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What's next in our History (hopefully)
By William McGaughey
In Hegelian terms, it may be that the Bolshevist revolution of 1917, which established Socialism (or Communism) as a type of society, was a "thesis" with respect to the relationship between business and government. Government overwhelmed and obliterated the business community as the state assumed ownership and control of the means of production. Government intrusion in business activities was total. Then came a time when the opposing ideologies of Socialism and Capitalism competed for dominance in the world. One aspect of this competition was military - also known as "the Cold War". Another aspect was ideological; and still another, economic. After all, Nikita Khrushchev once promised to "bury" us with our capitalist system. He meant that Socialism would show its superiority in organizing productive enterprise and out produce capitalist societies. It did not turn out that way. The Soviet Union developed internal problems which, when combined with the need to maintain an expensive arms race, caused its society to collapse. The socialist nation itself fell apart in the early 1990s.
Then came a time of "antithesis" in Hegelian terms. The Socialist challenge had produced vigorous defense of the capitalist system and a fierce anti-communism. This movement is most closely associated with Ronald Reagan. Not only did the American president force his Soviet adversaries to expend more resources than they could afford on keeping up with America in the arms race, he also began dismantling government regulations of business dating back to the New Deal. President Reagan drastically cut taxes, scaled back business regulations, promoted free trade, and dealt blows to labor unions such as PATCO. Pure capitalism was on the rise. Right-wing theorists proposed "an end to history". There was no longer any question that the capitalist system was superior to socialism. Even nominally communist governments such as China's were inviting foreign businesses to invest in their countries to hasten economic development.
Now is a time when capitalist hubris has become exposed. Perhaps history did not end after all. Perhaps unbridled capitalism has faults that government regulation might correct. After the Soviet Union fell, American capitalists missed a big opportunity in Russia by failing to aid a people in distress. The dismantling of Socialist enterprise led to a rule of gangsters and oligarchs while the people suffered immensely. And now we have Vladimir Putin and his protege, not exactly capitalist zealots. The opening of China to capitalism has meant that American manufacturing has succumbed to the lure of cheap labor. The world's foremost capitalist nation no longer has a manufacturing base but is instead spending far more money than it takes in and is going increasingly into debt.
Yes, the global economy is a capitalist one, but the hearts and minds of the world's people are with the anti-globalization movement. Few appreciate the capitalistic "race to the bottom" in terms of wages and working conditions. And the crowning blow is that the U.S. government is asked to come to the rescue of Wall Street banks which have not the cash they need to meet obligations! Those bastions of the capitalist system are themselves facing bankruptcy.
So what does this mean? That Lenin was right, after all? No, it means that neither of the extremes, pure socialism or pure capitalism, suits the needs of contemporary society. We need, in Hegelian terms, a "synthesis" of the preceding systems. That means that both government and business play a role in the economic life of a society. There is a new relationship between these two institutions. And what might that be?
I would speculate that the coming role of government is not to own or manage business but to regulate its activities so that long-term public ends are served. The new factor today is the collision between economic growth and the natural environment. Adam Smith’s theory of the free market did not anticipate how economic transactions would collide with a fixed supply of natural resources. Taxation is needed to make certain commodities artificially expensive when their supply cannot be sustained. We need government to create the proper financial incentives to guide humanity in a smooth transition from an era of wasteful plenty to one where population pressures and industrialization put pressure on the earth's resources. Otherwise, a crash landing will take place.
Now, more than ever, we need government to regulate economic affairs for the betterment of society and preservation of the natural environment. Government needs to take that long view when private business interests will not, anticipating the needs of future generations. A good example is the automobile industry. In 2008, Americans were shocked by having to pay more than $4.00 for a gallon of gasoline. Part of the inflation in the price of petroleum products had to do with commodity speculation. However, the expensive gasoline ought also to have been a warning sign that petroleum is becoming increasingly hard to find and so long-term price trends will be unfavorable. We also know that if India and China aspire to transportation systems like ours, the earth will simply not furnish the fuel we will need. So government must take the lead on this problem. Either we "drill, baby, drill" and postpone the day of resource reckoning or, with government assistance, we convert from a transportation system based on fossil fuels to an electricity-based system based on renewable sources of energy such as wind and solar power. Business alone cannot or will not undertake such a transformation of economic arrangements.
Let's get specific. What is the main political issue that Americans face today? I would say its our economic future. Will todays children and grandchildren enjoy anything near the material comfort which we ourselves have? If not, what can we do to reverse or mitigate the process of deteriorating economic conditions?
The looming economic crisis has two aspects:
First, the U.S. economy has lost its competitiveness in the global market. Our merchandise trade deficit runs over $700 billion a year - and this after the U.S. dollar has depreciated significantly against the Euro, the Chinese renminbi, the Japanese yen, and other foreign currencies. That means that foreign workers, not Americans, hold the jobs that support the production of goods for our own market. It also means that foreigners are accumulating dollars and buying up our Treasury bonds, stocks, and other assets. Besides remaining uncompetitive in merchandise trade, we will be paying dividends and interest to those foreign investors - income which the U.S. government cannot tax.
