Nose Pressed Up Against the Glass

nose against the glass

You’re on the outside looking in. What you want is only a window pane away, but it might as well be on Mars. Novelist Maria E. Andreu captures the feeling:

wuthering heights“There is a wonderful scene in the 1939 film version of Wuthering Heights… in which Heathcliff and Catherine sneak on to the grounds of the Linton house at night. The Lintons, the rich neighbors, are having a grand party. Heathcliff and Catherine watch through the window, unseen. It’s exactly what’s meant by ‘nose pressed up against the glass,’ watching but not being able to participate.

“You can see a lot in their faces as they watch the others dance. Catherine, the daughter of a landed ‘gentleman,’ gets a look that lets you know that she’s intrigued, beginning to want to let go of her wild childhood and take her place in the Lintons’ world. Healthcliff, the servant who adores Catherine, knows that even if he could stop being poor, he would never belong there. He will always be watching from outside the glass.”

Nose pressed up against the glass — it’s an enduring image in literature and in life. Ms. Andreu continues:

“I’ve thought about this scene a lot. I’ve used the image in my writing. It illustrates how I’ve felt sometimes, able to see ‘the good life’ but not able to live it. Most of my life, the Heathcliff in me has weighed heavy inside my heart.”

But then one day the magic happened, and suddenly she found herself transported to the other side of the window pane:

“Yesterday, I got a rave review for my novel that comes out in a month and a half. In my email, I got an invitation to a launch party for another author’s book. I packed to go to a book signing and remembered I needed an extra outfit for an industry cocktail party and the ‘members only’ dinner afterwards with people from my publishing house.

“If that’s not being inside the party, I don’t know what is.

“Someone has opened the door of the party for some fresh air, seen me lurking, and extended a hand of friendship to let me in. It is an unbelievable feeling. I live a life of impossible splendor, of magical beauty, of infinite luck. And I am so deeply grateful.”

We’d feel the same way, if we ever got so lucky. (Assuming we’ve been working hard enough to get lucky — here’s The Quote Investigator on where that saying came from.)

hard work luck

In economic terms, the distance between Heathcliff and the Lintons is a matter of social capital. Ryan Avent, author of The Wealth of Humans, distinguishes between human capital and social capital. Human capital, he saredys, is a particularly focused and useful form of knowledge that an individual gains through education, hard work, experience, on-the-job training, etc. It’s the hard work part of the formula. Social capital, on the other hand, is the opportunity part, and it’s not just personal, it’s cultural. Avent says it’s “like human capital… but is only valuable in particular contexts, within which a critical mass of others share the same social capital.”

red velvet rope 2

For those not already in the social capital club, converting human capital into social capital requires upward mobility. Ms. Andreu’s upward mobility moment was getting her “members only” invitation — official permission to duck under the red velvet rope and join an exclusive gathering where she could schmooze the “others [who] share the same social capital.” Heathcliff, on the other hand, never got his upward mobility moment. As a result, there wasn’t just a glass window pane between him and the Lintons, there was a glass ceiling.

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Nose pressed against the glass… glass ceiling… we’ve heard those expressions before. Nowadays, another glass metaphor has entered the economic lexicon:   the “glass floor, which protects the upper middle class against the risk of downward mobility.” (My emphasis. The quote is from Dream Hoarders:  How the American Upper Middle Class is Leaving Everyone Else in the Dust, Why That is a Problem, and What to Do About It by Richard V. Reeves.)

Hoping to move up? Afraid of moving down? These days, it’s hard to do either. And if you’re hoping to move up, there’s one additional, elusive element required for membership in the red velvet club:  the notion of identity — the need to be the kind of person who belongs there. In this short video (click the image below), Michael Port, author of the bestseller Book Yourself Solid, asks, “What makes [red velvet rope people] who they are?” He answers that it’s “their quality, their characteristics, their personality — things that are innate, are part of who they are as people, not necessarily their circumstances.”

red velvet rope

We’ll be looking lots more at upward mobility and social capital in the weeks to come.

