funny

[John Konop]

I wonder if Ropke would support child and slave labor, no enviormental rules.....?

Book Review
by Richard M. Ebeling, March 2002

WITHOUT A DOUBT, Wilhelm Röpke was one of the leading free-market economists of the 20th century and one of the most influential thinkers in Germany after the Second World War. Many years ago, an economist acquaintance of mine, who had studied with Röpke in Geneva, Switzerland, in the late 1950s, said that when he came into the seminar room there was electricity in the air. From the moment he began to speak, Röpke’s reason and passion for freedom and the humane society filled the room.

He considered that unregulated capitalism in the 19th century had dehumanized man through the concentration of industry, the grayness of factory employment and the dull uniformity of mass production. Government had to control the size of industry, protect and support small business and greater self-employment, and foster diversity of local production. And he advocated social safety nets in the form of limited welfare programs, job training, and agricultural subsidies. These forms of government intervention, regulation, and redistribution were advocated in postwar Germany under the name of the “social market economy.”

[Dave Iverson]

Some of us are trying to counter the type economic thinking that John Konop refers to, thinking that seems too focused on what's good for Wall Street. Mark is one of these making the attempt to be more "fair and balanced" in a non-Fox TV News way, as are many of the bloggers I read and hyperlink to my blog.

But our voices are not often listened to by mainstream media. So, on balance I tend to agree with John, or to at least think that economists as a group may be doing more harm than good. That is why I joined ranks with radicals like the Ecological Economics community (see this blog) and the Post-Austistic Economics Network.

Still, I do very much enjoy reading economics, and like Robert Heilbroner marvel at "the lives, times, and ideas of the great economic thinkers" — adding Heilbroner's name to the list. But I also keep Joan Robinson's sage advice on my wall: "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."

[John Konop]

Dave,

All of us share the blame. You are a brave soul to speak up.And I thank you for all you are doing to help. I do think Marc the enonomist said it best what is going on in the world.

"Marc Says:
October 26th, 2006 at 7:08 am

I am not sure. On the one hand, many young economists (professors between 35 and 45 years old) are brainwashed by their education in university and in post graduated programs. They simply think that this policy is the only possibility. Usually these people do not care about ethics in the topic of economic. But, and that is the important point, I am convinced that this policy is wheter ethically and economically right.

On the other hand, some clever economists in Germany may see through the hole topic. But they are rare and maybe corrput in such a way that they benefit from the system.

In general, it is simply impossible to break this system at the moment. We are confronted with an alliance of mass media, science and politics. For example, I think that my chief (a well-known professor in germany, but not mainstream) is afraid of this allince, since his reputation could be destroyed immediately.

Finally, I think we have to wait for the right moment in order to mobilize normal people against this politics.

[run75441]

ahem:

Direct Labor cost as far as a part of Product Cost equates to ~10%. Overhead, all of those legislated bennies and customery bennies equates to 20 to 30%. Material cost equates to 50 to 60%.

And you guys are still arguing Direct Labor Cost which has not been an issue since the sixties? Sigh . . . companies move to Asia to avoid Social Security, Unemployment Comp., Workmans Comp, OSHA, EPA, Healthcare, 401k contributions, Child Labor Laws, OT Laws, etc. all of which is Overhead and does nothing to improve material/product throughput.

Companies out source to Asia to avoid the bennies and rat on Labor.

Read your Drucker!

[run75441]

John Konop:

I doubt any company in the US is paying a company in China 35 cents an hour for labor. It is closer to $6/hour and it is being charged back to the US at that rate. In comparison with labor being ~10% of the cost of a product, the variance is 60 cents as compared to $1.80 ($18/hour US).

The bigger part of the product cost (besides Materials) is not Direct Labor. It is Social Security, Workmans Comp., Unemployment Ins, Healthcare, OSHA, EPA, Child Labor Laws, OT Laws, Sick Days, Vacation Days, Holidays, 401k contributions . . . all of which do not add one bit to throughput or making a product, hence the term direct labor cost.

Companies move to Asia to avoid these costs even when the labor is mor inefficient, which it is. The US worker still is at the top in production inefficiency, unfortunately the American worker carries all the bennies, which you also enjoy, and is more costly than the labor itself to make the product. So get rid of the bennies , which do not exist in Asia, if you want to compete.

Drucker had it right. Quit whacking Labor.

[cm]

Bruce Wilder: Excellent points all. Re "negotiable rent", I'm in the software business, and my employer is big in volume purchasing agreements, where a whole product suite is sold in one block. Attribution of revenue to individual product groups is mostly horse-trading, the objective seemingly being to give enough to those groups where some success is needed to keep "key" people "motivated" (in both the product and sales groups), and as needed to shape perceptions by managing externally disclosed product area revenues, while nobody of importance becomes unhappy (e.g. minor or esoteric products that are not sold in large numbers, but that are needed to maintain a complete offering, routinely get little, but enough to keep them on life support and people from leaving).

[John Konop]

Run,

You are right about the benefit cost. If a company buys the product from a market with 35 a cent hour labor and lays people it is the same net effect to a workers.

Or if I am an I.T. outsource company how do I compete with software engineers making 5K a year in China…... I lay off my workers and find workers in Africa to work for 3K or go out of business.

