What does Corporate Profitability Have to do with Prosperity?

A recent article on stratfor.com focused on the trend toward automation in agriculture, which this writer presents as a positive development.((How Future Farmers Will Use Technology to Improve Agriculture, stratfor.com analysis. May 13, 2015. Available: https://www.stratfor.com/analysis/us-how-future-farmers-will-use-technology-improve-agriculture)) By contrast, John Lanchester’s review of The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies ((Lanchester, John, The Robots Are Coming. London Review of Books, March 5, 2015))discusses some of the not-so-positive effects of global technological advancement. The conclusion I draw after reading both articles is this: planners haven’t begun to seriously consider what might happen when the world’s population passes the 9 billion mark, which it is set do by 2050. This situation leaves us vulnerable to disaster and it has to change.

It can’t be denied that feeding 9 to 10 billion people will be a challenge in itself, especially when you consider that the planet’s arable land is already in use. Stratfor predicts yields must increase by as much as 25 percent during the next 35 years and this at a time when resources are limited. However, this article makes it clear that the industry is not motivated by the need to feed additional people. It’s motivated by the desire to remain profitable in the face of rising labor costs.

It’s already obvious at this point that the planning discussion that we really need to have, the one based on the problems of accommodating a growing population, has been diverted by the false necessity of corporate profitability.

If it seems counter-intuitive to speak of a population explosion in one breath and a labor shortage in the next, it’s because we’re not talking about a shortage of labor per se. We are talking about a shortage of cheap labor. Adding to the sense of urgency is the fact that this shortage can no longer be controlled by U.S. immigration reform. Immigration policy is in Mexico’s ballpark now and the United States will have to take this into account.

According to Stratfor, the number of undocumented workers in the United States has been decreasing since the turn of the century. Since 2014, the U.S. has been apprehending fewer Mexican migrants and more Central American migrants. The reason: Mexico is following a long-term trend previously experienced by the United States. As the nation’s per capita income rises, the percentage of Mexican agricultural workers will decline. Therefore, it won’t be long before Mexico is competing with the United States for Central American workers.

A reasonable person might assume that this would lead to increased wages for American farm workers. However, it seems this is precisely what the agricultural industry is trying to avoid through technological innovation. As stingy as this may be, it makes perfect sense as long as GDP is the focus.

“Labor costs make up 17 percent of total production costs but can reach as high as 50 percent for specific labor-intensive crops such as fruits and vegetables. Similar to what happened in other developed nations, the percentage of farmworkers in the total U.S. work force decreased throughout the 20th century, as per capita income increased.”

If you’re still not convinced, according to the accompanying chart Luxembourg has the highest GDP per capita with the lowest percentage of population employed by agriculture, while Bhutan has the highest number of population employed by agriculture and the lowest GDP per capita.

But between the lines lie nagging concerns:

“It was only the influx of cheap labor from Mexico that allowed the United States to avoid a labor crisis in the agricultural sector in the middle of the 20th century. Labor costs have consistently increased since the 1990s, rising 1 percent between October 2013 and October 2014.

“With labor costs likely to remain high, the agricultural industry in the United States is looking for ways to decrease the costs.

“Because of slim profit margins, the agricultural sector cannot afford to shoulder the whole burden of developing new robotics technologies to replace workers. However, research in the robotics sector is supported by other industries looking to offset demographic pressures and to lower manufacturing costs. The agricultural sector in the United States (and in other developed nations) will be able to exploit modified technologies to remain competitive and to meet growing demand in the coming years and decades.”

In my opinion, the main nagging concern in this quote would be the term, ‘demand’, which implies the existence of people who can pay for the products being produced. Hopefully you’ve noticed by now that although population growth was mentioned in the beginning as a justification for automation, it has effectively been taken out of the equation.