The End of the Firm

industrial revolution factory

 “The official line is that we all have rights and live in a democracy. Other unfortunates who aren’t free like we are have to live in police states. These victims obey orders or else, no matter how arbitrary. The authorities keep them under regular surveillance. State bureaucrats control even the smallest details of everyday life. The officials who push them around are answerable only to higher-ups. Informers report regularly to the authorities. All this is supposed to be a very bad thing — and so it is, although it is nothing but a description of the modern workplace.”

Bob Black, The Abolition of Work and Other Essays (1985)

Peter Drucker’s famous dictum  “If you can’t measure it, you can’t manage it” established math and management as the indisputable co-sovereigns of the modern workplace. As it turns out, Drucker apparently never actually said that[1], but the concept has dominated the workplace since the advent of factories and railroads, telegraphs and electricity. Consider, for example, what it’s like to work at Amazon.

amazon 2

But, while math and management prospered together under the Industrial Revolution’s mechanistic worldview, today’s digitally-driven marketplace demands a freshly-nuanced management style, or in some cases, no management at all. Either idea challenges an even more foundational historical assumption:  that commerce is best conducted by a firm that must be managed. Eliminate the firm and you eliminate the need to manage it. Get rid of both, and you have an unimaginably different “description of the modern workplace” than Bob Black wrote about 33 years ago.

Last time, we looked at an article by science writer and artificial intelligence engineer George Zarkadakis called “The Economy Is More A Messy, Fractal Living Thing Than A Machine.” In it, he says this about the firm:

Ever since the invention of the assembly line, corporations have been like medieval cities: building walls around themselves and then trading with other ‘cities’ and consumers. Companies exist because of the need to protect production from volatile market fluctuations, and because it’s generally more efficient to consolidate the costs of getting goods and services to market by putting them together under one roof.  So said the British economist Ronald Coase in his paper ‘The Nature of the Firm’ (1937).

“Why do firms exist?” asks Ryan Avent in his book The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016). He provides the same answer as Zarkadakis:

According to a 1937 paper by Nobel Prize- winning economist Ronald Coase, it’s to bring all the necessary people, processes, and information under one roof, instead of contracting it all out. In exchange for the convenience of one-stop shopping, one-size-fits-all,  employees trade their independence and the possibility of greater personal market returns for the firm’ management structure and financial capital, which — as long as they conform to the company culture –  the way we do things around here — promises to keep them on task and to deliver a paycheck in return.

Today, however, the new “gig economy” is fast making that unimaginable the new normal — and that’s only the beginning, says Zarkadakis:

Now, in an era of Ubers-for-everything, companies are changing into platforms that enable, rather than enact, core business processes. The cost of reaching customers has dropped dramatically thanks to the ubiquity of digital networks, and production is being pushed outside the company wall, on to freelancers and self-employed contractors. Market and price fluctuations have been defanged as machine learning and predictive analytics help companies manage such ructions, and on-demand services for labour, office space and infrastructure allow them to be more responsive to changing conditions. Coase’s theory is nearing its expiry date.

The so-called ‘gig economy’ is only the beginning of a profound economic, social and political transformation. For the moment, these new ways of working are still controlled by old-style businesses models – platforms that essentially sell ‘trust’ via reviews and verification, or by plugging into existing financial and legal systems. Airbnb, eBay and Uber succeed in making money out of other people’s work and assets because they provide guarantees for good seller-buyer behaviour, while connecting to the ‘old world’ of banks, courts and government. But this hybrid model of doing digital business is about to change.

Avent concurs, and describes two key dynamics of the new anti-firm business model:  operating culture and rent: — how a business gets things done, and whether it owns the kinds of assets it can let others use, for a price:

Current workplace trends are bidding fair to tear down the firm model of operating. If you take employees out from under the firm umbrella — make them mostly freelancers, outsource jobs to countries on the make — then what’s left of value is mostly the company’s way of getting things done and the assets for which it can charge rent, in the economic sense of billing a premium for scarce assets. How assets become scarce becomes an essential policy-making function. These become essential “intangible” or “social” capital, replacing “human” capital.]