The second and more serious problem is the conflict between the material wants and needs of the earths growing population and the material resources available on earth. We are entering the period of peak oil, when more oil will be pumped out of the earth than at any other time before or after. New oil reserves are becoming harder to tap. If supplies cannot meet demand now, the imbalance will only become worse in the future. The growing emissions of carbon gases produced by the internal-combustion engine and other devices has raised the earths temperature to the point that polar ice caps are melting, the seas are rising, and destructive hurricanes, floods, and tornados become more frequent.
The scarcity of oil may be the least of our problems. We may also be facing a crisis in food production. As corn is diverted to ethanol production, supplies drop and prices rise. Single-crop cultivation has reduced productivity of the soil. Farm land competes with suburban and exurban development. Limited water supplies are likewise diverted to urban use. The water level in aquifers around the world has dropped significantly. Then there is the problem of waste disposal. There is the problem of air quality when industrial gases are released into the atmosphere. The list of problems goes on and on. The earths population, which stood at 6 billion persons in 1999, numbers 6.7 billion persons today and is expected to reach 7 billion persons by 2012. The collision between growing population and the earths finite resources poses a severe threat to our comfort and stability in future years.
Books can be and have been written on each of these problems. Lets not waste time on restating problems. What are the solutions? For population growth I have no answer. If were not prepared to adopt a one-child policy like Chinas, gains in population may be inevitable. Environmentally conscious persons and groups have proposed solutions to resource shortages of various kinds. There is no shortage of good ideas. The problem is one of political will.
How to reduce oil imports
Lets take the easy part first: the trade deficit. By and large, the deficit has two components. Around $300 billion of the $700 billion trade deficit is due to oil imports. We use most of this oil in the form of gasoline to power automobiles. If we could find other ways to transport people conveniently, it would reduce the demand for oil products. We could expand public transportation, encourage carpooling and bicycle transportation, or develop new technologies such as smart jitneys or personal rapid transit (PRT) which would reduce dependence on single-passenger cars. The federal government could require car manufacturers to improve fuel efficiency in their products. We could stagger work hours to reduce traffic congestion in urban areas.
Another option would be to develop cars that ran on fuel other than gasoline. Ethanol, produced from corn, was the first product out of the gate. However, we have come to realize that ethanol production uses more energy than it saves. Ethanol depletes scarce ground water; it takes four to five gallons of water to produce a gallon of this fuel. Finally, we need all the corn we can get as food. That does not mean that ethanol should not be produced from other materials. Brazil has become self-sufficient in energy by producing ethanol fuel from sugar cane.
In the United States, ethanol producers have their eye on wheat straw, wood chips, switch grass, and other farm wastes. Royal Dutch Shell has recently signed a contract with a Madison, Wisconsin, firm to produce ethanol from switch grass and sugar-cane pulp. With increasing sugar imports from Mexico, sugar beet producers in northwestern Minnesota want the federal government to buy all the sugar beets they cannot sell and sell this at a loss to ethanol producers.
Increasingly, automobile manufacturers are adapting their products to use of the new fuels. Sales of flex-fuel vehicles, which can run on either ethanol or gasoline, have risen from 2.9% of total cars sales in 2005 to 5.3% of sales in 2008. Sales of hybrid cars, alternatively powered by electricity and gasoline, have risen from 1.5% of total sales in 2005 to 3.6% of sales in 2008. The momentum is with the hybrids. Toyota expects to sell one million of its popular hybrid model, the Prius, each year in the early 2010s. Farther down the line, the auto manufacturers envision even greater sales of hybrids. Battery-powered electric cars and cars powered by hydrogen fuel cells will be added to the mix of products. T. Boone Pickens thinks cars should be powered with natural gas.
But lets concentrate on electricity as a source of power. Electricity stored in batteries can take the car a certain distance before the battery needs to be recharged. Its generally less than the distance that can be traveled on a tank of gasoline. The hybrid car overcomes that disadvantage by providing a gasoline-powered motor along with the electric one. Electricity can also be used to break molecules of water into atoms of hydrogen and oxygen. The hydrogen is captured separately, stored, and later burned. The burning process creates energy to power the vehicle. Pure, clean water is the exhaust. In either case, such cars do not emit greenhouse gases. Their widespread use would slow the process of global warming.
There are two important questions when considering electric power. First, how would the power be generated? Second, how would electric power be transported to its point of use? Electricity can be generated in conventional power plants that burn coal or gas and thus contribute to global warming. It can also be generated in nuclear plants that do not discharge such wastes into the atmosphere but leave a toxic residue of spent fuel having a long half life. It can be generated also in hydroelectric dams that change the landscape, in geothermal generators, and in photovoltaic cells that turn sunlight into electricity. From my point of view, one of the most promising sources is wind energy. Wind is free and renewable. Its capture leaves no detrimental effect on the environment. A disadvantage is that this power source varies with weather conditions. For small-scale producers, the equipment can be expensive.