If I am company why hire employees when I can outsource so cheap?

The key is economist first need to measure the success of the economy on real wage growth taking out the top 5% and bottom 5% and tell me how well the 90% of Americans are doing.

Also measure the saving rate at looking at the same 90% of Americans.

This means a lot more than GDP.

[cm]

John Konop, others: My employer is heavily into offshoring (although at increasing volume, the resulting problems are becoming apparent enough to not be ignored anymore). One thing that has been acknowledged, or kind-of so (albeit only in small circles and not in public so far), is that people abroad, or more precisely splitting work flows across continents, are measurably less productive/effective, by a substantial margin. So (nominal) salaries alone are not necessarily a good indicator.

The "mood" has not yet progressed to hiring domestically again. The current spin in response to complaints of understaffing is something to the effect of "but you have a local team, that's better than having part of the team abroad".

The caveat here is that by the nature of the business, there are large interdependencies inside workflows, and it is difficult (and from management's perspective probably even undesirable) to offshore, and effectively rescind control over, large self-contained work units/product areas.

[John Konop]

http://deoxy.org/korten_betrayal.htm

The Betrayal Of Adam Smith
From When Corporations Rule the World by David C. Korten
Kumarian Press and Berrett-Koehler Publishers, 1995

Proponents of corporate libertarianism regularly pay homage to Adam Smith as their intellectual patron saint. His writing remains to this day the intellectual foundation of policies advanced in the name of market freedom that are allowing a few hundred corporations to consolidate their control over markets all over the world. See An Economic System Dangerously Out of Control.

Ironically, Smith's epic work The Wealth of Nations, which was first published in 1776, presents a radical condemnation of business monopolies sustained and protected by the state. Adam Smith's ideal was a market comprised solely of small buyers and sellers. He showed how the workings of such a market would tend toward a price that provides a fair return to land, labor, and capital, produce a satisfactory outcome for both buyers and sellers, and result in an optimal outcome for society in terms of the allocation of its resources. He made clear, however, that this outcome can result only when no buyer or seller is sufficiently large to influence the market price—a point many who invoke his name prefer not to mention. Such a market implicitly assumes a significant degree of equality in the distribution of economic power—another widely neglected point.

Indeed, Smith was almost fanatical in his opposition to any kind of monopoly power, which he defined as the power of a seller to maintain a price for an indefinite time above its natural price. Indeed, he asserted that trade secrets confer a monopoly advantage and are contrary to the principles of a free market. He would surely have strongly opposed current efforts by market libertarians to strengthen corporate monopoly control of intellectual property rights through the General Agreement on Tariffs and Trade (GATT). The idea that a major corporation might have exclusive control over a lifesaving drug or device and thereby be able to charge whatever the market will bear would have been anathema to him.

Furthermore, Smith did not advocate a market system based on unrestrained greed. He was talking about small farmers and artisans trying to get the best price for their products to provide for themselves and their families. That is self-interest—but it is not greed. Greed is a high paid corporate executive firing 10,000 employees and then rewarding himself with a multimillion dollar bonus for having saved the company so much money. Greed is what the economic system being constructed by the corporate libertarians encourages and rewards.

Smith had a strong dislike for both governments and corporations. He viewed government primarily as instruments for extracting taxes to subsidize elites and for intervening in the market to protect monopoly. In his words, "Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all." Smith made no mention of government intervention to set and enforce minimum social, health, worker safety, and environmental standards in the common interest—to protect the poor against the rich. We can imagine that given the experience of his day the possibility never occurred to him.

The theory of market economics, as contrasted to free market ideology, specifies a number of basic conditions needed for a market to set prices efficiently in the public interest. The greater the violation of these conditions, the less efficient the market system. Most basic is the condition that markets must be competitive. I recall the professor in my elementary economics course using the example of a market comprised of small wheat farmers selling to small grain millers to illustrate the idea of perfect market competition. Today, four companies—Conagra, ADM Milling, Cargill, and Pillsbury—mill nearly 60 percent of all flour produced in the United States, and two of them—Conagra and Cargill—control 50 percent of grain exports.

In the real world of unregulated markets, successful players get larger and in many instances use the resulting economic power to drive or buy out weaker players to gain control of ever larger shares of the market. In other instances "competitors" collude through cartels or strategic alliances to increase profits by setting market prices above the level of optimal efficiency. The larger individual and more collusive market players become, the more difficult it is for newcomers and small independent firms to survive, the more monopolistic and less competitive the market becomes, and the more political power the biggest firms wield behind demands for concessions from governments that allow them to externalize ever more of their costs to the community.

[John Konop]

CM,

You are right about all the issues. But most executives think they are geniuses by cutting. Value takes vision, which is why I do value add vertical solutions to make money. How many EXECUTIVES HAVE YOU MET WITH VISION?

Business is art not science! Big business lobbies Congress to cover up for poor management. BTW did not Adam Smith warns us about this?

[Juan]

'managerial class' is simply too broad to be meaningful, i.e. the largest portion of this 'class' is, in its relation to capital, part of the working class while a much smaller portion can be understood as functionally equivalent to the class of capitalists though [because] the latter became rentiers. Evidently, and as as should be, there are sufficient tensions within this 'frame'.