We’ll be talking more about social capital, rent, and other changing dynamics of the workplace.

[1] According to the Drucker Institute, Drucker never actually said that. And see this Forbes article for a rousing condemnation of the idea.

Capitalism on the Fritz Part 2

Post-WWII neoliberal capitalism became a societal institution. Its most rudimentary unit was the concept of working for a living, which meant having a job. Jobs organized life, defined social identities, roles, and virtues, conferred status, supported assumptions about how life worked. Those assumptions held as long as the post-war recovery roared ahead, reinforced by the common human error of assuming happy days weren’t just here again but would continue on indefinitely — especially since we could trace the free market’s roots back a couple hundred years.

But the recovery didn’t keep roaring on. Those days are over — as evidenced by the consensus list of capitalistic fritzes from Rethinking Capitalism we looked at last time. Neoliberal economics met its match when it ran up against modern megatrends such as globalization and disruptive technologies, and when it did, it relinquished its function as a social institution we can rely on. Hence the list of fritzes.

how will capitalism endEconomic sociologist Wolfgang Streeck[i] reviews essentially the same list in his book How Will Capitalism End? (2017), and concludes that, “I suggest that all [of the developments on the list] may be aggregated into a diagnosis of multi-morbidity in which different disorders coexist and, more often than not, reinforce each other.” I.e., neoliberalism’s woes are greater than the sum of its microeconomic parts. Streeck characterizes the result as the “advanced decline of the capacity of capitalism as an economic regime to underwrite a stable society.”

the wealth of humansWhere does that leave us? Ryan Avent — senior editor and economic columnist for The Economist — says the following in his book The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016):

“The remarkable technological progress of the digital age is refracted through industrial institutions in ways that obscure what is causing what. New technologies do contain the potential to revolutionize society and the economy. New firms are appearing which promise to move society along this revolutionary path. And collateral damage, in the form of collapsing firms and sacked workers, is accumulating.

“But the institutions we have available, and which have served us well these last two centuries, are working to take the capital and labour that has been made redundant and reuse it elsewhere. Workers, needing money to live, seek work, and accept pay cuts when they absolutely must. Lower wages make it attractive for firms to use workers at less productive tasks… [and reduce] the incentive to invest in labour-saving technology.

“This process will not end without a dramatic and unexpected shift in the nature of technology, or in the nature of economic institutions.”

As we’ll see in future posts, technology has already moved far enough along that any “dramatic and unexpected shift in the nature of technology” is unlikely to backtrack — instead is far more likely to accelerate the erosion of societal economic norms. As for a shift in “the nature of economic institutions,” there is no replacement economic system waiting in the wings. The result, says Streeck, is that we are entering an “age of entropy,” where we are likely to remain for the foreseeable future.  He describes it as follows:

“Social life in an age of entropy is by necessity individualistic… In the absence of collective institutions, social structures must be devised individually bottom-up, anticipating and accommodating top-down pressures from the markets. Social life consists of individuals building networks of private connections around themselves, as best they can with the means they happen to have at hand. Person-centred relation-making creates lateral social structures that are voluntary and contract-like, which makes them flexible but perishable, requiring continuous networking to keep them together and adjust them on a current basis to changing circumstances. An ideal tool for this are the new social media that produce social structures for individuals, substituting voluntary for obligatory forms of social relations, and networks of users for communities of citizens.”

He’s speaking in general, sociological terms, but his description closely mirrors the realities of the kind of résumé creating, network building, and job seeking that dominate the current world of temporary, part-time, contract labor, which makes up the vast majority of new jobs created in this century. These new jobs are not the same jobs that characterized the former workplace model; working for a living has taken on a whole new meaning. Among other things, we now have what some are calling the “Gig Economy,” the “On-Demand Economy,” or even the “Quitting Economy.”

More on that next time.

[i] Of interest is this December 14, 2017 interview with Prof. Streeck entitled “Farewell, Neoliberalism” on his website.