My 90-year-old uncle owns a farm in Putnam County, Indiana. He told me recently that, with the help of engineers from Purdue, he was having a wind turbine and tower installed on his land. I believe that many small-scale farmers in Minnesota have the same attitude. And, thats part of the appeal. Americans are both patriotic and adventurous. Most sense the danger of our nations dependence on imported oil. They want to help out in some way. The potential exists for a vast mobilization of energy producers on Americas farms.
While the American people are willing, our government has badly fumbled the ball. Congress failed to renew the tax credits for wind-generated and solar energy in the 2007 Energy Bill, but, at the Bush Administrations urging, it did renew the credits for oil and gas. As it was, the federal tax credit of two cents per kilowatt hour for wind-generated electricity could only be taken against taxes on passive income - that is, on income earned by investors rather than by people who work for a living. Only relatively affluent persons would be given this incentive. Finally, to make it worthwhile to install wind turbines, one needs permission from a federal agency to connect with existing power lines. The review process normally takes two years. Since this agency (Midwest ISO) processes applications in sequence before starting the next one, it could theoretically take 612 years to complete the backlog of 306 pending cases.
As a result of government fumbling, the United States lags behind other industrialized nations in developing wind and solar energy and related technologies. Germany has increased its generation of wind power by 70 percent each year for the past decade; solar energy increased annually by 70 percent each year between 1999 and 2005. In 1997, the United States produced about 40 percent of electricity generated by solar energy; by 2007, our share of world production was down to 8 percent. Remarkably, the state of Israel has committed itself to creating the infrastructure for a national network of recharging stations for electric cars. There will be half a million such stations by 2011. Renault and Nissan have joined in a partnership to provide the equipment.
The state of Minnesota has moved the process forward with legislation that requires the dominant energy company, Xcel Energy, to provide 25 percent of its electricity through renewable-energy sources by 2025. The legislation requires the power companies to offer a special tariff to community producers that would give them more revenue up front in the early years. Another proposal would have Xcel Energy buy its electricity from small, locally owned producers at a price that covers costs and provides a reasonable rate of return. This approach, called feed-in tariffs has allowed Germany to become a world leader in solar and wind technologies.
Much more can be done, especially at the federal level. Minnesota Congressman Tim Walz has proposed a bill that would allow up to $40,000 in tax credits for wind-power generation. The credits could be taken against any income, not just passive investment income. I would go further. I would pour massive subsidies into research and offer small tax credits to people who buy hybrid cars. Repeal the tax deduction for businesses that buy SUV's and small trucks. If we really wanted to stick our political necks out, we could raise the federal gas tax.
John McCains and Hillary Clintons proposal to suspend the federal gas tax in the months preceding the election to offset the price increase illustrates the politics of this issue. In Clintons case, at least, the suggestion was made for reasons of political style. She wanted to align herself with working class voters who feel the pinch of rising fuel prices rather than elitists who, as Jimmy Carter once did, would worry about long-term energy shortages and feel malaise. This illustrated the politicians willingness to play games with our energy future.
A major obstacle to increased production of electricity is power transmission or transportation. It takes seven years or more to build a new power line. Because the line crosses private property, there are issues related to property rights and personal safety. With hundreds or thousands of small power producers, it would be a challenge to connect them all to the power grid. Therefore, we must begin to think of other ways to get the power to the end user. If the end use is in automobiles, then the power might be stored in batteries, which could then be transported. Alternatively, this power might to used to break the water molecule into atoms of hydrogen and oxygen. The hydrogen could then be stored and transported to automobiles equipped to burn it as a fuel.
Xcel Energys CEO, Dick Kelly, has said: Energy storage is key to expanding the use of renewable energy. Lets accept, then, that a major effort should be made to improve battery technology. A University of Minnesota professor in chemical engineering, Bill Smyrl, has been experimenting with large sodium-sulfur batteries that were developed in Japan. These batteries are 90 percent efficient - compared with 42 percent for producing and storing hydrogen - and they involve nontoxic materials. A problem is that each battery is the size of two semi trailer trucks. For electric cars, we would need to get the power to the cars or to recharging stations. The big car companies say theyre ready to build electric cars but are waiting for the needed battery technology to become available.
What to do about outsourced jobs
If oil imports are a major cause of the deficit, another major cause would be the outsourcing of production to foreign countries, especially those where labor can be purchased at a low cost. Opposition to NAFTA in the United States focused on the fact that Americas production workers would have to compete with their Mexican counterparts who were paid $4.00 a day. There is a similar concern now in having to compete with workers in south China who were paid $.30 or $.40 an hour, though wages may have risen lately. Living in a high-cost society, Americans simply cannot accept wages that low. They therefore cannot compete against the low-wage workers in other countries if cost becomes the main factor in competition.
