The economy has changed in some very fundamental ways in the last thirty years. It has been a gradual process, too slow to make sense as it was happening, but now there has been enough change that a few things seem obvious, at least to me.
The Industrial Revolution is over. Industry was too dirty and too dangerous, so we taxed and regulated it until it moved to Asia. Did you see what the air in China looked like during the Peking Olympics? That is what air in the Steel Belt used to look like in the 50’s and 60’s. Clean, safe factories are too expensive — we refuse to pay for the products made in them, so they went to places where labor is cheap and taxes are low. Blame whoever you like — greedy business people, cheap consumers, the Democrats, the Republicans — it does not really matter because industry is gone and it is not coming back.
With them have gone unions, and they are not coming back either. Unions work only with the threat of strike, and strikes are effective only when work revolves around the needs of a machine, (with an exception I will get to in a minute). The thing that made unions powerful was the threat of workers refusing to tend to the needs of machines that were all located more or less in one place. Service work does not lend itself to unionization because it is decentralized and does not involve machines. Unions are a relic of the age of industry and both are now irrelevant.
The end of industry has effects far beyond manufacturing. Consider how factories were organized. At the end of the 19th century, hundreds or sometimes thousands of people had to coordinate their efforts to make a factory run. Aside from armies in times of war, never before had there been any need to organize such large numbers of people. How did the managers of factories do it? By creating what we now call bureaucracy. The idea was that everyone had a specialized job, and those jobs were done according to rigid procedure. Each worker came to work at a precise time and tended to a specific machine according to an explicit procedure. Deviation from process or procedure was grounds for disciplinary action.
Notice that the only places where unions survive with any vitality are in government? That is because government uses bureaucracy as its organizational model just like factories did. Just about anyone who is paid with tax dollars — social work and defense contractors included — work in bureaucracies. But bureaucracies are relics of the 19th and 20th century. They are fading away in the business world because they are no longer relevant in the internet connected global economy of the 21st century.
Businesses today do not normally organize themselves on a bureaucratic model. Today they identify a core competency — the main thing they are really good at — and outsource the rest. Human resources, accounting, supply chain management, tech support are all contracted out to companies that specialize in those things as their core competencies.
I see a lot of people arguing about outsourcing, but I’m not so sure it is a bad thing. It gives us a chance to cash in on things we love or are really good at. At any rate, outsourcing is another one of those things that is not going away, so we have to learn to turn it to our advantage as best we can. I guess I tend to think about how to make a living in the economy that exists rather than to make judgments about whether it is good or bad.
However, I think it can be useful to think about the events and forces that created the economic situation we are in because understating those forces might give some insight to where we are going and what we need to do to make a living when we get there.
At the end of the Second World War, the industrial world was destroyed. Countries that had been emerging as world economic leaders were in ruins. That meant that anyone who needed anything had to buy it from the United States. We built our incredible country to a large degree on the backs of rest of the world rebuilding from the war. (Let’s not forget the Marshall Plan, however. This was not robbery. More like indentured servitude, but even that came to an end.)
By the 1980’s the rest of the world caught up and we were competing with the losers of the war. Japan made better cars, so we bought them and US auto manufacturing began its long death spiral. The few remaining US car manufactures are not really US at all — they are international consortiums that assemble what was manufactured somewhere else. Zenith was the last domestic electronic manufacturer, (sold to Korean firm in 1995), and now just about all our electronics comes from Asia. China now makes all the odds and ends we need for daily life and we gladly buy it at Wal-Mart.
Remember all those years we felt guilty about exploiting Third World countries? Guess what! They are not Third World anymore. We live in a global economy and now people, businesses, and countries on the other side of the world are as economically relevant as different states were in the past. When I graduated from college in 1980, it was a big deal for classmates to move to another state to start their careers. When I earned my MBA in 2003, some of my classmates were considering going to India or Asia to (jump) start their careers.
As those other countries increase their share of world wealth, ours declines. I do not think that is a huge tragedy; it is just a sign of changing times. Things are evening out in the worldwide economy, but this happened once before. Things are similar to where they were at the beginning of the 20th century, with the United States competing toe to toe with Europe. Now, of course it is not just Europe, but Asia as well. We are no longer the undisputed economic super power. Things are averaging out, and our standard of living is averaging out towards that of the rest of the world.
The United States is turning into a two-class society, with people doing either pretty well or not well at all. We have known that the middle class was declining for a long time. Now we are able to see the decline for ourselves because we are living though it. Why are we acting surprised? It’s not as if we have not been hearing about the decline of the middle class for the last thirty years.
For all these reasons, (and plenty more), the world is not what it once was. The things we grew up believing in and depending upon are no longer relevant. For the last twenty years or so there has been such a glut of educated and experienced workers that education and experience do not count for much. Employers can hold out for exactly what they want — no more and no less. Being overqualified is just as big a jobstopper as being under qualified. In 2006 12% of the people living below the poverty level in Tucson, (where I live), had at least a bachelors degree. Nationally, men over the age of 40 — the age were work experience is supposed to pay off — had longer spells of unemployment than those under 40.
It used to be that a professional was a doctor, lawyer, or maybe an engineer. Someone who was so highly educated that they could work autonomously. Now home health aides in my town are called “Home Health Professionals”. Hairdressers call themselves professionals. So what is a professional? Another concept that has become an anachronism, I guess.
So what to do? We can burn up the internet arguing over whether UP is elitist because it has “professional” in its title, even thought the concept of professional is so diluted it means little. We can hope for the resurrection of unions, but people have been waiting centuries for that other Second Coming and it has not happened yet either. We can demand the government save us, but until we start making money and paying taxes government cannot do much, (not that it ever could, even when it was not a trillion dollars in debt and on the verge of bankruptcy).
Here is what I think.
In one way, nothing much has changed. If you want the world, or the country or the neighborhood to be a better place you have to start working to make it happen. What has changed, however, is that nobody is going to give you a job. Traditional jobs are quickly becoming another relic of the past. The answer is obvious — you have to create your own job. In that way things are much like they were in the 19th century before huge factories and bureaucracies created jobs. Our ancestors in the 19th century were largely entrepreneurs. You probably have shopkeepers, farmers and trades people in your family history, just as I do.
Today we live in a global economy connected by the internet. What can you do on a computer that would be of value to your neighbor? And remember, with the internet your neighbor might be in Boise, or Calgary or Ft. Lauderdale.
No, it will not be easy. So what? Our parents and grandparents did not find the Depression, or the Dustbowl or World War Two easy either. Thank God we are not facing challenges of that magnitude.
I certainly do not have all the answers — or for that matter even a few answers. However, one thing is certain. We will not be able to work our way through the challenges of the 21st century by reinventing the 20th. We need to adjust our thinking to match the reality of the times. But first we have to accept that reality.