The Tide May Be Rising, But Some Boats Are Sinking

line in the sand

Last week I quoted from Ryan Avent’s book The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016), which makes the following points:

  • The rising tide of neoliberal economic policy did in fact lift all boats from the post-WWII years through its heyday in the 70’s and 80’s.
  • In particular, it benefited the wealth and income of individual wage-earners — most dramatically in countries where government-centric models such as social democracy and communism had previously been in charge.
  • But since then, continued allegiance to neoliberal policy has had the reverse effect, resulting in rapidly growing economic inequality which is leaving wage-earners behind.
  • The problem seems to be that, since the 80’s, the “lifts all boats” paradigm has not kept pace with the altered economic dynamics brought on by globalization and the technological revolution. The result has been a shift in wealth creation and sustainable income away from the wage-earners neoliberalism once benefited.
  • Continued allegiance to the neoliberalism is undermining the traditional concept of working for a living.

This week, we’ll finish with Arent’s analysis, again quoting from his book:

  • As a result of the above, the continuing viability of neoliberal economic policy is being questioned.

“Around the world, dissatisfaction with the fruits of economic integration fuels inward-looking political movements:  protectionist in some places, separatist in others. Some politicians find themselves able to gain traction by playing identity politics or by criticizing institutions of liberal democracy. Many succeed through withering critiques of the elites who minded the tiller over the last few decades. Faith in markets and their ability to generate broad-based growth has been shaken.”

  • Questioning neoliberalism also challenges its support base of cultural, societal, and national institutions.

“In a way, it would be much easier if the robots were simply taking all the jobs. Solutions might not be any more straightforward to come by, but the sight of millions of robot dog-walkers and sanitation workers strutting through crowds of unemployed humans would at least be clarifying.

“Instead, the remarkable technological progress of the digital age is refracted through industrial institutions in ways that obscure what is causing what. New technologies do contain the potential to revolutionize society and the economy. New firms are appearing which promise to move society along this revolutionary path. And collateral damage, in the form of collapsing firms and sacked workers, is accumulating.

“But the institutions we have available, and which have served us well these last two centuries, are working to take the capital and labour that has been made redundant and reuse it elsewhere. Workers, needing money to live, seek work, and accept pay cuts when they absolutely must. Lower wages make it attractive for firms to use workers at less productive tasks… [and reduce] the incentive to invest in labour-saving technology.”

  • A new economic paradigm seems to be indicated, but its coming won’t be easy.

“This political era [the post-war surge of neoliberalism] is at an end.

“[I]ncomes must rise. Not just the incomes of China’s middle class and the rich world’s 1 per cent. But achieving higher incomes is a fraught business, both economically and politically.

“This process will not end without a dramatic and unexpected shift in the nature of technology, or in the nature of economic institutions.”

Neoliberalism’s apparent faltering threatens many economic ideas that have come to be held sacred, such as the notion of working for a living, which we saw a few posts back is revered as a moral virtue by Communists and Christians alike. These kinds of notions are deeply rooted in the minds –literally, in the neurological wiring — of the human beings who have inherited them and the values they stand for. As such, they are much more than economic ideas, they are the personal and cultural narratives that define our identities and guide our choices, both individually and collectively.

These kinds of entrenched cultural ideals will not go quietly into the night. Instead they will retrench and aggressively pushback against an interloper. Next time, we’ll look at one of those reactionary responses:  the advent of “bullshit jobs,” which contribute much to current workplace dissatisfaction.

And just for fun, here’s the “not go quietly into the night” speech from Independence Day, and here’s Dylan Thomas’s “Do Not Go Gentle Into That Good Night.”

Does A Rising Tide Still Float All Boats?

OLYMPUS DIGITAL CAMERA

The world’s post-WWII economic surge was founded on the idea that macroeconomic advances benefit everyone equally — i.e., that “a rising tide lifts all boats” (a phrase widely attributed to JFK, which his speechwriter apparently borrowed from a local New England chamber of commerce). This idea is a hallmark of the neoliberal economic model.