Proponents of free trade use various counter-arguments. They state dogmatically that the world economy is always better off with increased trade; a 19th century economist named David Ricardo proved that. The winners who gain low prices at Wal-Mart outnumber the production workers who lost their jobs. The solution, say economists, is to accept free trade but expand the safety net for the losers. Send them back to school to retrain for the postindustrial economy. We must invest in education, especially in math and science, to prepare the next generation of Americans to be competitive in the global economy. Presumably these technologically prepared graduates will go out and invent something that foreigners want to buy - and, of course, no one will try to copy their better ideas and forget to pay royalties!!
Our annual trade deficit with the Peoples Republic of China stood at $232 billion in 2006. This was not because Chinese business leaders were more skillful than their American counterparts in providing products for the consumer market but because American business interests decided to relocate their own production to China in order to cut out the high-priced American labor. Retailers such as Wal-Mart drove such a hard bargain with respect to price that relocation to low-wage areas became necessary for suppliers to meet the contract terms.
The leaders of the U.S. government, who should have looked out after the interest of American workers and imposed protective tariffs, but failed to do so because of the free trade agreements in effect. Then, customarily, they accused the Chinese government of cheating. The Chinese were keeping the value of their currency pegged to the dollar. But, if people think currency adjustments will solve the problem, they will be disappointed. Professor Bezhad Yaghmaian points out that, if the Chinese price becomes too high with the strengthened renminbi, America will have to purchase goods formerly obtained from China from some other country because our own manufacturing capacity with respect to certain products no longer exists. The deficit will remain.
When I campaigned in Louisianas 2004 Democratic presidential primary, I attended a conference in Natchitoches on revitalizing rural Louisiana. A representative of the Weyerhaeuser Company - one of many that got its start in Minnesota - told a group of attendees that if Louisiana became known as a low-cost place to do business, business would beat a path to that state. I think he was right. Cost does largely determine where companies will build production facilities. The problem with the United States is that we are a high-cost place to do business. Our own companies are therefore closing down plants in this country and opening up ones in low-cost areas abroad.
What concerns me is the cost of labor. We have a relatively educated work force, but the world needs cheap labor for manufacturing and agriculture. Our educated people are too expensive for those tasks. With an average student-loan debt of $23,375 - fifth highest in the nation - the graduates of Minnesotas colleges and universities need to pay back the banks and credit-card companies as well as secure housing and other necessities in life. It takes an estimated annual income of $32,000 to handle the debt payments comfortably; and not everyone can find such a job.
So the idea that Americas college graduates are well prepared to compete in the world economy is hot air as far as Im concerned. It turns my stomach that the same educators who are fetching high salaries in institutions with soaring tuitions are also cheerleaders for free trade, putting their grads in direct cost competition with the lower-priced grads of Asia and other places. And they are all high-minded people with a strong ethical bent!!
I am led to the conclusion that, by and large, the next generation of American workers - with some exceptions, of course - cannot compete in the global economy because their labor costs too much. It has to cost a lot because Americans live in a high-cost society. So what do we do? I think the only answer is to shield American workers to some degree from direct cost competition with workers in low-wage countries. That could be accomplished by placing tariffs on goods manufactured in those countries which are imported into the United States. The savings in labor costs achieved by outsourcing could be partially offset the additional money needing to be paid when the products come here to be sold. We need to buy some time until costs and living standards abroad catch up to ours.
We also need to be thinking of how we can get our own cost structure more in line with the rest of the world. Our productive economy is weighted with barnacles that have attached themselves to its wealth. Some of the worst are government (the military-industrial complex), the health-care system, financial institutions, our expensive education, and the legal system. There are many sacred cows needing to be culled. Attractive-looking men and women in suits - professionals all - will be on hand to defend the expensive practices. The word quality will often be heard.
Now, of course, with respect to tariffs, the U.S. government is obligated not to impose them unilaterally under quasi-treaties (never ratified by the Senate) such as NAFTA and the World Trade Organization (WTO). Yet, there are procedures for getting out of these obligations. I am not for Bush-style unilateralism. We need to hold discussions with other nations that are our trading partners and say something like this: The United States cannot afford to be the worlds economic patsy much longer. We cannot continue to run up huge trade deficits every year. We want to meet our financial obligations, but to do so we need a balanced trading system, not an exchange of goods for debt. Free trade is not working for us. So lets replace that type of trading system with a new one that allows poor nations to develop without collapsing the economies of once rich nations. We need, in other words, a development model of trade.
If such discussions are held, they might lead to a new consensus in which nation states are allowed to impose tariffs on imported goods to achieve certain development objectives. Here is where one begins to envision a better world, not just for Americans but for all people on earth. I think political leaders in all countries can agree that people everywhere need a certain material standard of living; and that to become entitled to use of the earths resources, they need to be employed in a productive enterprise. And, if the free market does not afford full employment in enterprises of that type, government needs to achieve that result through regulation. A cornerstone of the regulation would be incentives for business to reduce hours of work. With an artificial reduction of work time, supply and demand can achieve a satisfactory result with respect to wages and employment levels.
