Tuesday, May 28, 2013

Burnout

From time to time, I have exchanges with others in social networking that goes something like this:

ME: Seems like the United States is a place where every man for himself is the rule. Maybe we could learn something from Norway or Denmark, or even Germany.
Other guy: So you think we should be a socialist country?
Me: I think it's worth considering. At the height of the Second World War, F.A. Hayek wrote a book called "The Road To Serfdom" in which he noted that America had adopted the same policies as Germany did 30 years before the war. He asked a relevant question: so what are we fighting about again?
Other Guy: Take a look at those socialist countries. Do you ever buy anything from them?
Me: Maybe. Denmark is a net exporter with the US and so is Germany. Norway is also an net exporter to the United States, but not as consistently as the others. Denmark and Germany are both net exporters, yet they enjoy some of the highest standards of living in the world. I have a question for you: Do you ever buy anything from the United States?
Other Guy: Sure. The iPad, my Mac and my car.
Me: You know as well as I do that your electronics are made in a variety of countries in Southeast Asia. Your American car is rife with parts sourced from foreign and domestic countries. Can you name one thing you own that was entirely sourced and made here in the US? Just one?
Other Guy: I'll have to get back to you on that. Still, Americans can get as rich as they want. We still have it better here.
Me: You know that's a fantasy, right? I mean, do you really think the uber-wealthy are going to allow that kind of competition?
Other Guy: I don't know what you're talking about. Look, I gotta head back to the trailer park, the wife's expecting me.
Me: Ok.
Bernie Sanders has correctly noted that Denmark is a very socialist country, yet it's a net exporter. Germany is also characterized as a socialist country, and it is also a net exporter.

By now, you're probably wondering what all this has to do with technology. Quite a bit, actually. The United States seems to have reversed socialism so that income flows to the top rather than the bottom. With every advance in technology, the vast majority of the wealth created by each advance goes to the top. This has been characterized as the Conservative Nanny State.

To put this in perspective, the typical engineer working for a high tech company is not necessarily deriving all of the financial gain from his innovations. His contract will usually require him to assign all intellectual property arising from his work to the company he works for. He may or may not get a bonus depending on how well the company executes on bringing the innovations to market.

For all others who did not make a direct contribution to the innovations sold by the company, they're out of luck. Their wages tend to stay flat, they are not likely to receive any stock options and they are less likely to receive a bonus. The most likely candidate for a bonus or stock option is the CEO, regardless of how well the company performs. This disconnect between pay and performance has been well documented by the New York Times. Noted economist, Dean Baker's new website, DirectorWatch will help to document this at the board level, too.

Consider: Socialism is taking money from the wealthiest of the population through heavy taxation and redistributing it to everyone else, regardless of their performance. Socialism is also embodied in the CEO and board member selection process in corporations. CEOs quite often are selected by their friends and buddies in corporate culture. CEOs often make six or seven figures even when they tank the company. Worse, when the CEO leaves, his severance pay is a lifetime of pay for the workers he supervises. The CEO and the board of directors often receive fantastic sums of compensation regardless of their performance. Members of the board earn on average $240,000 a year for just 4-8 meetings.

So while it is true that consumers receive tangible benefits of technology, they are often excluded from the financial benefits of technology when they participate in the manufacture of that technology. This is a problem and it is unsustainable. Why?

If you exclude ordinary workers from the fruits of their work, they cannot afford training to keep up on their trade or craft. Education is expensive, so most employees forgo the training or higher education to avoid the debt. This has the benefit of keeping wages down and tends to strand the employee, making it difficult for him to advance without taking on debt for education.

This barrier to education creates a skills gap that is so often complained of. Employers would rather hire foreign workers who have received the benefit of government subsidized education from a foreign government. This keeps taxes low for employers. Employers are getting very creative about externalizing costs. When they can't get skilled workers, and they don't want to pay for education here, they get them from somewhere else.

If they can't get them to come here, they take their manufacturing overseas, reducing domestic demand for the skills they say that they need. That reduces funding for the education required to acquire those skills. Eventually, the entire infrastructure for cultivating employees with the desired skills is gone. This might help to explain the strong dollar policy maintained by the Fed and the Treasury for more than 30 years.

The trends observed here are unsustainable. We cannot rely upon foreign governments to educate their workers so that they can work here forever. Eventually, we're going to have to find a way to create the workforce that we need here, and that means we're going to have to pay for it. Who has the money?

The Walton family owns about 30% of the wealth in this country alone. They're not going to spend their money to educate workers. That would increase their costs. More progressive taxation and a higher corporate tax with investment incentives may be required to finance the education of a workforce that can keep up with our foreign competitors. We've tried other ways to no avail (think Reagan Revolution). With $2 Trillion parked offshore, corporations have demonstrated their amazing skill at externalize their costs.

How long can this continue?
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