Whether the aphorism still holds today is predictably a subject of highly polarized economic debate — see e.g. this June 9, 2014 LA Times article. My own research leads me to conclude that the idea worked powerfully for decades, began to break down in the 70’s and 80’s (as we’ve seen in prior posts in this series), and since then has begun to fail as remarkably as it once succeeded.

This week and next, I’m going to quote extensively from The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016), by Ryan Avent, a senior editor and economic columnist for The Economist, whose analysis runs like this:

  • Neoliberal economic policy did in fact lift all boats from the early post-war years through its heyday in the 70’s and 80’s.

“The last generation, during which the digital revolution’s first powerful effects made themselves felt, was an era of remarkable political moderation and consensus. The period began, in the 1970s and 1980s, with a liberalizing impulse across a broad range of countries… As global markets integrated, politics in most rich democracies coalesced around support for market-oriented economies, global openness and progressive social goals. It was a pleasant sort of era for the cosmopolitan, technocratic elite:  the believers in the notion that the market, lightly tended, offered the best route to global prosperity and peace.”

  • It especially raised national economies and benefited the wealth and income of individual wage-earners — especially in countries where government-centric models such as social democracy and communism had previously been in charge.

“[T]he nature of economic growth shapes political priorities… Political momentum for economic liberalization in the 1970s and 1980s emerged as typical voters lost confidence in the ability of the more statist economic policies to raise long-term living standards.

“The outcome of that liberalization differed substantially across countries. In China and India, liberalization delivered on its promise. In China, especially, a generation of rapid growth succeeded in elevating a large middle class out of poverty. China’s economic pie grew massively.”

  • But in the past few decades, continued allegiance to neoliberal policy has had the reverse effect, resulting in disproportionate benefits and rapidly growing economic inequality — especially in the USA and other nations where it was most entrenched.

“In the rich world, things worked differently. In 2014, the inflation-adjusted income of the typical American household was just 7 per cent higher than it was in 1979. By contrast, the income of a household in the 95th percentile of the income distribution grew 45 per cent over that period.”

  • Since the 80’s, the “lifts all boats” paradigm has not kept pace with the altered economic dynamics brought on the technological revolution, resulting in a shift in wealth creation and sustainable income away from wage-earners.

“[T]he world economy operates on a framework very much rooted in an industrial, scarcity-bound world. The interaction of that world with the technological advances of the digital era have landed labour in a trap. The digital revolution generates fantastic labour abundance; that abundance contributes directly to downward pressure on the wages of the typical worker. It also reduces the bargaining power of labour relative to other, scarcer factors, allowing those factors to capture outsize share of the gains from growth.”

  • Continued allegiance to the paradigm is currently undermining the concept of working for a living.

“We now have new economic challenges, and the former labor/wage model is no longer producing equitable results. Job-based economic security and prosperity is being left behind.

“Low pay for the great mass of workers is distributionally unfair. It undermines support for the market-based economic system that enables sustained economic growth.

“We might not care so much about these inequities if the digital revolution were reducing the costs of all the many things the typical household wants to buy, from steak dinners to adequate housing to a top-flight university education. But cost reductions have so far been highly uneven:  massive for some things, such as digital entertainment, completely absent for others, such as homes in nice neighborhoods.”

This analysis essentially restates that of economist Guy Standing, which we looked at over the past two weeks.

Arent concludes by saying, “This process will not end without a dramatic and unexpected shift in the nature of technology, or in the nature of economic institutions.” Change on that level means shifting long-standing, deeply entrenched societal paradigms. More on that next time.

Economic Inequality Statistics

My research on economic inequality consistently turns up three key points:

  1. since the 80’s, there has been an ever-widening gap in incomes and capital ownership between the rich and poor,
  2. the gap has been growing at an accelerating rate, especially since the year 2000, and
  3. this phenomenon is worldwide.

So what?

As I’ve mentioned before, many U.S. economists and policy-makers greet those findings either with indifference or as a clarion call to defend endangered capitalism, while their international counterparts find them alarming. We’re talking about them here because it turns out that economic inequality has a lot to do with happiness and meaning at work. (Stay with me — we’ll get there, we’re just taking the scenic route.)