Admittedly, were getting into the realm of social engineering. Were having government planners decide what is an appropriate level of development - i.e., level of wages and working hours - in particular countries and build trade policy around this. Obviously, workers in rural Africa or China cannot expect the same economic reward as workers in Manhattan; but they can expect that someone will be looking out after their interests and hopefully their situation will improve. Trade negotiators will then discuss what level of trade protection is acceptable in which situation. Eventually, a global consensus may emerge which permits national governments to impose tariffs in particular ways without fear of retaliation. Those tariffs would be a way that national governments can regulate international business. Social objectives will once again be pursued.
How would this work? I have proposed a system of employer-specific tariffs on goods imported from low-wage countries that enter the U.S. market. The tariff rate would take into account the cost differential between production costs in the foreign factory and comparable costs in the United States. I would not seek to recover the entire cost differential through tariffs. Neither would I calculate the U.S. cost on the basis of actual costs where high-priced union labor is involved. But it is justifiable to set a standard for a reasonable wage in the United States and use tariffs to bring the cost of imported goods closer to what the goods would have cost if produced here under those conditions.
While protecting U.S. workers to a certain degree, such a system of tariffs would also encourage business to improve its offering to foreign workers. If the sweatshop workers receive higher wages or enjoy shorter working hours, then labor costs increase and the tariff rate adjusts automatically. The higher those costs, the lower the tariff; and vice versa. So the U.S. government could actually become a powerful influence on wage levels and working conditions in foreign countries.
This is a better arrangement than at present where union organizers are sometimes murdered by business interests in collusion with foreign-government officials or where business promptly closes down factories that are successfully organized and moves its operations elsewhere. If, for instance, factories in coastal China are organized and wage levels rise, employers move to the poor interior of China, or to Vietnam, or another place in an earlier phase of industrialization where the process begins over again.
Sometimes when I have advanced this concept, critics have complained that it would entail new government bureaucracies and endless paperwork. What if the foreign producers lie about their wages and hours? These are all valid concerns, but not insurmountable. Most large multinationals already audit labor standards in their foreign subsidiaries and contract partners. Computers make it possible today to store vast amount of information and make speedy calculations. Bar-coding and similar technologies make it possible to identify products entering the United States, determine a tariff status, and, with computers, make calculations on the spot. I would suggest that the time may have come for such techniques to be employed in global trade even if they might previously have been impractical.
A word about health-care costs
Let me say a word now about lowering the cost structure of U.S. production. The most significant cost might be for employee health insurance. Decoupling health care from employment would seem to solve the problem, but really not. Costs are merely shifted to individual workers who will need higher wages just to stay even. The current emphasis on universal health-care coverage is unappealing because it represents throwing more money at a broken system. We need to lower the cost of health care, not just find ways that the exploding costs can be shifted to healthy people from people receiving the services. Costs must be lowered. Thats the bottom line.
An immediate step in the right direction would be to repeal the prescription-drug benefit under Medicare. I dont trust the relationship between doctors and the drug companies. To place more pills in people does not make for a healthier population. Government needs to put its money into illness prevention rather than drugs and other expensive treatments. The prescription-drug benefit carries an estimated unfunded liability of $17 trillion. It was another dubious gift to the American people from friendly lobbyists and the Bush administration. Away with this! We cant afford the program.
The next thing I would do is propose free universal health courtesy of the federal government. Every U.S. resident should be entitled to receive three things without charge: (1) an annual physical to monitor general health conditions, (2) a once-in-a-lifetime genetic analysis focused on susceptibility to disease, and (3) access to a web site in which ones own health information is stored, which also answers basic health questions. The whole thing, I figure, should cost less than $100 billion a year. It would be a bargain, especially for Americas uninsured. The present medical system would, of course, continue. The free government service would be a supplemental program rather than a replacement for medicine as it is practiced expensively today.
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An Attractive Future in an age of Scarce Resources
Now we need to discuss the environmental crisis facing people today. This is not an American problem but a problem both for ourselves and the rest of humanity. The earth lacks the resources to support a growing population, especially one which expects increasing living standards measured in access to material resources. Chinas 1.3 billion people would soon exhaust the earths resources if per capita they consumed the food, energy, water, and other materials that Americans consume. So we must do more with less. We must lower our material expectations.
Books have been written on how to leave a lighter footprint on the earth. We can recycle waste products, drink tap water instead of water in plastic bottles, ride bicycles to work, and do other environmentally responsible things. The bottom line, however, is that we are giving up something. We are sacrificing our usual comforts and pleasures to save the earth. while this is necessary and good, but it may not be enough to satisfy the selfish creatures that we are. We want to experience progress. We need to move forward to a better future. Is that possible in an era of shrinking resources?
Yes, I think it is possible. In certain respects, our species has opportunities to enjoy life that did not exist in earlier times. I think we should make the most of them. We can move forward to seize those opportunities. Let me briefly mention and discuss two possibilities:
(1) shorter work time, and
(2) the substitution of communication for transportation.
