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Reform of what?

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From Peter Radford We have heard a great deal in the American media about the so-called Biden reform agenda.  The huge injection of government spending into our hibernating economy is meant not just to sustain it until we arrive at a post-pandemic moment when it will spring back to life by itself, but also to reform it.  That is to say the .9 trillion package is not just disaster relief, but is also politically motivated to change the economic landscape beyond the pandemic. I think the politics of muddling the two goals, relief and reform, into one big package are clear: the Republican party would fight tooth and nail against reform and with the wafer thin majorities that the Democrats enjoy delaying it would court permanent postponement of even the most modest reform. But the

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from Peter Radford

We have heard a great deal in the American media about the so-called Biden reform agenda.  The huge injection of government spending into our hibernating economy is meant not just to sustain it until we arrive at a post-pandemic moment when it will spring back to life by itself, but also to reform it.  That is to say the $1.9 trillion package is not just disaster relief, but is also politically motivated to change the economic landscape beyond the pandemic.

I think the politics of muddling the two goals, relief and reform, into one big package are clear: the Republican party would fight tooth and nail against reform and with the wafer thin majorities that the Democrats enjoy delaying it would court permanent postponement of even the most modest reform.

But the economics are less clear.  Anything that adds a cost to business at a moment when additional costs are more burdensome than usual, is problematic.  Surely we ought to wait until business conditions are on the up before we layer in more expense.

So the politics and the economics seem to be going in two different directions.  Clearly the Biden administration is mindful of the endless election cycles that cripple long term political thinking here in the U.S. and has decided to go for broke.

Good for them.

The problem then becomes: what are we reforming?

Forgotten amidst the panic and hyperbole of the last year or so is that the economy is not just going through a short term downturn brought upon us by a plague, but it is also going through a longer term adjustment caused by a new wave of technological innovation.  That wave will still be present when the pandemic ebbs away.  The consequences will need attention.  As I wrote a couple of weeks ago, the social question, or our contemporary version of it, is back to haunt us.

When we talk about the dislocation caused by sudden waves of technological innovation we tend to think in terms of the higher risk of unemployment that often comes with such a wave.  A great deal of ink has been spilled in parsing apart the kind of technology that adds to, or augments, labor rather than displacing it, so this is not the place to rehearse that discussion.  It seems that the first arrival of a new general purpose technology is more displacing than augmenting simply because those kinds of applications are easier to identify.  Only later, after the technology has become more familiar, do augmenting versions become more common.  It takes a while to digest new technologies, the short run implications are often very different from their long run counterparts.

This difference between short and long run implications are what motivates the glibness economists display when confronted with technological disruption.  They simply point to the long history of the industrial era and argue that, eventually, society benefits sufficiently to offset those shorter term upheavals.

This cavalier attitude consigns a generation or two to oblivion — as happened in the immediate aftermath of the industrial revolution — but allows economists to escape having to be more specific about the social consequences of all that “creative destruction”.  They can maintain their modern pretense to analytical agnosticism and avoid the social and political ramifications of their work.

The difference between the short and long term impacts of technology can also create great irony in our attitudes.  The original angst and revolt against the factory as being an inhuman re-modeling of productive activity has been replaced by an almost nostalgic yearning for “good” factory jobs being lost to robots.  Both attitudes are correct at the moment in which they occur.  The factory did indeed re-write social activity.  It also gave birth, after that initial dislocation and adjustment, to a wave of better paying jobs that drove the emergence of the great American middle class.  So we are right to mourn the loss of those jobs.

What is often missing in this muddled reaction is that the social acclimatization necessary to turn the evil factory into a benefactor of the blue collar worker was accompanied by a political change.  The workplace changed.  So did the distribution of political power.  The middle class produced by all those well paying factory jobs was able to inject itself into politics and press back against the more predatory instincts of unfettered capitalism.  A balance was achieved that brought about a period of relative calm and, perhaps ultimately, complacency.  The workplace settled into a predictable package of benefits and responsibilities.  Business management accommodated itself to this package.  Trade unions protected it.  Government legislated to perpetuate it.

And modern technology has blown it apart.

It is not just the risk of unemployment that has risen sharply as we leave industrialization behind us and enter into the digital world, but even those who maintain employment are deeply affected.  The workplace itself is being altered in ways that render more and more fully employed workers precarious.

How so?

The logical conclusion of the shareholder revolution is that corporations pull apart their operations in order to exploit their so-called “core competencies”.  They break up operations into ever finer pieces and outsource those considered not “core”.  The entire sequence of productive activities is thus fragmented which gives justification for an intense analysis of their relative value.  Workers in the lower value components are at risk of seeing the old package of benefits slowly eroded as the corporation attempts to match the value with the cost.  A consequence of this activity is the rise of the contract worker who has lost the older benefits associated with post-war employment and who now receives only a wage.  Gone is the retirement plan.  Gone are the health care benefits.  Gone is the fully paid vacation.  Gone is the sick leave, family leave, or any other form of paid time off. The worker is exposed, by this process of marginalization, to the realization of the end result of the single minded pursuit of profit on behalf of the shareholder class.

But this process of marginalization requires a technological backbone to maintain the original process intact even after the fragmentation has been implemented.  The digital revolution is doing the work that the industrial revolution once did.  It is upending an existing social system, along with its accepted norms of social relations, and replacing it with a newer one.  The gap between the arrival of this new set of relationships and the political reaction to alleviate its rougher edges, is the gap where we now live.  It is a gap populated by a precarious workforce that might be employed, but which is suffering  constant fear of failure, fear of ill health, and fear of poverty in old age.  All the same fears, indeed, that the post-war social system had dealt with.  Meanwhile the owners of the new technologies also live in this gap and exploit it to create fortunes at the expense of their fellow citizens.

All this is to say that it is not just the labor replacement or augmentation potential of new technology that matters.  It is the downward displacement potential it has too.  It is the re-working of the workplace that matters most.  Factories as drivers of higher wages were the hard won end-product of generations of conflict long after they first arrived on the scene in 1700s England.  Our “fissured” workplace is the new battleground.  The gig economy is the new reality.  Digital technologies underpin the logistics of these new workplaces, just as steam and electricity were the basis for the factory system.  Who owns those technologies?  Who chooses them?  How does the middle class recapture those benefits it lost due to marginalization and shareholder primacy?

There’s a lot to reform.  I am not sure that the $1.9 trillion Biden package includes much along these lines.  Perhaps the next wave of policy initiatives will.  We can hope so.

Peter Radford
Peter Radford is publisher of The Radford Free Press, worked as an analyst for banks over fifteen years and has degrees from the London School of Economics and Harvard Business School.

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