The economists’ view of the world provides encouragement for this sleight of hand. Economists insist that when old jobs disappear, new jobs are created. But the problem with this according to Lanchester, is that economists are very bad at predicting the future. This is due to the fact that they think the lessons of history are already incorporated in the mathematical models. As an example of an historically informed view, Lanchester cites the work of various scholars who have tried to determine whether there are parallels between the delayed effects of the second industrial revolution of 1875 to 1900 and the technological revolution of the 70s. It’s been argued that although in the initial stage computers contributed to productivity, most of the real productivity benefits of the computing revolution took place a few decades ago. In other words, perhaps the negative delayed effects are yet to come.

But the economic view comes to the rescue again with the argument that since human wants are infinite, the process of supplying them is also infinite. As a matter of fact, this claim can be validated by changes in the U.S. agricultural industry since 1810. The percentage of Americans working in agriculture has steadily declined from 90 percent to less than 2 percent, and we’ve somehow adapted. However this particular transition was helped along by new technologies. I take this to mean that we can’t assume that we will be able to adapt in this case simply because we were able to adapt in the previous one.

Lanchester cites Carl Benedikt Frey and Michael Osborne who have calculated the effects of computerization on 702 jobs and concluded that in the next two decades 47 percent of employment will fall in the ‘high-risk’ category. It’s not the middle class that’s most threatened this time—it’s the lowest paid workers. As for the top earners, they will do as well as ever.

At the same time, productivity is slated to go up sharply, meaning the U.S. will become richer. How can this be? The good news is, profitability is actually a better indicator of national wealth than GDP. The bad news is that productivity has been disconnected from wages. This means that the proceeds of profitability are going to capital rather than labor. In the U.S. the typical worker’s productivity has gone up since 1979, but her pay has not. Since 1999 her pay has actually fallen.

As an example, Apple recently had the most profitable quarter of any company in history: $74.6 billion in turnover, and $18 billion in profit. By contrast, in 1960 the most profitable company in the U.S. was General Motors. “In today’s money, GM made $7.6 billion that year. It also employed 600,000 people.” Apple employs 92,600. In other words, this is an improvement in profitability per worker by 76.65 times.

And this trend seems destined to continue. Consider the driverless car being developed by Google. Lanchester points out that whatever convenience it might represent, all the money from it will be going to Google, even as an entire economy of drivers is disappearing.

There is no shortage of people who blithely accept this bleak future. They are people who don’t deny that if this is allowed to continue we might see a new kind a deflation—the kind of deflation caused by people having less money to spend. And they admit that this is bound to have some very bad effects, such as falling prices and even another collapse of home prices. Larry Page, founder and CEO of Google, is one of these people. He admits this process will be highly unpleasant for the majority, but he thinks it will have a good effect eventually, making it easier for everyone to live a comfortable life:

“…in a capitalist system…the elimination of inefficiency through technology has to be pursued to its logical conclusion.”

According to Lanchester, Page’s views are not unusual in Silicon Valley and the ‘upper reaches of the overlord class.’ I guess this is one way of dispensing with that troublesome population factor.

So what are we to do? In Lancaster’s view we must choose between this hyper-capitalist dystopia and a socialist paradise. If we choose the second alternative we would have to begin by changing the form of ownership so that capital doesn’t own and control the robots. Then:

“We don’t have to work in factories or go down mines or clean toilets or drive long-distance lorries, but we can choreograph and weave and garden and tell stories and invent things and set about creating a new universe of wants.”

It’s not exactly surprising that few people are talking about the second alternative. I would argue instead that we should start smaller by insisting that the conversation remain centered in reality. We might begin by listing the crucial factors in order of priority and eliminating the false factors.

Population should be the central factor in planning for the future, not as an excuse for more technological inequality but as an unavoidable reality. And a responsibility. Next, we need to make it clear that population can’t be used on one side of the ledger book as an excuse for automation, and penciled in on the other side as demand. This is funny accounting no matter how you look at it. That is unless the plan is to sell the goods at a profit to those who can afford them and let everyone else starve.

I do believe this approach has provided clarity already. In the face of looming mass starvation, corporate profitability is a luxury we can’t afford.

Works reviewed by Lanchester:

The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee

Average is Over: Powering America Beyond the Age of the Great Stagnation by Tyler Cowen



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