Shorter Work Time
Often when trade protection is discussed, critics argue that more jobs are being destroyed by improvements in productivity than by outsourcing to foreign countries. Columnist David Brooks points out, for instance, that U.S. steel producers have reduced the number of hours it takes to produce a ton of steel by 90 percent in the past thirty years. He concludes from this - wrongly, I think - that labor and resources are flowing into other industries, such as those in the service sector, that improve life in other ways. Its like advancing from the horse-and-buggy age into the age of automobiles a century ago, he says.
Throughout the 19th century, when industrial efficiency was likewise improving, working people through their unions agitated for reductions in work time out of fear that machines would reduce the need for human labor. That approach was sound. As labor productivity improved and hours were reduced, employment levels remained stable. Workers eventually won the eight-hour day, and then the five-day week. The reduced hours did not prevent incomes from rising. Working people thereby gained the means to enjoy life in their increased leisure time.
Thus the consumer mass market was born. One of its chief architects, Henry Ford, explained it succinctly. He said: The people who consume the bulk of goods are the (same) people who make them .. That is a fact we must never forget - that is the secret of our prosperity.
Ford had an ecological view of the economy: Working people built products and were paid for their work. They used that money to buy consumer products. Employers needed to pay people to sell their products and make a profit. If both parts of the cycle were maintained in full force, the economy flourished. Thats the philosophy that guided certain enlightened business leaders and organized labor as the U.S. consumer market was formed.
Economists of a mechanical mind see it otherwise. For them, there is a productivity dividend which can be spent in either of two ways. Either workers receive leisure or they receive increased income to buy consumer products. If the employer has insufficient profits, he cuts wages, lays off workers, or invests in labor-saving equipment that allows production to take place with fewer workers needing to be paid. Even if the consumer market is anemic, it will take some time before this becomes a problem.
In the late 1950s, the question came up what to do about automation. The Senate appointed a special committee headed by Senator Eugene McCarthy of Minnesota to study the question. The choice was whether to combat the threat of unemployment by recommending reduced work hours or take less far-reaching measures such as extended unemployment benefits, more job retraining, and increased public works. The committee went for the second approach. However, McCarthy himself had lingering doubts. In later years, he was a tireless proponent of shorter work time.
At the time of decision a half century ago, it was thought that organized labor was supporting shorter work hours, business was opposed, and government was neutral. In reality, the unions were not pushing so hard to cut hours because their members were becoming addicted to overtime pay. The time-and-a-half pay provision in the Fair Labor Standards Act was a perverse incentive to seek and accept work beyond 40 hours as much as it was a disincentive for employers.
More telling, the federal government was far from neutral on this question. The Treasury Department wanted Americans to work long hours because that would increase taxable income. Also, in the heat of the Cold War, our nations leaders wanted to keep Americans working and producing goods including military hardware. Lyndon Johnson once said: Candor and frankness compel me to tell you that, in my opinion, the forty-hour week will not produce missiles.
That was then, and now is now. Fifty years ago, we took the fork in the road that led to increased production of goods and services and rejected the fork that led to more leisure. And most economists applauded that choice. They said, in effect: Look at the growth in GNP that we have enjoyed since that time. The United States would be a relatively poor nation if we had chosen to take it easy.
That sounds nice until you start to analyze GNP. Then the economists would have to say something like this: Look at all the wars we have been able to carry out since the 1950s because American workers were willing to sacrifice their free time. Were a greater nation because of it. I would say in response: I wish we had never fought those wars. They do me and my loved ones no good at all. If we had never produced the wealth that went into those wars, our nation would be better off today. The American people could have put their time to better use. Government bureaucrats should not be deciding such things.
In a 1989 book, Nonfinancial Economics,Eugene McCarthy and I made that kind of argument. We identified the growth areas in the economy and concluded that many could be classified as one or another form of economic waste. People would be better off if that type of product had never been built. Living standards did not increase in a real sense because Americans were kept chained to their office chair or work bench doing unproductive work. Such "output" would not have missed had it never been produced.
The example of war (or the war on drugs or the war on terror) gives an example of what we were talking about: The country goes to war to defeat an enemy. But what if we never made enemies in the first place? Wouldnt that be better? We spend huge sums of money on health care. But what if we did not become sick? If there were simple, inexpensive ways to remain healthy, then wed be just as well off if we saw less of the doctor and did not take any of his prescribed medications. The criminal-justice system is a major expense for society. But suppose young people found good jobs and did not become criminals? If we laid off policemen, prosecutors, judges, and corrections officials because of declining crime rates, we would never miss their GNP-boosting service.
The list of potentially wasteful expenditures goes on and on: our national gambling habit, excessive litigation, unwanted products promoted by advertising, expanded credit-card debt, prolonged education to qualify for any kind of job, the obligatory purchases for Christmas and other commercial holidays. This is what were getting with our increased GNP. The American people are not better off having such things. Most can, at best, be called necessary evils. The better strategy, socially if not financially, is to prevent evil on the front end.
