[A-List] The falling rate of profit revisited

[Michael Keaney]

Return of a conundrum

As technology devours jobs at an increasing rate, the conflict at the heart
of the market economy is becoming irreconcilable

Jeremy Rifkin
Tuesday March 2, 2004
The Guardian

We are losing jobs all over the world. It has reached crisis proportions. In
1995, 800 million people were unemployed or underemployed. Today, more than
a billion fall into one of these categories.

Even in America and Europe, millions of workers find themselves under-
employed or without jobs and with little hope of obtaining full-time
employment. The US has lost 12% of its factory jobs since 1998, while the UK
shed 14% of its manufacturing jobs in the same period. Manufacturing jobs
continue to disappear in the UK, even though the sector is growing at its
fastest pace in four years.

Where have all the factory jobs gone? It has become fashionable, of late, to
blame the high unemployment on companies relocating their production
facilities to China. It is true that China is producing and exporting a far
greater percentage of manufacturing goods, but a new study by Alliance
Capital Management has found that manufacturing jobs are being eliminated
even faster in China than in any other country. Between 1995 and 2002, China
lost more than 15m factory jobs, 15% of its total manufacturing workforce.

There's more bad news. According to Alliance Capital, 31m manufacturing jobs
were eliminated between 1995 and 2002 in the world's 20 largest economies.
Manufacturing employment has declined every year in the past seven years and
in every region of the world. The employment decline occurred during a
period when global industrial production rose by more than 30%.

If the current rate of decline continues - and it is more than likely to
accelerate - manufacturing employment will dwindle from the current 164m
jobs to just a few million by 2040, virtually ending the era of mass factory
labour.

Now the white-collar and services industries are experiencing similar job
losses, as intelligent technologies replace more and more workers. Banking,
insurance, and the wholesale and retail sectors are introducing smart
technologies into every aspect of their business operations, fast
eliminating support personnel in the process. The US internet banking
company Netbank has $2.4bn in deposits. A typical bank that size employs
2,000 people. Netbank runs its entire operation with just 180 workers.

The UK and US jobs being lost to call centres in India, while important,
pale in significance compared with jobs lost every day to voice recognition
technology. Consider the US phone company Sprint, which has been steadily
replacing human operators with this technology. In the year 2002, Sprint's
productivity jumped 15% and revenue increased by 4.3%, while the company
reduced its payroll by 11,500.

As far back as the late 1980s, industry analysts were warning that
automation would eliminate more and more jobs. Because their forecasts
proved somewhat premature, the public was lulled into believing that
automation was not a problem. Now, however, the software, computer and
telecom revolutions, and the proliferation of smart technologies, are
finally wreaking havoc on jobs in every country.

Industry observers expect the decline in white-collar jobs to shadow the
decline in manufacturing jobs during the next four decades, as companies,
whole industries, and the world economy become connected in a global neural
network.

The old logic that technology gains and advances in productivity destroy old
jobs but create as many new ones is no longer true. The US is enjoying its
steepest rise in productivity since 1950. In the third quarter of 2003,
productivity soared by a staggering 9.5%, yet the ranks of the unemployed
remain high.

Economists have long argued that productivity allows firms to produce more
goods and services at cheaper costs. Cheaper goods and services, in turn,
stimulate demand. The increase in demand leads to more production and
services and greater productivity, which, in turn, increases demand even
more, in a never-ending cycle. So even if technological innovations throw
some people out of work in the short term, the spike in demand for the
cheaper products and services will assure additional hiring down the line to
meet expanded production runs.

The problem is that this theory appears to be no longer applicable. The US
steel industry is typical of the transition taking place. In the past 20
years, steel production rose from 75m tonnes to 102m tonnes. In the same
period, from 1982 to 2002, the number of steelworkers in the US declined
from 289,000 to 74,000. "Even if manufacturing holds on to its share of
GDP," says University of Michigan economist Donald Grimes, "we are likely to
continue to lose jobs because of productivity growth." He laments that there
is little we can do about it. "It's like fighting a huge headwind."

Herein lies the conundrum. If dramatic advances in productivity can replace
more and more human labour, resulting in more workers being let go from the
workforce, where will the consumer demand come from to buy all the potential
new products and services? We are being forced to face up to an inherent
contradiction at the heart of our market economy that has been present since
the very beginning, but is only now becoming irreconcilable.

Greatly increased productivity has been at the expense of more workers being
marginalised into part-time employment or given their pink slips. A
shrinking workforce, however, means diminished income, reduced consumer
demand, and an economy unable to grow. This is the new structural reality
that government and business leaders and so many economists are reluctant to
acknowledge.

· Jeremy Rifkin is the author of The End of Work: The Decline of the Global
Labor Force and the Dawn of the Post-Market Era. He is president of the
Foundation on Economic Trends in Washington.