We all know that it’s easy to mold statistics to fit opinions — here’s a neurologist’s take on Why People Can’t Agree on Basic Facts. Any stats we look at here will have been pre-sorted, pre-analyzed, and pre-interpreted. My goal today is to provide a sampling of statistics from a variety of global sources — starting with a quote about how the new global super-rich are a bunch of economic data curve busters, which makes finding honest data even harder.

plutocrats“The skew toward the very top is so pronounced that you can’t understand overall economic growth figures without taking it into account. As in a school whose improved test scores are due largely to the stellar performance of a few students, the surging fortunes at the very top can mask stagnation lower down the income distribution.

“Consider America’s economic recovery in 2009-2010. Overall incomes in that period grew by 2.3 percent — tepid growth, to be sure, but a lot stronger than you might have guessed from the general gloom of the period. Look more closely at the data, though… and it turns out that average Americans were right to doubt the economic comeback. That’s because for 99 percent of Americans, incomes increased by 0.2 percent. Meanwhile, the incomes of the top I percent jumped by 11.6 percent.”

Plutocrats:  The Rise of the New Global Super Rich and the Fall of Everyone Else (2012), by Canadian journalist and politician Chrystia Freeland.

kwak“Across the developed world, vast fortunes are again ascendant. In the United States, the top 1 percent take home a larger share of total income than at any time except the late 1920’s. The total wealth of the world’s billionaires has quadrupled in the past two decades (even when the definition of “billionaire” is adjusted for inflation).

“In the 1950’s, a typical CEO of a large company took home as much money as twenty average employees; today he makes as much as two hundred workers.”

Economism (2017), by UConn law professor James Kwak.

the wealth of humans“In 2014, the inflation-adjusted income of the typical American household was just 7 per cent higher than it was in 1979. By contrast, the income of a household in the 95th percentile of the income distribution grew 45 per cent over that period.”

The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016), by Ryan Avent,  a thoroughly Anglicized American who works as a senior editor and economic columnist for The Economist.

the fourth industrial“[C]ompare Detroit in 1990… with Silicon Valley in 2014. In 1990, the three biggest companies in Detroit had a combined market capitalization of $36 billion, revenues of $250 billion, and 1.2 million employees. In 2014, the three biggest companies in Silicon Valley had a considerably higher market capitalization ($1.09 trillion), generated roughly the same revenues ($247 billion), but with about 10 times fewer employees (137,000).”

The Fourth Industrial Revolution (2016), by German engineer and economist Klaus Schwab, Founder and Chairman of the World Economic Forum.

Prior to the 2017 World Economic Forum annual meeting of world leaders, U.K.-based Oxfam International issued a report that offers a fascinating slant on Schwab’s comments. According to the report:

“Eight men now control as much wealth as the world’s poorest 3.6 billion people… The men — Bill Gates, Warren Buffett, Carlos Slim, Jeff Bezos, Mark Zuckerberg, Amancio Ortega, Larry Ellison and Michael Bloomberg — are collectively worth $426 billion.”

As reported by CNN.

“By contrast, half the planet’s population, some 3.6 billion people, have a combined wealth of $409 billion.”

As reported by The Mirror Online (the U.K.’s “intelligent tabloid”).

Not only are the Elite Eight collectively worth more than the lower half of the world’s entire population, each individual member of the group is worth more than the combined market capitalization of Detroit’s three largest companies 27 years ago. The Mirror also noted this about the study:

“The report found that between 1988 and 2011 the incomes of the poorest 10% increased by just $65, while the incomes of the richest 1% grew by $11,800 – 182 times as much.”

A couple years ago, Credit Suisse’s Global Wealth Report 2015 reported that half of the world’s assets were controlled by the top 1% of the global population, while the lower half owned less than 1%.

There’s plenty more where all of that came from. In fact, there’s such an abundance of global data and opinion on the topic that, if nothing else, it’s probably safe to conclude that economic inequality either really is a problem or, even if it’s not, a whole lot of people around the world sure seem to think it is.

We’ll continue our economic inquiries next time.