I will go out on a limb and predict that if the government made a move to enforce shorter work time, the economy would contract financially but people would be just as prosperous. We would not miss the waste we had been required to produce. Maybe peace would break out in the world. Maybe the underclass would find jobs while the educational gatekeepers who screened people for employment would have to redefine their mission.
Standards might be lower in such an environment but people would be happier. Freedom, if not "excellence", would break out in a real sense. We would soon discover that individuals could make better use of their time when they are free to spend it themselves rather than when someone else directs it. You can bet that few Americans would decide that they wanted to invade Iraq.
How, then, do we implement shorter working hours? The basic mechanism is provided in the Fair Labor Standards Act. Congress could amend this act in any of several ways to increase the financial incentives for employers to shorten their schedules of work:
(1) It would lower the standard workweek from 40 hours to 32 hours or some lower number.
(2) It would raise the overtime penalty rate from time-and-a-half to a higher multiple.
(3) It could tighten or eliminate the exemption for managerial and professional employees.
(4) It could provide that the overtime premium be taxed away instead of being paid to the employee.
Additionally, the Congress could pass legislation for a minimum vacation, such as what is currently under consideration.
The reality is that if Congress did enact substantial legislation to reduce work time, businesses would complain loudly. Some employers would move their operation to foreign countries. Thats why we need to link the proposal for shorter hours to changes in the trading system. What we need, in my opinion, is shorter workweeks everywhere on the planet. We need nation states agreeing to pursue that objective for the sake of full and better employment and protection of the environment. We need nations allowing each other to impose tariffs on imported goods produced in substandard working conditions.
Then, whether or not it considers shorter work time indicative of a bad business climate, the multinational corporations will find the same climate everywhere they might potentially locate production. But, in fact, as Henry Ford realized, reduced work hours make for a better business climate. It is only the CEOS or financial types who want to take the removable wealth out of a business and give it to themselves who would suffer.
In conclusion, then, the prospect of shorter work time enabled by advanced production technology is one of the better possibilities that we can envision for the future. The possibility of working only three or four days a week in ones years of vigor and health without suffering material deprivation would bring a dramatic improvement in peoples lives. Individuals could pursue their true interests in full force, whether it be gardening, painting, writing poetry, taking children to the zoo, or just playing with the dog.
Substitution of Communication for Transportation
We are living in a time when petroleum is becoming expensive and conventional transportation is more difficult. At the same time, communication technologies are rapidly developing in capacity and speed. Their cost is coming down. This is a happy conjunction of circumstances when a problem and its solution arise at the same time. As transportation shrinks with higher expense, cheap communication expands. And the one is a more limited form of the other, conveying an image of sight or sound, or an image of words, rather than transporting physical substances.
That may be enough. We travel to a distant place for the sake of communicating with someone; or we travel to experience a particular scene - the Taj Mahal or Eiffel Tower, for instance. In other words, it is primarily for the sake of the image - for the visual experience - that we travel to a place. The image could be acquired as completely, and much more cheaply, by telecommunication devices or by the Internet as through personal transportation. It may cost $1,000 to fly to China but only $.30 to speak to someone in China for ten minutes on the telephone. That ten-minute conversation may be the purpose of our visit. So why travel when a phone conversation will do? We can accomplish more with communication given our limited time and money.
Computer and wireless technologies make possible instantaneous communication wherever one might be. The visual image of a person may appear on a computer screen as he speaks through many miles of fiber-optic cable. If the screen is large enough and has good resolution, it may seem that the person is physically present. With videoconferencing, it becomes possible to convene meetings quickly among individuals who are physically distant. With personal computers, it becomes possible to work at home instead of commuting to an office.
In the future, such arrangements may become more common. We need not worry so much about running out of oil if electronic communication is plentiful and cheap. The same experience once had through expensive travel becomes available to the common man or woman for a few pennies. Thats why I say that, in some respects, life may improve despite resource shortages in the future.
A consequence of this revolution in communication devices following one in transportation is that the average person can participate in a global community. Messages sent on the Internet are picked up by persons all over the world. The trend will surely increase as communication devices further improve.
As I write this sentence, my wife is traveling in the Chinese province of Sinkiang along the old Silk Road. My daughter will soon be arriving in Paris, France. Transportation on a United Airlines flight has made this possible. In the future, I would imagine that computer links between distant places would let someone experience to some degree what they are experiencing in the flesh. I could sit before my computer screen and see live images transmitted from such places. I would be there myself for all intents and purposes; but the cost would be minimal.
Carrying this idea further, I can anticipate that computer technology will soon advance to the point that I can speak English to a Frenchman in Paris or to a Uighur in Sinkiang and from the other end will emerge a perfect voice translation in French or in the Uighur language which the other can understand. We can carry on a conversation as if we were neighbors. If I become bored with events near the Silk Road, I can quickly switch sites to acquire the images of street life in Rio de Janeiro or of a village at the foot of a mountain in Austria. Again, there would be no problem in communicating with people whose speech I do not understand. The computer would do the translation. The Tower of Babel would be no more.
So in the future age which I can imagine, humanity will have both more free time and more opportunity to communicate with others around the earth. This is a prescription for a new world culture. We can take cheap, quick tours of museums around the world. We can listen to any kind of music we want. We can experience the earths unusual sights. What only the wealthy could hope to see in the 19th century will be commonplace in our century for persons of average means.
In other words, exposure to world culture will not be limited to an educated elite. This will be immediately accessible and affordable to anyone who wants the experience. The masses of people in different parts of the world will get to know each other. And, not only will we be able to travel around the earth vicariously, we may also be connected with scenes from outer space. It will be a fabulous future!
New Ways to Confer Rank and Position
I would anticipate a change in civilizations in the near future. With respect to the economy, the capitalist system may need to change. The problem is that we cannot allow economic growth (in terms of the use of physical resources) to continue indefinitely when the earth has a finite supply of those resources. If the earths people are all to live in reasonable comfort, we must share. We must envision a more even and equitable consumption of needed materials instead allowing elites empowered with money to consume a disproportionately large share.
Some say that inequality of wealth drives capitalism, providing an incentive to take risks and innovate. To a certain extent, that situation should continue. However, humanity as a whole has a stake in conserving material resources. It cannot permit a system to continue that recklessly wastes resources - in other words, uses them for reasons of personal vanity or exhibiting of status rather than to serve a humanly useful need.
Thats the problem. We are not prudent in our use of material resources - petroleum, water, air, food, wood, metals, topsoil, and so on - but are into that conspicuous consumption that is intended to exhibit status. Social status is what we truly want, not the comfort and pleasure that comes with consumption. So be it then. Let human beings pursue status. Let them compete for rank and position. Let them, however, compete by other means than becoming rich. That may be the key to our future salvation - combining the freedom to compete for social rank with the necessity to distribute materials among the earths people according to a rational plan.
Therefore, our dismal future that features economic regulation and a leveling of wealth need not lead to despair. It is brightened by the freedom that comes with more personal free time. We ourselves can invent what to do. Is that so much worse than being bound by long work hours, conformity of thought, and the need to service increasing levels of debt? I think not. We need to stop being brainwashed by the idea that we are privileged because we are plugged into the economic system when, in fact, we exhibit many characteristics of a slave. Lets embrace true freedom. Let the bold and clear-sighted ones among us grasp the opportunities at hand.
I think the seeds of this more sustainable future are already sown. Think of all the educated persons among us, from good middle-class or upper-middle-class families, who have cultivated interests in culture or the arts. They may do painting, or sculpting, or write poetry. Some others may be into physical fitness, or they may embrace the latest fashions and personally look good. Another type of person may be a jokester, perhaps even a stand-up comedian. Then there are those who aspire to play in rock n roll bands that could possibly become famous. We all have something that we cultivate personally around which our talents are focused. Such pursuits provide the basis of the recognition and praise that we crave without expending excessive natural resources. Let social status be erected on such a foundation rather than on the successful pursuit of resource-consuming wealth.
What it takes now is a more organized system of conferring rank. We can begin, perhaps, by deconstructing the previous system. Instead of competing for a limited number of good jobs, let many more people share those jobs. Maybe high-level employment can be like service in the military - sign up for a three-year stint and then let someone else take over. Being a CEO would not seem to important if terms of service were limited and incomes were more tightly controlled. Many different people would get a shot at this experience. Then, having given to society in a productive capacity, persons retired from the job could move on to pursue personal interests. Contests and other structured systems of competition could establish rank in those areas as well.
Ultimately, I think, individuals are seeking a clearer and better sense of their own identity. The definition of personal identity is a life-long quest that motivates people regardless of circumstances. Who we are depends partly on our group affiliations - our race, religion, ethnicity, gender, and occupational class, among others - and partly on our individual interests and pursuits. I would say that we each are free to pick an identity that suits us - makes us look good. If the general history is being used to make us look bad, then declare that we want no part of this history. We are each free to pick our own stories that imply a role for us personally. We affiliate with others who pick the same story.
In conclusion, I foresee, as belonging to our more hopeful future, not totalitarian socialist government and not laissez-faire capitalism but a system in which government regulates business costs to adjust decisions of the free market. It may artificially tax resources that will become scarce in the future. It may impose tariffs on goods imported from low-wage countries to preserve the semblance of balanced trade. It may force businesses that hire illegal immigrants to bear part of their social cost up front in the form of a tax surcharge as wages are paid. In any event, the general U.S. taxpayer cannot continue to bear the brunt of government's bountiful subsidy for businesses hiring lobbyists. A new and more honest relationship between business and government needs to be established. And increased personal freedom would be the end.
It appears that the politicians - of both parties - are a major stumbling block to progress. The jury is still out as to whether or not the political class in America is up to being part of a solution rather than remaining part of the problem. Let's just say that we must have faith in government's ability to rise to the occasion since our future depends on it.
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